There's no Plan B to IMF
The following is an edited address by Christopher Zacca, president of the Private Sector Organisation of Jamaica, to the Lions Club of Kingston on January 9.
Since Independence, World Bank figures suggest that Jamaica's per capita GDP has grown at an annual average of 0.6 per cent. This is one-third the average global growth rate per capita of 1.8 per cent since 1962.
A recent Planning Institute of Jamaica document underscores this: "The Jamaican economy has exhibited a pattern of underperformance in terms of overall growth. This chronic pattern of underperformance has left in its wake a high level of public debt, unemployment, deterioration in physical infrastructure and in the delivery of social services (such as health, education and the justice system). These inherited conditions underpin significant and persistent levels of poverty, as well as the continued existence of marginalised, vulnerable, and volatile communities throughout the country."
This tremendous debt overhang caused by a consistent lack of growth and the practice of successive governments spending more than they earn, coupled with a weak global financial system and economy, have taken Jamaica right to the edge of its very own fiscal cliff. We are now at the stage where we have to deal with this tremendous debt overhang, pull back from this treacherous cliff, and create a sustainable foundation for future growth.
Just look at what people internationally are starting to say about Jamaica, as in a Chicago Tribune editorial on January 8: "Jamaica actually is in worse financial shape than Greece ... . Jamaica is caught in a debt trap ... . Defaulting on its debt would ruin Jamaica's prospects for many years to come: It would undermine the island's critically important trade relations with the US. It would discourage badly needed foreign investment in its tourism, agriculture and mining sectors. ... Jamaica has few options, apart from beseeching the IMF ... ."
Make no mistake about it: The Jamaican economy is in crisis, and the continued lack of an IMF stamp of approval will push it deeper into crisis.
Any person who suggests that a Plan B without the IMF at this point is a viable alternative is not thinking straight. Such a train of thought risks plunging us into the abyss and significantly hurting all of us, especially the poor, the marginalised, and the aged.
We are one of the three most indebted countries in the entire world, and we are part of a trading bloc, CARICOM, which contains five of the top six most indebted countries in the world. Isn't that astounding? Doesn't that tell us that our governance and economic management structures are not working and need radical overhaul and restructuring?
Our economy is broken and needs fixing. We need to fix the Jamaican economy for Jamaicans, not for the IMF. The solutions that will satisfy the IMF are the very same solutions that we ourselves must come up with and all must buy into. And that process must be led by our elected Government.
The Jamaican private sector stands united, as a result of efforts by its leaders and associations, and is ready to be part of the solution, starting with getting an IMF agreement, the crucial first step. The solution must involve short-term pain and equitable burden sharing, and we are fully aware that the private sector will have to share in the pain. But we can't be part of the solution unless we are told what is expected of us.
I can speak for myself and the PSOJ in saying that we have a feeling of helplessness because there is little sense of what are the nitty-gritty details of what are proving to be the "sticking points" in the IMF negotiations and how far away the parties are on these points that they have been battling over for quite some time. If we are to continue to support the Government's negotiating team, it is full time that they share these details with us so that we can provide our input and increase the buy-in from the business sector and the rest of civil society.
But more than just the details of what is in the IMF negotiations, we want to know the bigger picture being proposed by our Government. The PSOJ wants to know just how our political leadership proposes to chart the course and, in fact, change the course to make Jamaica the place of choice to live, work, raise families and do business, by 2030.
The nation is awaiting the results of the Cabinet retreat with bated breath. I would like to join other voices in calling for the following details and plans to be spelled out to the nation after the retreat, with sufficient clarity and specificity, to give us a clear picture of where we are going in our economy in four key areas:
1.Reducing the cost of our public sector's share of our economy, and modernising and transforming it so that it becomes an efficient enabler of progress. How do we plan to treat wages, benefits and institute real pension reform? How do we create a whole new platform so that our public sector can deliver much-needed services efficiently, in a motivated way, and with a greater customer service ethic?
2.Modernising and improving our system of tax policies, incentives, and tax collection. How is it proposed that we move away from a complex and outdated system of high tax rates with numerous waivers and special exemptions not tied to performance, to one that lowers the overall rates but casts a wider net, while maintaining the global competitiveness of key industries and sectors?
3.The creation of a business-friendly environment for growth: How do we intend to slash unnecessary and corrupt bureaucracy? What measures are going to be taken to get Government out of the way of business people and allow them to invest, create jobs, and grow the economy? In what way will the Government reprioritise its expenditures to spend on infrastructure that will strengthen our resilience and open up opportunities for development? How quickly will you move to pass critical business-enabling legislation such as a new insolvency law, and a new secured transactions act?
4.The protection of the most vulnerable in our society: How do we intend to strengthen the social safety net? How do we intend to rechannel very scarce resources to the poor? Not only in terms of the structure of our cash programmes such as PATH, but also in terms of retraining, resocialisation, security considerations, and basic infrastructure such as sanitary facilities?
Coming out of the retreat with nothing less than a clear vision around these issues, backed by a plan with details and basic timelines, is enough to satisfy civil society at this time.
We are at a crossroads, and I call on the prime minister to act decisively, talk to her people, and level with us as to the way forward. I call on the leader of the Opposition to avoid distractions and focus on providing credible alternatives where he disagrees with the Government's path, but to provide wholehearted support where the path is right.
I call on the union leadership to continue to be responsible and be part of the solution as long as they are treated with respect in the time-honoured tradition of our country. I call on civil society to mobilise support for the right things that need to be done.
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- Potential fallout if IMF deal not sealed
(a) A dramatic fall in business and consumer confidence;
(b) Significant deterioration in international and local financial sentiments;
(c) Continued delay in the disbursement of funds or even worse, a significant loss of financing from our other international development partners;
(d) A deterioration in market sentiments against Jamaica which would be supported by the assessments of rating agencies, i.e. eventual downgrades;
(e) A further reduction in the net international reserves;
(f) Increased speculative attacks against the Jamaican dollar leading to a more rapid and significant depreciation of the Jamaican dollar, accompanied by higher inflation;
(g) Domestic nominal interest rates would obviously rise in response to the higher inflation and currency depreciation, depressing domestic production, reducing growth of investment, and increasing likelihood of job losses;
(h) Downward spiral of our financial system and economy, and increased poverty.