EDITORIAL - Still not clear enough, Mr Shaw

IF HE thinks about it, Finance Minister Audley Shaw will concede that his latest published remarks about Jamaica's relationship with the International Monetary Fund (IMF) hardly clarified the status of the country's existing agreement with the Fund.

Or, perhaps more to the point, it is a matter of speculation, when the dust settles, whether Jamaica will have an agreement with the IMF on the same terms as the one that was entered into in early 2010, or something that is substantially different in character. Or, maybe the government may feel that it is worth its while to negotiate an entirely new agreement with the IMF.

Whatever happens, and however the government would wish to characterise the issue, it can be avoided, and it should not have been unexpected that the current state of the IMF agreement has caused uncertainty and a level of economic anxiety.

After all, the outcomes of the first two quarterly reviews, in which the government met the performance criteria, were loudly trumpeted. The reviews for quarters that ended December 2010 and January of this year —which have now been rolled into one - are yet to be considered by the IMF directors. In the meantime, another review under the US$1.2-billion standby agreement, for the quarter ended in June, is now due.

Happily, Minister Shaw is confident that the country's performance for last December and March will satisfy IMF requirements. In the meantime, nonetheless, this hiatus and verifiable test results have led to a freeze in flows from multilateral financial agencies and foreign donors, including, as was confirmed last week, the European Union.

Salary hike

According to Mr Shaw, among the issues being resolved with the IMF is its recent decision to honour an outstanding salary hike to public-sector employees that will cost J$30 billion as a strategy to pull the public sector wage bill to nine per cent of GDP over the next two fiscal years. What is not immediately apparent, though, is how this impacts on the reviews for the December, March, or even June quarters.

Another matter at issue is the proposed divestment of the Government's 45 per cent stake in Jamalco alumina refinery, held by Clarendon Alumina Productions (CAP), whose losses the fund has pressed the government to rid itself of.

In so far as is known, the government has been negotiating with the commodity traders for the CAP holdings. Market analysts suggest that Glencore would probably then flip CAP to its business partner, UC Rusal, in which it has an eight per cent stake.

Rusal owns three alumina refineries in Jamaica, two of which have been in mothball for over two years. It had signalled its intention to reopen one of these, Kirkvine, by mid-year, but tied this to a demand for major concession, including hints of grabbing CAP.

So, the government is facing pressure from the IMF and Rusal over CAP and might feel compelled to let go the Jamalco holding at fire-sale price. That brings us back to the obfuscation about the IMF agreement.

By focusing too much on the small political chess-game and failing to bring the public into his confidence, Mr Shaw - and the administration - leave the country overly susceptible to such pressures and at the same time misses an opportunity to build consensus around an economic strategy.

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