Editorial | BOJ governor and the post-IMF pact era

The assumption of the office by the new governor of the Bank of Jamaica (BOJ), Richard Byles, is coming at an interesting juncture in Jamaica’s economic history.

In less than three months’ time, the standby agreement with the International Monetary Fund (IMF) will come to an end. In a sense, the discipline that the relationship with the IMF imposes will be easing and Jamaica is expected to row its own canoe in a global economy that is beginning to show signs of slowing growth, amid rising trade and geopolitical tension.

While the minister of finance sees the ending of our borrowing relationship with the IMF as an important step towards economic independence, Governor Byles will be expected to give the monetary policy substance to this new path, armed with a greater degree of independence and an inflation target of four to six per cent per annum. The minister’s vision and the new governor’s inflation target might be difficult to reconcile within the context of the next 12-18 months.

As the country moves ever closer to a general election, pressures will build for fiscal policies to become more accommodating to the wishes of governing MPs. However, any loosening of fiscal policies will likely have to be countered by a tightening of monetary policy if the inflation target of the Bank of Jamaica is to be met. Alternatively, pressures might build from the political directorate for a more rapid loosening of monetary policy. Either way, the new governor could find himself in the crosshairs if the inflation-targeting commitment of the bank comes into conflict with the wishes of the politicians.

THE POST-IMF ERA AND UNFINISHED BUSINESS

Mr Byles has shown the needed resolve in the past in taking on such complex and high-stakes issues, both as CEO of a large financial conglomerate and as head of the Economic Programme Oversight Committee. The slowdown of the global economy, as well as the serious structural challenges that are emerging for Jamaica with the demise of the sugar industry and the grave threat to the bauxite-alumina sector, means that the island will have to find ways of developing new growth industries.

After the fifth review of the IMF programme completed last April, the Fund rewarded Jamaica for the significant progress made on the macroeconomic stability front by easing the primary surplus target by half of a percentage point to 6.5 per cent of gross domestic product to allow for increased spending on social assistance, security, and infrastructure.

These were important concessions. IMF programmes in the past mainly emphasised fiscal austerity and painful adjustments borne primarily by the poor, proving politically difficult for lawmakers. However, in the post-Washington Consensus era, the Fund has gone beyond those narrow neo-liberal economic confines to embrace issues of governance, sustainability, climate resilience, institutional strength, security and anti-corruption. This more forward-looking development agenda is proving much more popular and prudent.

The seeming failure of the Government to act with the necessary urgency on these governance issues raised by the IMF board is a matter of grave concern. Given all the sordid evidence flowing from Caribbean Maritime University, Petrojam, the National Energy Solutions Ltd, and the other agencies, it is reasonable to expect greater action from the Holness administration.

Inaction, at best, suggests a lack of will. And if this is the case, the macroeconomic progress we have achieved under the IMF programme may not be on firm enough ground. Corruption and institutional decay will lead to long-term instability.

The new BOJ governor may find that the new ­challenging global environment, as well as the structural weaknesses in the productive sectors of the economy, could, if not addressed, undermine the macroeconomic stability by which he will eventually be judged.