Tue | Nov 24, 2015

That elusive IMF deal

Published:Friday | November 30, 2012
Aubyn Hill, Financial Gleaner Columnist
The International Monetary Fund headquarters in Washington. - File

By Aubyn Hill, Financial Gleaner Columnist

LAST WEEK, our Finance Minister Dr Peter Phillips told the nation what many economic observers knew for weeks - there will be no International Monetary Fund (IMF) deal before the end of this year.

When the December 2012 target was voiced some months ago, it was met with optimism and a measure of scepticism. So, now the deadline, if not the deal, has become elusive.

I firmly believe that one of the things I will not do with the future is to try and predict it.

I am sure the IMF negotiating team will leave the setting of target dates behind them, focus on completing the refinements of our proposals to the IMF and announce only when a deal is final, signed and disbursement timelines agreed.

To say Jamaica's negotiations with the IMF are complex is to make a great understatement. These will involve great details as to what steps we, not the IMF, will take to address structural reforms - taxes, pension, size of government, transparent accountability, among others - public sector and overall fiscal deficits, wages-to-GDP and debt-to-GDP ratios, and a clear and attainable growth agenda.


These are fundamental issues which will have very serious ramifications over a time period that will be much longer than the expected four-year duration of the expected agreement between Jamaica and the Fund.

I recall when the team I led to negotiate the sale of the GOJ-owned sugar assets - a substantially less complex set of negotiations than those with the Fund - a multiplicity of persons in the public space devised and set their own deadlines for completion.

I steadfastly refused to be drawn to name a completion date, so persons in the sugar industry, the press, politicians of both political parties, businessmen and government bureaucrats started setting dates, and some raised ridicule when their own arbitrary dates came and went.

We simply continued to negotiate in good faith, and scaled or avoided hurdles as they arose.

It is a most interesting fact that some of the most formidable negative voices to such public negotiations have never had to negotiate any complex anything.

GOJ-owned assets and IMF negotiations involve public assets and taxpayers' money, so 'everyone has a say in the talks'.

In fact, everyone cannot have a say in the talks - what a cacophonous chaos that would be - but because everyone has to pay for or feel the effects of the outcome, then the negotiators are obliged to keep their public informed, especially concerning difficulties that could make the outcome more painful than expected.

In all this I would advise negotiators to stay away from arbitrary completion dates.


Earlier this week, the European Central Bank, the IMF and the European Commission agreed to release a €44-billion (US$57 billion) tranche of the agreed €240-billion bailout package to the Greek government.

This money will be used largely to bail out Greek banks and suppliers of necessities such as drugs for the needy people of Greece.

It has been hard going for the Greeks.

In January 2010, the Greek government announced a second round of tough austerity measures, including public sector pay cuts, fuel price increases and a crackdown of tax evasion - endemic in Greek society and commerce. That was not enough and the next month a third round of tax rises and spending cuts totalling US$6.5 billion was announced.

Also in February 2010, international lenders said that austerity measures implemented so far did not go far enough.

In April/May 2010, fearful of a possible Greek default on debts, Eurozone countries approved €110 billion (US$145 billion) as a financial rescue package for the country.

As part of the bailout deal, then Prime Minister George Papandreou instituted a further round of even more stringent austerity measures. The Germans and others still felt the measures were not severe enough and a process of foot-dragging on disbursement followed for many more months.

Papandreou became one of many Eurozone prime ministers and presidents who fell on the sword of austerity.

This week's €44-billion agreement comes after a long, painful and very unsure period for Greece and the wider European Union.

The point is that an agreement to bail out or fund is not the same thing as getting the cash.


Jamaica may "ink a letter of intent" by the end of this year, but we must be cautious about predicting completion and disbursement.

As Minister Phillips said, and something that is common knowledge, the letter of intent is agreed broadly by the Fund's and Jamaica's technical officials but must be approved by the board of the IMF.

No doubt the Fund's board will want to ascertain how serious Jamaica and its Government are this time around about the commitments they make in the proposals they submit to the IMF.

They will want to test our commitment to change the size of government and push a growth agenda, even as the GOJ tackles extremely difficult structural reforms.

Will they want to see some action on the part of our Government before they give their final stamp of approval? Bear in mind the kind of austerity Greece and others in the Eurozone - especially the PIGS (Portugal, Ireland, Greece and Spain) have had to endure to get IMF and Eurozone funding.

Will Jamaica have to wait a long time after we have a completed agreement to get the cash? The answers to those questions depend in very large part on the GOJ's political will. That reality should lead us to be cautious and patient.

Aubyn Hill is the CEO of Corporate Strategies Limited and was an international banker for more than 25 years. writerhill@gmail.com; facebook.comCorporate.Strategies; Twitter: @AubynHill