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EDITORIAL - Lagarde visit crucial to fiscal success

Published:Thursday | June 12, 2014 | 12:00 AM

Christine Lagarde, the head of the International Monetary Fund (IMF), wouldn't have decided on a Jamaica trip, for later this month, on a whim. She would have been satisfied with the progress the island has made, so far, under its Fund-inspired economic reform programme and wants to encourage the Government to go all the way.

The latter point is important. For it would not have escaped either Ms Lagarde or her technical staff working in the Jamaica project that the Simpson Miller administration has reached the midway point in its term. It will soon start thinking of elections, due towards the end of 2016. In the circumstances, commitment to continued tough reforms could fall under stress, if not falter.

Confidence booster for Phillips

In that regard, Ms Lagarde's visit is important on several fronts. The most obvious is her presence as a confidence booster to the finance minister, Peter Phillips, for the tenacity with which he has carried out the reforms during the pre-qualifying round and in the first year of the agreement with the IMF.

As part of the strategy to control a debt that was near 150 per cent of GDP, Dr Phillips has in two and a half years imposed more than J$40 billion in taxes, significantly slashed government in real terms, run large primary surplus and nearly eliminated a fiscal deficit that was perilously close to double digit. It can't have been easy to champion these measures even among political colleagues, much less insist that there is more to be done.

Ms Lagarde's private talks with Prime Minister Portia Simpson Miller could be useful on this front if it helps to reinforce the programme's role in building a platform from which Jamaica can drive for economic growth and job creation, thereby helping to shore up the PM's confidence in the efficacy of the project.

There is another area of potential value for Jamaica from the visit.

Ja's chequered past

The IMF's boss is aware of Jamaica's chequered past with Fund programmes, going back nearly four decades. Jamaica successfully completed only one Fund programme, and even though the blame may rest primarily with domestic leaders, Jamaicans remain largely sceptical of the IMF. Indeed, Jamaica has been a poor poster boy for the IMF. This perception of Jamaica's poor performance under IMF agreements, in part, informs the reluctance of Barbados, with the current fiscal crisis, to enter into a formal Fund programme. In other words, the IMF ought to be invested, for its credibility in the larger economies of the Caribbean and the wider region, in carving a success in Jamaica.

The current programme, after a year, has had successes. It, nonetheless, remains fragile. It can be derailed by even relatively mild shocks, such as hurricane that causes infrastructural damage, or a rise on commodity prices that adds pressure to the reserves and exchange rates. Additionally, political instability in Venezuela calls into question the medium-term viability of PetroCaribe, which provides a foreign-exchange cushion for oil payments while providing a source of low-interest capital to the Government. Moreover, even with the gains under the programme, global money markets, if they are willing to lend at all, insist on a significant risk premium for Jamaican debt.

In the circumstances, Ms Lagarde could signal a deepened commitment to the success of the project by indicating its willingness to engage the multilaterals to expand their low-cost lending commitments Jamaica.

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