Fri | Sep 21, 2018

Editorial | Another IMF programme worthwhile

Published:Monday | April 16, 2018 | 12:05 AM

 

You would be hard-pressed to find a sensible person who would challenge Nigel Clarke's broad thesis of what is required for Jamaica to achieve economic independence, as well as his call to ensure that when the country concludes its economic support agreement with the International Monetary Fund (IMF), it doesn't return to its bad old ways.

That is to say, it ought not to return to excessive borrowing that not only limits the ability of the private sector to raise capital, but results in unsustainable government debt, the servicing of which consumes huge chunks of available resources, leaving little to invest in critical services and infrastructure.

"It has to be our ambition, therefore, that when we conclude with the IMF this time, we avoid reversal, and instead manage our affairs in a thoughtful and disciplined way so that our exit from a programme relationship with the IMF is sustained over time, with no need to return," Dr Clarke, the recently appointed finance minister, told a forum on economic reform last week.

We agree. This newspaper, therefore, urges caution in how, and when, Jamaica disengages from the IMF.

Jamaica's current US$1.64-billion standby agreement with the Fund, which ends in about 18 months, followed on directly from the extended fund facility (EFF) negotiated by the previous government and inherited by the Jamaica Labour Party administration (JLP). Dr Clarke is right that implementation of the programme, and progress in fixing the macroeconomy, have been strong across administrations.

Five years ago, Jamaica's debt was close to one and a half times its GDP. The country was at a fiscal cliff, at risk of being locked out of global financial markets. Today, the debt-to-GDP ratio is 120 per cent and the current account deficit, which used to be 13 per cent of GDP, is in the low single digit. The Budget is balanced and inflow is low. These have been painfully won gains and it would be a betrayal of the effort, and, ultimately, of all Jamaicans, who paid the price for them, if they were squandered.

The finance minister suggests that Jamaica has been "here before" with IMF agreements in the 1970s, '80s and '90s, exiting Fund programmes "only to return the following decade". Perhaps, and more likely, Dr Clarke spoke in short hand, for there is a slightly nuanced difference between the finance minister's and this newspaper's recollection about the history of past agreements and the basis on which they were exited.

Until the preceding EFF, and, as is likely to be the case with the standby agreement, only the programme of the 1990s, during Omar Davies' tenure as finance minister, was an IMF agreement "successfully completed". In that programme, Jamaica 'passed' 12 consecutive quarterly tests. Unfortunately, as Dr Clarke correctly alluded, when Jamaica exited the programme in 1995 and then Prime Minister P.J. Patterson publicly declared "bye-bye, ta-ta" to the Fund, his Government didn't exercise the fiscal discipline to ensure that there would be no return.

The programme under Michael Manley's democratic socialist administration in 1977 was fraught with ideological and fiscal disputes from its start to its abandonment in 1979. Under Edward Seaga's administration of the 1980s, quarterly tests under a new Fund programme were sometimes breached and Mr Seaga eventually suspended the programme over his disagreement with structural and other targets. Another programme under the JLP ran off the rails in 2010.

We accept that this period may be different from the past in "the steadfast implementation of fiscal, monetary and structural policy reforms across two consecutive administrations". We, however, are not sanguine that the discipline of fiscal probity is sufficiently or deeply ingrained in government and the public bureaucracy. Indeed, there is much more to be done, especially in the area of structural reforms that have fiscal consequences. Our suggestion, therefore, notwithstanding the perceived compromise of economic independence, is that even after this programme, Jamaica engage in another round of oversight with the IMF.