Jamaica's economic Lent

Ian Boyne, Contributor

Some things baffle me. This crisis-ridden, debt-burdened, living-high-on-the-hog country is entering into a decidedly contractionary, austerity-mandated economic programme with the International Monetary Fund (IMF) and people are bawling that it's going to depress demand and contract the economy. Duh! That is what an austerity programme is designed to do!

An unproductive, debt-plagued country like ours, once it enters into an agreement with the IMF, has to submit to austerity, not stimulus. In fact, it is because we have not been facing the music all these years; because we have been postponing the inevitable and kicking the can down the road why we are where we are today.

And yet, voices which should know better are continuing to reflexively call for more spending and stimulus, even while they themselves call for more discipline and reining in of our consumption binge. An excellent illustration of that schizophrenic thinking is contained in the op-ed piece by my friend and former boss, Claude Clarke, in last week's Sunday Gleaner ('Beyond the IMF').

Claude says: "I am surprised the Government could have presented a package of measures to fix the economy that will only sap its vitality and not give it renewed life through production and exports." In that same article, he complains: "Economic order, symmetry and growth will never be ours until the practice of living beyond our means is brought to an end!" Amazing!

Now how is that to be brought to an end without some demand management and contraction? Claude is an intelligent man. I have a high regard for him, and that is why I seek to engage him. He growls in the article that "debt reduction is to be achieved through austerity rather than economic growth and is more likely to cause pain than gain".

Claude continues to gripe that tax measures, debt exchange and expenditure cuts "will contract the economy and severely curtail economic activity". Well, that is economics 101. That is what an austerity package is supposed to do! It is precisely designed to contract economic activities, to depress demand and the appetite for imports and spending so as to achieve some equilibrium in the economy. That's neoliberal economics. I am a Keynesian. But Claude, representatives of the business sector, and the Jamaica Labour Party (JLP) who have been squealing about the recently announced prior actions to meet the IMF agreement are small-government proponents.

DISTRESSED LEVEL

Claude notes the obvious: "Increasing taxation and extracting resources from the country's principal source for housing development will reduce economic activity."

Again, that is what an IMF programme seeks to do. When a country reaches the distressed level that it has to call in the fire station called IMF, it is these radical measures which have to be taken. It's not business as usual. The IMF programme is to compress demand and get the economy in some shape so as to put it on a path to growth. That is the IMF thinking. You have to at least understand something before you critique it.

I am not a neoliberal, but I understand neoliberal economics. And it makes absolutely no sense to use non-neoliberal criteria to judge neoliberal economic strategies. You enter an IMF programme for a major diet routine. You can't be on the IMF diet and then complain about the lack of chocolate and ice cream.

Claude writes: "The IMF could not be so foolish as to believe that weakening the country's economy is in the interest of the creditors it represents." Is he kidding? Once the IMF extracts the money for its creditors, its mission is achieved. The growth is up to you. Where does Claude get his idealism from? Is he not reading the debate in Europe over austerity versus stimulus and how the IMF itself has had to admit that Europe's austerity programme is not working?

So I hear private-sector people, analysts and the JLP complaining that there is no growth plan to these set of measures. The measures themselves are not intended to be a growth strategy, but preparation for a growth strategy. Listen to the government spokespersons carefully. While we might resent them, we must at least listen to them. We can't let our cynicism and anti-Government feelings override our intellect.

The Government's line is that you can't have an increase in production; you can't grow the economy and have job creation, etc without dealing with the debt. And if you read Claude over the last few years, or listen to the JLP in and out of power, and to statements from the private sector, they were are all saying the same things as the Government. Until now, when the Government is forced to move beyond words and people have to bite the bullet.

Horace Chang, general secretary of the JLP, said last weekend in Hanover: "What we see is taxation, which has been going on for the last 30 years. We have seen more contraction of the economy, which has been going on for the past 30 years. We need to find a new route."

Yes, Mr General Secretary, but bear two things in mind: first, that new route is not through the IMF path. The IMF, even if faced with a JLP administration, is going to insist on the same set of measures. It has its orthodoxy and its dogmas. You can't escape them, Dr Chang, once you decide to engage the IMF. That is why I say the only real debate is whether we take the IMF bitter medicine or go it alone and continue living as we have been; or administer our own medicine without the IMF and other multilateral support and without the support of the international capital markets.

TAKE IT OR LEAVE IT

We can go the route of Marxist Lloyd D'Aguilar and nationalise the banks, repudiate the debt, and do all these radical things, but I don't think Horace Chang or Claude Clarke would countenance that. It's a take-it-or-leave-it situation, gentlemen. That is not just what this Government is saying; it is what the reality is saying.

The highly respected Economist magazine, which is not in the pocket of this PNP Government, says in its latest issue (February 23), in an article on Jamaica's staff-level agreement with the IMF: "Mrs Simpson Miller has little choice. Jamaica suffers from low growth, declining productivity and a heavy debt. Its firms lost competitiveness." It's easier for the Economist, all the way in London, to see that this Government has little choice than for our own home-based analysts.

Claude Clarke says, "Today, the new IMF requires its client governments to own their own programme ... it is the government itself, and not the Fund, that determines the programme it will use to meet the benchmarks ... ." Yes, but the wiggle room is so narrow and the policy space so restricted as to make meaningless that façade of our autonomy. Claude must not be naïve.

Yes, the IMF might back down from a whopping 25 per cent haircut that would devastate our banking financial sector, ravish the economy, put thousands of workers out of jobs and push up cost of living. I am glad the Government resisted that one. A debt exchange, higher taxes and an $11.4 billion-a-year drawdown from the National Housing Trust are much preferable alternatives to that massive haircut which would do more than reduce principal. It would drastically reduce, if not eliminate, confidence
in any future bond offerings.

People argue in
idealistic terms. Of course, taking $45 billion from the NHT is not
desirable. But the Jamaican economy has moved far beyond any issue of
desirability. We are talking about a rock and a hard place. Get real.
Stop living in fantasyland. It is better we take the NHT money, even if
we have to change any law, than tax poor people's basic foods or
medicines. Use the surplus that is lying around and is being used to
support government paper.

DIFFICULT VS MORE
DIFFICULT

The poor would not be able to afford any
houses built anyway if we shifted the taxes more directly to them or had
a haircut. Peter Phillips put it well: We are talking about "the
difficult and more difficult" and "the bad and the worse". It is bad
that we have to take NHT funds. But it would be worse to cause immediate
and more intense pain to the poor and the economy
overall.

The debate we should be having in Jamaica is
about how inhospitable and hostile international economic institutions
like the IMF are to the prospects for growth of developing countries
like Jamaica. The debate we should be having is about the dire need for a
New International Economic Order. Institutions like the IMF should be
reformed to serve the needs of developing countries, rather than
creditors. We should unite around that. Yes, some of the adjustments
demanded by the IMF are things which we ourselves should do without any
IMF agreement.

We have lived beyond our means. We need
some degree of austerity. Our dollar is falling not just because of
artificial speculation. It is falling because our productivity is out of
line with our lifestyle. Our currency is misaligned. Sending out silly
releases, as the National Democratic Movement did last week calling on
Government to "do something" about the dollar, is pointless, as though
the Government has a magic wand. We have been artificially manipulating
the currency for decades. That's why we are here.

So I
see a place for some austerity. But the pace demanded by the IMF is too
severe. More resources should be provided for countries like ours which
suffer because of natural hazards and exogenous shocks. Our pace of
adjustment is too severe and I agree with critics that there is no
guaranteed path to success with this IMF strategy.

It
is not true that the Government has not articulated a growth strategy.
It has done so repeatedly and again last week in a two-page ad.
Logistics hub, highways, agro parks, tourism and ICT investments, etc,
as well as various reform programmes.

The issue is,
can this IMF programme sequence into growth? And what's the alternative?
The latter critics must address.

Ian Boyne is a
veteran journalist. Email feedback to
columns@gleanerjm.com.