EDITORIAL - A better use of Ms Lagarde

People in the private sector and the parliamentary Opposition may well be suffering from mistaken priorities, or misplaced expectations, with regard to Christine Lagarde's visit to Jamaica.

For based on the pronouncements of the economic thinkers of the Jamaica Labour Party and some of the representatives of corporate Jamaica, they aim to have the IMF head either instruct the Jamaican Government to halt the devaluation of the Jamaican currency, or that she explain to Jamaicans when they can expect that we will reach exchange-rate equilibrium and what ought to be the benefits of depreciation.

The first two wishes are, of course, unrealistic. The third doesn't require the input of Ms Lagarde.

The Opposition, which now appears to have moved firmly into the corner of a fixed exchange rate, argues that the country has gained little from the 29.3 per cent devaluation of the Jamaican dollar over the past two years. Instead, living standards have declined.

The private sector seems uncertain about what is to be made of the state of affairs and appears to be looking to the IMF boss for some kind of explanation - a fix on things, something to hold on to.

The lurching uncertainty is, in some respects, understandable, given the tough, painful economic reforms Jamaica has to undergo under its Fund-backed programme. Nonetheless, what is being asked of Ms Lagarde misses the fundamental point: that economic adjustment, if it is to be successful, has to be a Jamaican-owned and embraced process.

Jamaica's primary problem is its oversized debt that used to be nearly 150 per cent of national output, but has now edged closer to 140 per cent of GDP. The strategies for bringing the debt under control and creating a more efficient economy include fiscal contraction: the Government has to borrow less, and spend less. And in our case, the Government has allowed the currency to devalue.

Obvious outcomes of these measures, so far, are the strong primary surplus being run by the Government and improvement in the current account deficit. We are importing less.

But the critics say the depreciation of the currency has not delivered export competitiveness - and is not likely to, hence the re-emerged debate over a fixed versus floating currency. That is an issue to be resolved in Jamaica between the contending parties, rather than through appeals to Ms Lagarde.

Alternative policies

The issue to be addressed by the Opposition, and directed to the Jamaican people, is what, given Jamaica's current circumstances, would be compensatory/alternative policies for a management of the balance of payments/current accounts in the event of a country moving to a fixed exchange rate. Barbados, for instance, is insistent on maintaining its fixed currency at the existing exchange rate, but has agreed to significant public-sector contraction. Its plans include chopping the government employment roll by 16 per cent and reducing subsidies.

Ms Lagarde's visit to Jamaica is largely symbolic - encouraging Jamaica to stay the course of a tough period of adjustment.

What would be of great value by those who meet Ms Lagarde is to encourage her to influence other multilaterals, such as the World Bank and the Inter-American Development Bank, to offer additional loans to Jamaica, lessening its need to enter the private debt market, thereby providing a cushion to its still-fragile fiscal circumstance.

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