Editorial | From EPOC to IFC

What was in many ways a profound development passed last week with little comment and even less notice of its significance.

After 11 years, the Economic Programme Oversight Committee (EPOC) issued its financial communiqué, while its chairman, Keith Duncan, made his last comments in that role about the state of the economy and fiscal outcomes.

Mr Duncan, the CEO of JMMB Group, noted the softness of the economy, accelerated by Hurricane Beryl in the summer and negative travel advisories on Jamaica by the US government. He also advised the Government against yielding to temptation to open the fiscal spigots as it heads into a general election.

“Achieving the growth projection’s fiscal balance targets and the debt-reduction strategies will become challenging and will require significant political will, particularly as the country is in the midst of an election campaign leading up to the general election scheduled for next year,” Mr Duncan warned.

The import of last week’s event has to be understood and appreciated in two important contexts. The first is EPOC as a successful project in building consensus around economic reform and, therefore, its influence in ensuring the macroeconomic stability that Jamaica now enjoys.

The second is the segue from EPOC to the Independent Fiscal Commission (IFC), the body that replaces it, and the need for the commission to interpret its mandate to the widest possible extent that is allowable by the law, and for the society to have the IFC’s back when it faces assaults from political and other interests for doing its job properly. Both the public and the IFC should be aware of the challenges, given the attacks on the Integrity Commission and the auditor general (AuG).

POLICE SBA

EPOC was established in 2013 as a scheme hatched primarily by the private sector, especially financial-sector interests, and the Government to police the administration’s adherence to a US$1.9-billion Stand-By Arrangement (SBA) with the International Monetary Fund (IMF). In part, it was a way for domestic banks to ensure that they were repaid debts owed by the Jamaican Government after they had taken haircuts on the equivalent of J$876 billion under a voluntary/agreed default arrangement called the National Debt Exchange (NDX).

Three years earlier, banks had agreed to a similar programme called the Jamaica Debt Exchange (JDX) in which the equivalent of J$680 billion (in domestic and foreign currencies) was rolled over, with longer maturities and lower interest rates – 6.5 percentage points lower on Jamaican currency debt and two points snipped from US dollar-denominated ones.

The JDX was followed by a US$1.2-billion SBA with the Fund as well as large supporting loans from the Inter-American Development Bank (IDB) and the World Bank. Within a year, however, the IMF agreement had collapsed because of the Government’s failure to meet performance targets.

It was against this backdrop that at the time of the second debt restructuring, the NDX, the domestic holders of the Government’s debt, demanded additional insurance in the form of EPOC.

Originally, EPOC was jointly chaired by Richard Byles, then the CEO of the financial services conglomerate Sagicor Jamaica, and Bryan Wynter, who was the governor of the central bank. Its other members were from the finance ministry, the financial sector, representatives of trade unions, and civil society organisations.

Its mandate was to review and issue quarterly reports on the Government’s compliance with the IMF’s targets, including achieving an annual primary balance of 7.5 per cent of GDP.

“It is this newspaper’s hope that the IMF agreement and the economic adjustments that it demands will mark a memorable epoch for Jamaica - the time in which we undertook bold actions leading to a long period of sustained macroeconomic stability and decent growth,” The Gleaner said at the time.

NOT SUFFICIENT CONDITION

The first part of the wish has largely been achieved, but as we have observed many times, macroeconomic stability is not by itself a sufficient condition for sustained and robust growth. Which is why we endorse Prime Minister Andrew Holness’ recent declaration of his administration’s “pivot” to growth.

Yet, there is little doubt about EPOC’s success, driven to a large degree by Mr Byles’ gritty determination and even-handedness in his assessments and the national buy-in it helped to achieve for the reform programme. That consensus persisted across administrations even after the nature of the project shifted from strict adherence to IMF conditionalities to more general reviews of the economy.

By and large, EPOC’s old mandate will now be assumed by the fiscal commission, which is to go ‘live’ in January, although the fiscal commissioner, Courtney Williams, has been on the job for more than a year and a half, building out his office.

The IFC’s first big undertaking will be to assess the Government’s annual, pre-budget Fiscal Policy Paper, which was previously done by the auditor general, an office that is assigned or equipped for that assignment. We, therefore, look forward to a more robust analysis of that document, even taking into account the limitation of the law that the IFC “shall only have regard to the policies of the Government in this regard, and shall not consider any alternative policy”.

We also anticipate transparency from Mr Williams, beyond the law’s minimum, that he “on at least two occasions each fiscal year”, by way of preparing a macroeconomic and fiscal assessment report and a statement of fiscal performance.