Jitters of uncertainty ... as the IMF comes to town
With the announced arrival of the International Monetary Fund (IMF) team this past week, the country is ushered into a renewed sense of uncertainty about the likely results and consequences of this latest round of discussions.
After one year of discussions under the new administration, and months before under the previous Government, we may be closer to an agreement, but there is no tangible sign that there will be one soon. So the wait-and-see continues, and not because an IMF agreement will automatically solve our problems. It will be for us to manage our debt, generate confidence for investments, educate our population, and provide support for the vulnerable.
So while the IMF agreement must not be used as an excuse for inaction on the part of our Government and private sector, given our current economic context, an agreement is essential.
Those who say an IMF agreement is not necessary for the country to move on are only partially correct. An IMF agreement will certainly give us breathing room to restructure the economy in a manner that will hopefully place us on a path to stability and growth. Until then, we are living in an uncertain environment which is fermenting a lack of confidence and an unwillingness to take crucial investment decisions.
We have already started to see the negative consequences of the uncertainty.
The absence of an IMF agreement is causing those who can afford it to buy and hold US dollars to hedge against the possibility of devaluation, while there are those speculators who are seeing the opportunity to develop a profitable underground currency economy. This is putting the dollar under pressure and is already leading to devaluation, and increasing prices.
The Simpson Miller administration should be seized with the urgency of an agreement as the poor stand to suffer even more under this growing uncertainty. We have been there before and should avoid at all cost going back.
THE NO-IMF OPTION
More pointedly, if the Government decides to not accept the terms that would lead to an agreement, the country would have to face an even more painful, some may argue, even impossible, set of choices. In this scenario, the Government would have a difficulty borrowing from multilaterals like the World Bank and the Inter-American Development Bank and where borrowing were possible, the cost to borrow from private sources would be expensive because of a higher country risk profile.
This would likely mean massive cuts in public expenditure in critical social services like education and health or printing money, both options being too disastrous to contemplate. Again, the Simpson Miller Government would quickly realise that under this scenario, the poor and vulnerable would suffer most. A no-IMF option is an unlikely option at this point.
THE IMF OPTION
Any IMF deal will mean cutbacks too, but at least in a more structured and orderly manner, with specific targets for an economic turnaround. The Government is understandably attempting to reduce the harsh impact of any agreement, that would necessarily lead to restrictions on spending and greater tax collection, but its attempts at negotiation are beginning to resemble gridlock. The consequences of this stalemate are equally perilous for Jamaicans.
Even as we put on a brave face in negotiating, we cannot want an IMF seal of approval and not give tangible commitments to better governance of our economic affairs. That's like having our cake and eating it, something we are accustomed to as a country, since Independence.
So it's decision time now, and this PNP administration is at the place where it has to make a decision. Damned if you do, damned if you don't! Why not take a decision that will eventually lead to a better Jamaica? With debt at levels that are unsustainable at 140 per cent of GDP, we will have to face tough choices with or without the IMF, but it would be tougher without.
To date, the Government's approach to the IMF discussions has been less than satisfactory. The minister of finance, Dr Peter Phillips, who is leading the discussions at the policy level, has been deliberate in giving periodic updates on the talks. However, the changing timelines have not done well for his credibility, and the prime minister's late entry into the discussions has not been as coordinated as it could have been.
The "enemy of the state" reference to the leader of the Opposition this past week was an unfortunate distraction, hurting, rather than helping, the case for consensus around the crisis the country faces.
Rightly or wrongly so, the fact is that the Government needs the Opposition's support in dealing with the conditionalities that are to come if it is to be bold and truly act in the interests of the country. Both Prime Minister Simpson Miller and Finance Minister Phillips would make a more credible case by calling on all Jamaicans, including the Opposition, to work this one out together.
The Government seems to be ignoring the popular sentiments of the Jamaican people who are turned off by the blame game and have since long concluded that both parties are culpable. The Opposition should also be mindful of that popular perception.
Having said all of that, the PNP is the Government and must lead the charge. It would be better off taking the high road in dealing with this issue, while trying to find consensus on the future.
None of us who have been part of the political process since Indepen-dence can truly absolve ourselves from the state of our economy today, and the need to have an IMF rescue plan. We are all culpable, either by our actions, inactions or associations. More important, our first and foremost responsibility must be to the Jamaican people, which will require recognition of the challenge at hand and the need to pool our talents to address it.
At the same time, the Simpson Miller administration cannot see the Opposition as an equal partner in providing leadership on this matter. They are the Government and so have a fiduciary responsibility to forge an agreement. The Opposition has a duty to be responsible in its approach, but it is not the Government.
One possible dilemma that seems to be stalling a signing is the apparent lack of consensus within the Government on the terms of the IMF talks. There is a sense that the Government is still undecided within itself on whether to sign an agreement. There is talk about a Plan B and an alternative to the IMF.
BEWARE OF IMF
As the IMF team meets with stakeholders over the next few weeks, they should also understand the context in which they find themselves and the role they must play to serve their purpose in helping to address Jamaica's challenges. They should avoid approaching these discussions with predetermined ideas of what Jamaica needs, taken from a textbook written by economists based in Washington.
They must understand that there are existing perceptions, based on our past experiences of the IMF, deeply embedded in the psyche of the Jamaican people. Both the PNP and the JLP, as is the case with much of the developing world, have had differences with the IMF and its approach to economic restructuring. The team should be reminded that P.J. Patterson, when he was prime minister of Jamaica, made the termination of relationship with the IMF a rallying cry for political support.
Even in retirement, it is highly likely that Patterson's influence, directly or through his former Cabinet colleagues, remains till today. The Washington-based team should understand that for the most part, IMF is a bad word to the average Jamaican, even as politics is to the average voting-age adult.
TEAM WELL ADVISED
The team is, therefore, well advised to approach these discussions, understanding the need to address issues well beyond the technical issues to include general information on why they are not the bad guys.
They must clearly understand that if tempted to find a scapegoat for the tough decisions that must come, the politics in us would be tempted to exploit the fertile soil found in blaming the IMF. The team should also note that this prime minister is unlikely to damage her legacy of being a protector of the poor by signing on to an agreement that does not involve saleable concessions for the poor and the vulnerable.
The IMF team has to see its efforts in the context of these realities. So it must twin its technical conversation with attempts at helping the important stakeholders to understand who they are, what they do, and why they are not the villains many make them out to be.
Dr Chris Tufton is a senator, opposition spokesman on foreign affairs and trade, and investments, and co-executive director of CaPRI. The views in this column do not necessarily represent those of the above-mentioned entities. Email feedback to firstname.lastname@example.org and email@example.com.