OP-Ed & Features - Sunday, July 19, 2009 8:32
Déjà vu? Jamaica’s Return to the IMF, is this the 1970s all over again?By Leesha Delatie-Budair, Staff writer
For months speculation was rife that there was an imminent return to the IMF. The recent interest rate hike, the current public sector wage freeze and the significant devaluation of the Jamaican dollar all screamed IMF, yet on countless occasions we were reassured by our government that they were not considering a return to the IMF. Similar to their misguided utterances late last year that we would not be affected by the global financial meltdown, the Jamaican government, well aware of the nation’s apprehension towards resuming relations with the IMF, sought to convince us that despite implementing a number of textbook IMF preconditions, the Jamaican government was not seriously considering a return to the IMF.
However, with the writing now clearly on the wall, they can no longer deny that a return to the IMF may be the only option available to us. The problem is, can a fragile Jamaican economy survive the stringent conditions of a borrowing relationship with the IMF? But, with dying revenue streams, will the government be able to secure financing from other sources in this global financial crisis? As it stands right now, the prospects are dim. Basically, we are damned if we do and damned if we don’t.
The mere mention of the word IMF to the typical Jamaican, elicits a sense of disgust and disdain, as memories of the harsh times of the 70’s and 80’s are conjured up. Difficult economic times of devaluations and layoffs, interest rate hikes and scarcity, budget cuts and social turmoil have characterized our past experience with the IMF. So it is no question that the idea of a return to the IMF would be greeted by dismay from the majority of the Jamaican populous. However with a dim economic outlook and the recent damning predictions by the World Bank, it seems we must bite the bullet and plunge into the deep end.
Given the IMF’s track record of failed Structural Adjustment Programmes (SAPs), the traditional apprehension of the typical Jamaican to the nation’s return to the IMF seems warranted and justified. Empirical evidence shows that very few nations if any can attest to the success of past SAPs, as the implementation of these policies in most nations was followed by periods of severe economic hardships and near collapses of markets. The history of the impact of the effects of IMF policies leaves much to be desired, as is evidenced by their recent utterances.
However, despite recent acknowledgements from the IMF that their traditional one-size-fits-all approach to economic reform has done more harm than good, I am yet to see a significant change in their approach. Their traditional preconditions of devaluation, higher interest rates and cuts in government spending still holds true today, and as such the Jamaican government’s justification of a new IMF simply just is not enough. As one writer puts it, an acknowledgement of past failures is simply not enough to signal a change in the policies of the IMF. There has to be a fundamental shift in their approach, and this will not happen overnight. However, with no other apparent option, what should the Government of Jamaica do? If they are unable to fill the budget deficit by sourcing cheap loans from other sources, they will have no choice but to call on the IMF for budgetary support. However, the Government of Jamaica maintains that this is not the only option that they are currently exploring, and that they are only seeking to establish this relationship should all other options fail.
While not seeking to enter into a full borrowing arrangement with the IMF, the standby loan facility being sought by Jamaica is certainly not without conditionalities. One only has to look at the recent experiences of Latvia and Ghana, in order to deduce what the future holds for us. The Northern European nation of Latvia, recently entered into an arrangement similar to the one being sought by the Jamaica with the IMF. Their experiences to date are horrifying. Having signed a 27 month stand by agreement, the IMF required Latvia to cut its budget deficit by 7% by the end of 2009. In order to obtain this, the Latvian government has had to cut public sector wages by 15% and pensions by 10%. As expected, this resulted in civil unrest which resulted in the collapse of the Latvian government. However, to make matters worse, the newly installed government was forced to cut public sector wages by an additional 20% and pensions by a further 10% in order to receive the second installment of the loan.
What this signals to me is that despite the purported rhetoric of a new IMF, their actions remain the same. The effects of the conditions attached to the loans they disburse continue to have far reaching destabilizing effects. With the Jamaican government already in a precarious position with public sector workers due to its failure to grant their agreed 7% increase, any venture down this path will no doubt lead to severe social unrest. But as a likely precondition of the proposed arrangement, what does this mean for Jamaica?
The Ghanaian experience with the IMF paints an equally gloomy picture. Currently negotiating a standby agreement with the IMF, Ghana is already feeling the effects of IMF loan preconditions. While still awaiting approval from the IMF board, Ghana has already been required to increase fuel prices by 30%, remove all subsidies, and cut its budget deficit by 37% in one year. As a sub-Saharan African country, one would expect some leniency, however, if Ghana was not spared the traditional stringent requirements of the IMF, one can only speculate as to what the future holds for a country such as Jamaica. On the 20th of July 2009, the Government of Jamaica is expected to address the nation re: our future with the IMF. On this “D-Day”, the citizens of Jamaica will find out our fate, as the government seeks to fix the ballooning hole in the 2009/10 Government of Jamaica Budget.
Stuck in a precarious position it seems they may have no other option but to go to the IMF, may God help us.
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