Ian Boyne, Contributor
The larger matter of the justification of the demand by the IMF for a primary surplus of 7.5% next year - up from a 6% which was not even achieved - is lost. Also unaddressed - apart from that excellent suggestion last week from the fertile intellect of Bruce Golding - is the issue of the alternative to getting that $45 billion from the NHT.
There was a very fine discussion on Garfield Burford's 'Direct' programme on CVM TV last Wednesday. Economist Damien King, as usual, was pointed, powerful and poignant. The fiscal gap that the Government has to close for the upcoming year is $65 billion. Damien's question was simple: If the $11.4 billion is not to come from the NHT this year, where is it going to come from?
He asked plainly: "Would you prefer the Government to have imposed a $27-billion tax package instead of a $17-billion one?" Economics, not just politics, is the art of the possible. But in Jamaica, we believe in voodoo economics. We believe in magic wands. We live in ideal worlds where we can navel-gaze.
woeful revenue collection
King pointed out something that Bruce Golding also mentioned in his thoughtful piece last week showing how the money could be raised from the NHT. Revenue collection in Jamaica has been woefully behind target. Projections are always off. So taking NHT money is among the surest ways to finance the deficit. Golding pointed out that over the last five years, Government has imposed $45 billion in new taxes, yet its revenue collection has improved by only 30%.
The NHT represents the low-hanging fruit, and whether Government is comparable to a common farm thief is left up to the courts to decide. While activists and Government are engaged in court action, there is a big fiscal deficit to be bridged and an IMF agreement to be sought. It's either we are going with the IMF programme or not. I understand the argument that the law is the law. If one develops an ethical theory simply based on need, one could justify stealing to satisfy hunger, prostitution to send children to school, and Robin Hood pillage to help poor people.
I fully understand the views of those who oppose Government's use of the NHT funds. I simply say that Government has executive authority to amend the law and the State has extraordinary powers to act. My argument is that those who say the money must not come from the NHT could spend a little time discussing alternatives or questioning why the IMF is demanding so steep a pace of adjustment.
who will challenge imf?
Why insist on this $45 billion from either the NHT or its alternative source or sources? Who is willing to challenge the IMF, which is really calling the shots? In this regard, I have to commend Audley Shaw. From the announcement was made that Government would be taking NHT funds to close its fiscal deficit, he said openly and stoutly that he was disappointed that the IMF could sanction such a move.
He was strident in his tone. Audley has dealt with the IMF, so he knows how the organisation can be insistent with its demands. Always keep in mind that there is a 7.5% primary surplus to be made. This means a lot of money has to be laid aside to pay down the debt. We have to move it from 140% of GDP to 95% in seven years.
Audley Shaw again last week sharply criticised the IMF for approving the $16 billion in taxes imposed. He is broadening the debate and addressing the elephant in the room many are pretending is not there. Another person who is doing so is former Prime Minister Bruce Golding. In an interview with Cliff Hughes on 'Nationwide' some Fridays ago, Golding came out against the autocratic approach of the IMF, saying it was quite improper of the Fund to be telling a sovereign Government that the State has to ensure that it gets the trade unions to agree to a wage freeze before an IMF agreement can be signed.
Golding's interview on Nationwide expanded the usual parochial discussion of our punditry to raise issues of the power of multilateral institutions like the IMF to dictate policy and upend sovereignty.
It is amazing that we are having intense discussions about an IMF programme and people are not generally putting on the table the issue of the inappropriateness of these demands and whether the medicine is not worse than the sickness. While Dr Chris Tufton, as an opposition politician, felt obliged to talk on 'Direct' about how the tax measures would affect the poor, compress demand and hurt production, he had to agree that the alternatives would be worse.
Adrian Stokes agreed, too, while dismissing simplistic arguments about Government's responsibility to halt the market-determined exchange rate. Everyone on that 'Direct' panel had to agree that there was no painless path and that at this time an IMF engagement was the only practical one.
Golding, in his article last week, admitted freely: "The Government's decision to expropriate $45 billion from the NHT must be seen in the context of the rock and hard pace between which it finds itself and the imperative of reducing the fiscal deficit to satisfy the requirements of an IMF programme." Golding made a good suggestion about using a land-swap deal with the NHT instead of a direct grant to Government. That is certainly preferable to $45 billion worth of new taxes on the backs of the people.
clamouring for deal
And I don't know how quickly Government could get that deal arranged anyhow. Remember, there are 'prior actions' to be done right now to get that deal inked. It is the Jamaican people themselves who had been clamouring for that deal for a number of months, week after week.
In fact, if Government had followed the chorus of demands to sign quickly, we could have signed away our rights to 25% of our principal, with multiple billions being bled from our financial sector, creating, perhaps, a worse financial crisis than in the 1990s. The Government took the time to talk the IMF out of that madness. Should Government have delayed some more to resist the demand for the NHT money, while our dollar continues to free-fall, not slide?
Golding, from whom we need to hear more in the interest of serious intellectual engagement, did not conclude his article without saying: "Having said all that, we must return to the fiscal dilemma confronting the Government, the implications of which could have bizarre consequences for everyone, including the named and uniquely numbered NHT contributors." This is the kind of nuanced reasoning which can only come from a serious mind. Railing about not taking NHT money and engaging in legalistic banter gets us nowhere. When the country is on the brink of collapse, that's not the time to talk about the concept of just deserts.
There is a $65-billion hole to be plugged. We can tell the IMF to go to hell and repudiate that debt, with dire consequences for everyone. We have national consensus that a non-IMF alternative exists only in the minds of a couple of utopians, who can't get more than a handful of people to protest before the NHT building. So we have to engage the IMF, whether we like it or not (I don't).
toss-up between bad, worse
The best we can do is to negotiate hard and hope that we come away with an agreement that gives us some teeny-tiny window of opportunity. Certainly, the debt exchange is better than a 25% haircut. That's why the financial institutions lapped it up. A $16-billion tax programme that could be more onerously applied is better than one touching more sensitive areas. Again, it's a toss-up between the bad and the worse. This is the real world, not fantasyland.
We have mortgaged our sovereignty because of our profligacy, corruption, political one-upmanship and low social capital. We are paying for it now in debt peonage to our creditors, whose agents are the IMF.
This IMF programme is a decidedly contractionary austerity programme. Only negligible growth will come at the end by the IMF's own projections. And even that low growth rate is not guaranteed. It is foolish to ask, 'Where is the growth strategy in these fiscal measures?' The expectation is that by cutting your debt and deficits, and by realigning your currency and achieving certain macroeconomic targets and reforms, you set the foundation for growth.
So these measures themselves don't constitute a growth strategy. They pave the way for it. That's the theory. So forget silly questions about "where's the growth strategy in what has been announced?"
And, in practical terms, you have a deal you can't refuse. My issue is, while some of these things we would have to do even without an IMF agreement, the pace of adjustment is too severe, though King's research shows otherwise. There should be a pool of funds available to countries like Jamaica for development. Concessions given to Heavily Indebted Low-Income Countries should be extended to us. Those resources would make our adjustment less severe, hence my call for a new global development pact and a stabilisation fund for countries like Jamaica.
Last Wednesday, the IMF itself issued a statement saying, "Leaders of the African Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank, the International Monetary Fund and the World Bank group pledged close collaboration to support development and growth."
That collaboration must include concessionary development financing for distressed countries like Jamaica, which need a way out of the IMF tunnel.
Ian Boyne is a veteran journalist. Email feedback to firstname.lastname@example.org and email@example.com.