IMF stalemate!

Three quarters have passed without a statement being issued by either the Government of Jamaica (GOJ), or the International Monetary Fund (IMF) on the performance of the Jamaican economy in any of these quarters in respect of the targets in the agreement between Jamaica and the Fund. This is unprecedented. It was not the case for the early review periods. Good news is never kept secret by the political class.

It is clear that the IMF has closed its eyes and has bent backwards to give maximum opportunity to an agreement which it concluded with the GOJ in secret. It was a "take it or leave it" to the Jamaican Parliament and people.

The IMF and the GOJ have mutual interest in the success of the agreement. It was one of the first agreements concluded by the international body after it was resurrected by the hurriedly formed G-20 to lead in the fight against the twin challenges of global recession, centred in the developed countries, and the chorus for the transfer of global economic decision-making to the United Nations where the G-7 did not have absolute control. The resuscitation of the IMF was formalised at the G-20 meeting in London in April 2009 ahead of the universally agreed United Nations conference on the implications of the global economic crisis for development scheduled for June. It short-circuited the search for a mechanism capable of managing a globalising, instantaneous information- and technology-driven global economy with multiple centres of economic strengths and weaknesses leading to great imbalances and stresses. The leaders of the G-20 boycotted the UN conference and persuaded leaders of some developing countries, like Jamaica, to join them.

perfect timing

The timing of this re-empowering of the IMF could not have been better for the institution. It had lost almost all its borrowing clientele and had begun a process of restructuring and downsizing. Senior staff were being offered options of early separation with attractive packages. Several exercised their option.

Jamaica's embrace of the IMF in late 2007, therefore, came at a time when the Fund was at its weakest. It is a moot point whether the Government of Jamaica was aware of that weakness and strategically took advantage of it in the negotiations, but it was the environment in which the agreement was nego-tiated. The embrace of the Jamaica minister of finance by the deputy managing director of the IMF in Istanbul might have had little to do with admiration either for Jamaica or the minister, and much more with public relations of Jamaica's support for the beleaguered organisation. Jamaica had, in a very public manner, terminated its borrowing relationship with the institution, vowing never to return. The return, therefore, could be read as vindication of the institution by a most high-profile developing country. Jamaica had not only relinquished its borrowing status, but led the deve-loping countries' battle for change in the arrangements for global econo-mic management, which would have reduced the role and influence of the institution when it chaired the G-87, and China in 2005. Compensation for Jamaica's support was good investment.

Terms of agreement

There were thus terms in the Jamaican agreement which would not normally have been contemplated by the IMF. The differential treatment of the same category of debt was one example. This violated a hallowed principle which the IMF and the major developed countries had struggled to achieve. They had fought for years and had now achieved acceptance that in any situation of balance of payments or other difficulty, foreign debt would be treated on the same terms as debt owed to nationals. They were being asked to sacrifice this "so-called equal burden sharing" principle. It is true that the Jamaica proposal made it easier for them. Jamaica was proposing the unthinkable, that is, to treat its domestic creditors less favourably than it would treat its international creditors. But it still must have been a hard decision.

The "international community" was also asked to overlook the violation of its increasing insistence that governments of developing countries involve their civil societies in major decision-making, as this might have proven inconvenient to secure the agreement.

These sacrifices of "principle" were considered reasonable for Jamaica's support at the time. If the agreement worked, such infractions could be justified as necessary expediencies in a time of economic crisis and would be good propaganda against the anti-IMF campaign in the developing world. It would help the G-7 to maintain its control of global economic decision-making.

The reality now, however, is that the agreement is not working in the manner anticipated, even with additional time, and the sympathy and willingness of the local population to give the Government and the IMF the benefit of the doubt has worn thin. Various groups are now demanding at least one-half of the pound of their flesh taken. This has pushed the country up against the IMF targets. Any chance of achieving the policies and targets requires the Government to increase investment in infrastructure to enhance production and exports, which are vital to improving the GDP to expenditure, GDP to foreign earnings and GDP to fiscal-balance targets.

an unsteady waltz

Expenditure contraction - public and private - is the worst policy in a period of economic depression, recession, or weak growth.

Jamaica is in such a period. The IMF has given the Government latitude but is now insisting that its deflationary targets and policies be held. One target which is sacrosanct, according to the minister of finance, is the fiscal target - the expenditure to GDP ratio. To achieve that when GDP is hardly growing requires significant expenditure reduction. But it would seem that discretionary expenditures have already been squeezed and new, long-term, mandatory expenditures have been assured. Further expenditure reduction will reduce real activity.

Economies do not perform by magic, except for agriculture with good rainfall. But in Jamaica's case, good rainfall is usually accompanied by floods, soil erosion, and infrastructural damage requiring upfront expenditures.

Unfortunately for Jamaica, not just for the Government, the IMF is no longer dependent on the success of the Jamaica programme. The major countries have provided it with significant resources, and the continuing global economic crisis is forcing more and more countries to its door. Some three or four other CARICOM countries have already gone through. Further, the IMF has lost its managing director, who had a fair degree of social consciousness. No less unfortunate for Jamaica is that this is an election year. In an election year, those who drive election politics know that it is collection time. If you cannot collect then, especially where things look tight, you cannot collect.

These are Jamaica's challenges as the Government and the IMF go through the last stages of a very unsteady waltz, or, more accurately, enter the first stage of a bruising tango.

Byron Blake is former G-77, China lead economic negotiator and former senior economic adviser to the president of the UN General Assembly.