Are IMF policies workable in our economy?
Norris McDonald, Contributor
On May 21, 2013, the International Monetary Fund (IMF) approved a US$932 million loan to Jamaica under its Extended Fund Facility (EFF). According to the IMF, this EFF loan was to be used over a two-year period to, "help create the conditions for sustained growth" by creating "a significant improvement" in Jamaica's fiscal situation. The latest news from the IMF suggests that Jamaica has met the proscribed target. Does this good news mean that we can soon stop depending on foreign loans?
Our agriculture-based economy has been replaced by one that is more debt-driven and service-oriented. Our service-oriented economy is kept alive through loans, tourism and the US$2 billion remittances that overseas Jamaicans send back home.
This is not what we were told structural change would achieve. It was supposed to create a shift to industry, to make it the more dynamic engine of economic growth. This was to be achieved over a gradual period in which we were supposed to become more integrated into the world economy, be exporting a lot more, and taking home more cash. Instead, all economic indicators suggest we are on a long-term trajectory of slow, declining, negative or stagnant economic growth.
Jake Johnston and Juan Monecion conducted an economic policy study titled, 'Update on the Jamaican Economy'. This was written for The Center for Economic Policy Research in Washington. According to this report, the share of Jamaica's domestic debt falling due from five years ago climbed from 50 per cent in 2010 to 54 per cent in 2011, and was expected to get much worse.
"During the 15 years prior to the world financial crisis and recession 1993-2007, real GDP growth averaged just 1.1 per cent. GDP per capita grew by just 0.4 per cent per year during the same period," the study notes.
There is clearly no dynamic engine that exists within the internal structure of the prevailing IMF economic model.
Same model since 1944
Since 1944, the IMF has followed the same economic model in a world in which financial markets, trade and monetary exchange is done by the mere touch of a computer key.
Further, IMF-driven polices are flawed too because the economic model assumes that it can create a climate that can lead to economic growth and yet, by squeezing the life out of the national currency, it kills the ability (and appetite) of the business class, the working class, and all strata of the population to create economic growth.
This debasement or destruction of national currencies, as in our experience, has harmed the ability of our manufacturers to become a real engine of growth.
Cost of raw materials and capital goods that the business sector needs, continue to rise even as the value of the Jamaica dollar falls, relative to the American dollar, a real hindrance to the productive sector.
The experience of Greece is the latest example of the IMF technicians creating another economic mess. As The Wall Street Journal reports in its online edition, June 5, 2013, the IMF admitted its mistake and contribution to Greece's economic woes but blames this on, "the pressures from the large banks that held most of the Greek debt". And this is in Europe, a part of the very heart of the global economy that dictates political and economic policies to the rest of the world.
Argentina was once touted by the IMF as an economic model for the rest of the world. Then this silly humpty dumpty, one-size-fits-all methodology simply collapsed when, in January 2002, Argentina defaulted on its debt and stopped converting the Argentina peso to the US dollar. Argentina has since recovered but that was not because of IMF support.
We need to question whether the IMF policies are workable, and if they are not workable then, what are we really going to do about it?