IMF and growth strategy - Contradictions in crisis

Danny Roberts, Guest Columnist

Having passed the first IMF quarterly test in June, the Government is said to be confident that it has met all the quantitative targets for the second quarterly test ended September 30.

This is, in some respects, good news, because the failure of these tests, particularly in the current volatile state of the global economy, would only make Jamaica's economic situation worse, as the increased risk exposure would do irreparable reputational and political damage to the country.

But the passing of these tests will not make the economy any better. In fact, it makes the economy worse off through constriction of public spending, even for developmental purposes; the decline in living standards brought on by the fall in exchange rate; and stagnant growth and low productivity.

These are, by no means, conditions brought on by the IMF prescriptions, but they do make an already bad situation that much worse.

Jamaica's bad reputation

Jamaica has the unenviable reputation of being the slowest-growing economy in the Caribbean. The economy contracted by 0.10 per cent in the second quarter of 2013 over the same quarter of the previous year. Recently, the Jamaica Productivity Centre released statistics to show that between 2007 and 2011, the country's GDP declined by 0.6 per cent, wage rates fell by 1.3 per cent, unit labour cost by 1.4 per cent, capital productivity by 1.0 per cent, and total factor productivity by 0.4 per cent.

The inflation rate was recorded at 10.98 per cent in September 2013, and averaged about 11 per cent from 2002 to 2013. These statistics pale in comparison to our major trading partners.

Additionally, it is clear that these economic indicators do have the greatest impact on the poor and vulnerable groups in our society, a situation which is certain to be exacerbated by the IMF's conditionalities.

The lessons from the experience with the IMF over the many years have forced the Fund, from a policy perspective, to at least concede to arrangements which "protect the most vulnerable and promote economic self-reliance, including through the establishment of a floor on social spending ...". This is clearly set out in the Memorandum of Economic and Financial Policies between the Government and the Fund.

The IMF's loan of US$750 million, however, adds to the country's debt stock, which is further increased by additional loans from the World Bank and the IDB. Unless the economy grows significantly to be able to repay our debt, we will be infinitely worse off at the end of the life of the extended fund facility in 2017. What is quite evident is that the IMF's conditionalities are antithetical to growth, and that passing the IMF tests will become progressively harder as time marches on.

What, therefore, matters is whether the country can generate economic activities to create growth and impact social development. The stimuli for growth must be demand-led, supported by deliberate supply-side initiatives that are geared towards active labour market policies.

Quantitative data and abstract economic indicators are one thing; the social progress on which a country's development is judged is quite another. And that social progress is not possible without a socially oriented economic and financial policy framed in the context of our growth strategy, which must be seen as counterposing the IMF's Memorandum of Economic and Financial Policies.

Our growth strategy must be presented as much more than a shopping list of investment prospects. It must be developed into a comprehensive and coherent approach to our economic survival. Japan, the third-largest economy in the world and the largest creditor nation, recently developed a comprehensive growth strategy designed to increase the country's per-capita gross national income, improve labour productivity by two per cent and workers' incomes by three per cent annually.

There is, as well, an implementation plan, and an Economic Revitalisation Council under the chairmanship of the prime minister to drive the growth strategy. Included in this is the participation of all segments of the population, with particular roles identified for the youth and women, and, critically, the redistribution of the fruits of the growth strategy to positively balance the lives of the people.

In Jamaica, elements of our growth strategy are pieced together in several ministries with no overarching strategic objectives. Emphasis on innovation and productivity improvements is missing from the discourse on growth, and the plan, to date, remains an incubus fettered by the 'dead hand' of our bureaucracy.

We seldom hear about the need for greater efficiency and competitiveness; the business of ensuring greater equity through redistribution does not arise; and the concept of decent work and a focus on improving real wages to drive aggregate demand is avoided. The discourse on growth must speak the language of social development, must focus on a people-centred approach, and must be realised through a restructured labour market which encourages innovation and productivity.

We mentioned earlier the focus on adequate social measures to protect the most vulnerable in the society. This is where the Government must fully engage the International Labour Organisation (ILO) as part of a broader coherent policy approach to our growth and development strategy, and seek to benefit from the level of technical support and capacity building the ILO has to offer.

Importantly, the mechanism of social dialogue, which gives the social partners and civil-society groupings the opportunity to engage in meaningful discussion and consultation about policy issues and matters pertinent to economic development, must be strengthened.

PRODUCT OF THE RECESSION

Jamaica's economic problems have been aggravated by the global recession. Before that, we appeared to be making little advance at improving our competitiveness in the face of the challenges brought on by globalisation. The impact of this has been felt by workers and employers primarily in our labour market. The solution appears largely in that sphere which is why the need for a careful examination of various labour-market policy measures in order to mitigate the impact of the crisis on both the workers and the business sector is required.

The economic side of the crisis is being addressed through the IMF. It is now time for the Government to focus with even a greater level of effort on the social dimension since Jamaica's prosperity is dependent on the social equation - how many persons are in work, on their levels of innovation and productivity, which rest on how educated and trained they are, and the optimum utilisation of their skills.

Indeed, these are the lubricants for the engine of growth and the true indicators of our progress and development as a nation.

Danny Roberts is head of the Hugh Lawson Shearer Trade Union Education Institute at the Consortium for Social Development and Research, Open Campus, UWI. Email feedback to columns@gleanerjm.com and strebord01@yahoo.com.