1 CSEJ / Liberty Hall Forum : 21 March 2010 The Debt, The IMF, Alternatives, The Budget Re-kindling the spirit of 1938 [email protected]

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CSEJ / Liberty HallForum : 21 March 2010

The Debt ,The IMF,

Alternatives,The Budget

Re-kindling the spirit of 1938

[email protected]

http://www.csej-jamaica.org/

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Say NO to the IMF!!

The government’s response to Jamaica’s severe debt burden and the global recession is to run to the IMF, to give cover to a policy approach that has failed in the past. Despite promises of a ‘new’ IMF, the present package means just the same – jobs cuts and a wage freeze in the public sector, higher taxes, cuts in services and higher prices.

This IMF package, the coming budget and the three mini-budgets last year on which the IMF loan depended, mean just one thing – more hardship for those who can least afford it.

We are being told that we must pay for the greed of others, and a system that has failed. Why should those who have not caused the problems being asked to pay, and pay for a ‘solution’ that cannot work?

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Jamaica’s Debt Trap

To allow us to look more objectively at Jamaica’s debt problem, we turn first to an analysis of the debt before examing the current IMF agreement and an alternative approach.

• What is the extent and composition of Jamaica’s public debt?

• What is the effect of the public debt on services, public investment and growth?

• What options exist to allow Jamaica to break out of the debt trap?

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A radical approach is neededPublic debt in Jamaica is now over J$1,300bn, that is J$481,000 for

every single woman, man and child in Jamaica. Interest rates are still much too high for businesses to borrow. Investment by the government and the private sector is very low. Reducing the debt through growth, as some have suggested, is almost impossible with currrent policies.

Not only debt. Jamaica is now rated at 173 out of 181 countries for not paying taxes. We are doing equally badly in terms of poor productivity and an adverse trade balance, not to mention corruption and crime (partly a result of limited opportunity).

Bound by the constitution, and the need to maintain confidence to facilitate new loans, the debate on debt in Jamaica has always been deliberately stifled. But with the DXC there may the beginnings of a more open approach.

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Debt trap… 1999… a long-time problem

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2009 Budget Memorandum

2009-10 Budget Estimates

Total Expenditure including the Debtonly 14% on education

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2009-10 Budget Estimates

Total Expenditure without the Debtas it should be - 35% on education

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Debt Stock in J$now J$1.3 trillion (2010)

Total Debt per person

2010J$481,000

2009Nat. Min. Wage

J$211,640

Debt Stock in J$ : 1980-2010

0200,000400,000600,000800,000

1,000,0001,200,0001,400,000

J$ m

n

Total Public Debt

Domestic Debt

External Debt

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Debt Stock in US$

Total Debt per person

2009US$4,995

2009Nat. Min. Wage

$2,351

Debt Stock in US$ : 1980-2008

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

US$

mn Total Public Debt

Domestic Debt

External Debt

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Debt Stock as % of GDP

Debt Stock as % of GDP : 1980-2008

0.0

50.0

100.0

150.0

200.0

250.0

% G

DP

Total Public Debt

Domestic Debt

External Debt

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Debt service paymentsas % of budget

Debt Service / Budget (including loans)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

% o

f B

ud

get Total

Domestic

External

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Primary Surpluses but still the debt grows

Budget Balances : J$mn : 1988/9 - 2008/9

0

50000

100000

150000

200000

250000

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

J$

m

Loan Receipts

Amortisation

Primary Surplus

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The composition of Jamaica’s External Debt (1)

External Debt Sources : US$m : 1996-2008

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

2003

/200

4

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

US

$m

External Debt (US$)

Multilateral

Bilateral

Bonds

Commercial Banks

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The composition of Jamaica’s External Debt (2)


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Holders of Jamaica’s Domestic Debt (1)

MOFP website

Holders of GOJ Domestic Bonds - Sept 2009

0

5

10

15

20

25

30

35

40

% Series1

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Holders of Jamaica’s Domestic Debt (2)


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Maturity profile of Jamaica’s Domestic Debt


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Debt and the Primary Surplus

Sahay (2005) notes that in Jamaica, ‘despite generating primary surpluses of 8-13% of GDP for many years, public debt has continued to rise because of high interest rates and low growth’.

It was the high interest rates from 1997 that added to the debt accumulation, rather than a low primary balance, as in other highly-indebted countries. It would have taken an even larger primary surplus of 23% to reduce public debt to more respectable 60% of GDP over the five years from 2003-8.

But the 'healthy' primary balance in Jamaica comes at a price, possibly a serious one in terms of longer-term growth prospects. Government capital expenditures have dwindled towards almost zero.

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Debt and GDP Growth

Generally it is found that at low levels of external debt, borrowing can promote growth, but not above a threshold of debt to GDP above about 50 %. When a large proportion of the debt is domestic, the downwards effects on growth will be more likely as investment is crowded out and domestic interest rates are too high for businesses to borrow.

Low growth in Jamaica appears to result from ‘investment’ going into less dynamic sectors which provide safe returns. Bank lending to the manufacturing sector fell from 13% in 1993 to 3% in 2004. Public investment also fell, dropping from 6% of GDP in 1988 to 1.5% in 2004.

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Debt and GDP growthJamaica in the wrong place…

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Public investment Jamaica in the wrong place…again

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Public Investmentmuch less than debt interest payments

Interest v. Gov't Capital Exp.

0.0

20,000.0

40,000.0

60,000.0

80,000.0

100,000.0

120,000.0

Interest

Capital Expenditure

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Public Investment 2009-10 79% of the capital budget on debt repayments

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Debt versus Development ??

The World Bank (2007) put the matter of debt and development very bluntly. Developing countries need to develop for which they need resources, but they should not build up an unsustainable debt - which is quite a challenge.

‘Low-income countries must overcome many hurdles in pursuit of the Millennium Development Goals; one of these is to raise sufficient external financial resources without building up debt that imposes too great a burden in the future’

It is not surprising that in many cases, the right balance is not struck so that debt grows exponentially.

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Growing out of debt?

It would take a primary surplus of 23% of GDP, rather than the current 11% to reduce debt significantly (Sahay 2005). But increasing the primary surplus would require even more cuts in government services, inhibiting future growth. Or better tax collection which remains elusive even after 14 years of the TRN system.

There is substantial growth only in the informal sector, but by its very definition, it contributes little to debt reduction possibilities. Thus neither a greater primary surplus, nor greater informal growth are immediate routes towards less debt.

This suggests that a more radical debt restructuring is required in Jamaica.

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Strategies to reduce debt burden

Bernal (1987) provides a comprehensive list. But with most debt now domestic, and most foreign debt held by anonymous banks and bond-holders, some measures are of little significance.

1. Cancellation by lenders2. Rescheduling 3. Global debt restructuring4. Debt into equity5. Limiting debt service 6. Pegging debt service to export earnings7. Capping interest rates8. Moratoria9. Collective default

10. Default / repudiation

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Fiscal compression, Cancellation

Fiscal compression to pay the debt is largely self-defeating if it cuts into public investment programmes. For growth, spending is needed to enhance education and infrastructure, to catalyse private investment, to focus on projects with positive returns.

Some debt has been cancelled /written off, especially to the highly-indebted poor countries (HIPC), and encouraged by the decisions of the G8 ministers in London in 2005. But the PRSP (Poverty Reduction Strategy Papers) that often ‘guides’ such forgiveness are found to outweigh the benefits of the debt write-off, which is often small in any case.

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Rescheduling / Restructuring

In 2001, the IMF proposed the Sovereign Debt Restructuring Mechanism (SDRM) 'to ensure the orderly and timely restructuring of unsustainable sovereign debts'.

It would facilitate collective action by making the decision of a qualified majority of creditors binding on all, but it would only cover external debt.

Sachs (1990) says that voluntary restructuring schemes are doomed to failure because of the free-rider problem.

In its proposals for SDRM, the IMF acknowledges that the shift towards anonymous bond-based debt, issued in a range of jurisdictions, makes restructuring co-ordination difficult.

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Debt-for-poverty swap

As with debt-for-nature swaps, debt can be converted into spending on social and infra-structural enhancement, if a willing donor can be found. Egypt, for example, has come to such agreements with several European governments (ULT Cairo 2006).

Given the interest shown by the World Bank and even Europe concerning poverty reduction, countries which are yet to meet their international aid targets of 0.7% of GDP could be encouraged to buy part of Jamaica's debt, whether it be external or internal.

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Debt swap and aid targets

0.89 0.89

0.81 0.80

0.53 0.520.50

0.48 0.47

0.39 0.390.36

0.320.30 0.30

0.270.25

0.21 0.200.17 0.16

1.03

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

Sweden

Luxe

mbo

urg

Norway

Nethe

rland

s

Denm

ark

Irelan

d

United

King

dom

Belgium

Austri

a

Franc

e

Finlan

d

Switzer

land

Germ

any

Spain

AUSTRALIA

Canad

a

New Z

ealan

d

Japa

n

Portu

gal

Italy

United

Sta

tes

Greec

e

%

average country effort = 0.46%

UN target =0.7%

Aid as proportion of Gross National Income (GNI) in 2006 for OECD donor countries

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Odious Debt

In a World Bank discussion paper the term “odious debts”, in its initial use, identified

those debts that a state or a government had contracted with a view to attaining objectives that were prejudicial to the major interests of the successor state or government or of the local population. PRMED (2007)

Such debts can be categorized as

'regime debts' (contracted for the benefit of a despotic regime) 'subjugation debts' (used to keep down part of a territory), and

'war debts'

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An expanded view may refer to 'illegitimate debt' to include:

criminal debt (corruption)unfair debt (inappropriate, unacceptable conditions, high

interest rates, against national law) andineffective debt (not fulfilling its purpose).

In each case, the lender is felt to be responsible for the debt if they were either aware of a potential problem, or had unused leverage to prevent it. Ineffective debt could also include cases where a loan has come bundled with some advice that subsequently failed.

A recent example (2007) of the acceptance of the odious debt principle is provided by Norway which forgave US$78m from five countries (including Jamaica) because a shipping project was considered a policy failure on their part.

Odious Debt

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Criminal debt in Jamaica is possibly a major source of our economic failure over the years.

Not only borrowed money that is siphoned off by corrupt politicians and contractors, but budget money which disappears in a similar way, leading thereafter to the need for additional borrowing.

There is every good reason to call for a financial audit of Jamaica’s public debt, identifying the purpose, destination and effectiveness of every new loan for the past 30 years.

Odious / Criminal Debt in Jamaica Financial Audit needed?

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Odious DebtReparations by the IMF/World Bank

Externally, there should be space to take up the odious debt argument. Metropolitan countries have finally expressed regret for the ravages of the slave trade, and may eventually be persuaded to offer real recompense, as has been done already in other situations.

In the same way, the destruction caused in Jamaica by IMF/World Bank policies, which the government was pressured into adopting in the early 1990s, can surely be classified as ineffective.

Similarly the external debt incurred in the 1970s, followed by unilateral interest rate hikes, can be classified as both unfair and ineffective.

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Reparations by the IMF/World Bank

Bernal, writing in 1987, says that whilst there was some optimistic borrowing by developing country governments,

‘the IMF and multilateral development agencies have not yet assumed their obvious responsibilities. Whilst monetarism and petty nationalism in the developed countries are partly to blame, the seeds of the crisis lie in the defects and inadequacies of the institutions charged with monitoring and regulating the world economy, namely the IMF, the World Bank and GATT’.

But note: now that bonds comprise the largest proportion of our external debt, this makes the situation a little more difficult as we have already noted (Kruger 2002).

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Interest rate ceiling on domestic debt?

Domestic debt is now a large proportion of public debt and with the JDX the maturity structure has been extended and interest rates reduced. But not enough to help the productive side of the economy, or even the budget.

Given that most of the domestic debt is held by 'non-crucial' entities, that is by commercial and merchant banks, an interest rate ceiling could be introduced without unduly harming the more vulnerable.

Arrangements could be made to adjust the interest paid on debt held in pension funds for example (a 'crucial' entities) on a gradual, rather than one-off basis.

If done as part of a moral suasion campaign (as Girvan suggested in 1999), and with a continuing premium above international rates (see below), capital flight would not necessarily be a problem.

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Interest rate ceilingon domestic debt?

If set at a premium of 2% above international rates of about 3%, domestic interest rates would be halved from their current value. The 'premium' would offer some solace to investors, which is the important word here.

Investors are, after all, paid on the basis of taking some risk, but buying very safe government debt reduces the risk to almost zero. In hard times, commercial investors expect low or no returns. In the same way, investors in Jamaica plc can reasonably be expected to face low returns until the economy takes off. A further analogy is the MOU scenario, limiting public sector wage increases over recent years. If workers are asked to take less for some years, why not investors?

Sachs (1990) describes a reduction of interest rates on existing debt to sub-market levels as 'nearly ideal'.

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Budget 2009-10 (as presented)

2009-10 BUDGET : J$554 bn (now J$593bn) Primary Surplus = J$ 83 bn

(Projections – March 2009)

INCOME SPENDING Taxes etc 321 Spending on Services 245 Spending on Interest 159 New Loans 216 186 Domestic Paying off old Loans 150 29 External

__________________________________________________________________________________TOTAL 537 TOTAL 554 56 % on Debt 43 % on Services


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Budget 2009-10

cutting interest payments by 50%

2009-10 BUDGET : J$471 bn Primary Surplus = J$ 80 bn

(Projections)

INCOME SPENDING

Taxes etc 321 Spending on Services 241 Spending on Interest 80

New Loans 150 Paying off old Loans 150

__________________________________________________________________________________TOTAL 471 TOTAL 471 49 % on Debt 51 % on

Services

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Or cut interest payments by 100%?

But does that go far enough, if we are also trying not to borrow more? Spending on government services would not increase. And cutting interest payments by 50% would likely be met with so much resistance that it simply would not work. Borrowing to roll-over the debt would probably be impossible. I

In any case, why should local investors only be targetted, not foreign investors, as has happened with the recnt debt exchange?

Perhaps a full-scale moratorium (or repudiation) is needed, with no interest being paid until the patient (Jamaica) recovers. This would also mean no new borrowing and therefore no repayment of principle.

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Budget 2009-10



INCOME SPENDING Taxes etc 321 Spending on Services 321 (up from 245) Spending on Interest 0 New Loans 0 Paying off old Loans 0


Services

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Bound by the Constitution?

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Bound by the Constitution, or our politicians?

1. The local newscast on February 27, 2003 carried a story by the Economic Intelligence Unit (EIU), which stated that Jamaica’s debt burden could soon force the Government to default on its debt payments.

The Ministry of Finance and Planning said: Jamaica has never defaulted on its domestic or external debt payments. The Constitution stipulates that debt servicing is the first

charge on the resources of the country.

2. “The people of Jamaica deserve better, but more importantly, our creditors deserve better”.

Omar Davies,News at Ten, TVJ 19 April 2002

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The IMF AgreementJanuary 2010

The government’s response to Jamaica’s severe debt burden and the global recession is to run to the IMF, to give cover to a policy approach that has failed in the past. Despite promises of a ‘new’ IMF, the present package means just the same – jobs cuts and a wage freeze in the public sector, higher taxes, cuts in services and higher prices.

This IMF package, the coming budget and the three mini-budgets last year on which the IMF loan depended, mean just one thing – more hardship for those who can least afford it.


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The IMF AgreementJanuary 2010

Overall, the package may provide a breathing space for the government to address its fiscal (budgetary) and trade (foreign exchange) challenges.

But no fundamental weaknesses are addressed in terms of production, productivity and the resulting trade imbalance There is little in it for growth since interest rates are still not low enough for business investment and much needed educational expenditures will be cut.

The package is also deflationary, meaning that effective demand will be depressed, lowering the incentives for business to expand, and also lowering tax take which will throw off the budget calculations. Meanwhile, richer countries are boosting their economies…

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The IMF Agreement

And all this at a large cost for the poorer sections of society. Much higher taxes and fares, lost jobs and real wage cuts. Those with more financial resources will take a modest cut, especially in their unearned income, but except for pensioners (who could have been given special consideration) the blow is less serious

The hope for recovery through growth is no better than it has been for the last 20 years and more.

Finally, what a sell-out on our supposed independence. Our so-called leaders handing back the reins to the colonial powers (financial capital) in new clothing. Strong economic action is surely required, but is the government itself so bankrupt of ideas that it can’t find a way without the IMF’s poisonous ‘help’?

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The IMF Letter of Intent quotes and commentary

Para 2: puts debt levels on a downward path… and yet we are borrowing much more than any reduction in interest rates will compensate. And our interest payments are likely to increase rather than decrease.

Para 4: the gov’t stands ready to take additional measures… so we haven’t yet seen the worst

Para 4: the gov’t will provide the Fund… with all the relevant information… but not to the Opposition and certainly not to the people of Jamaica

Para 5: no exchange restrictions…no bilateral agreements… no trade restrictions… so this is the IMF agenda - to keep the economy completely open, and therefore vulnerable

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The IMF Memorandum quotes and commentary

Section 35: $1.3bn for IMF, $1.1bn from WB/IDB/CDB, more from PetroCaribe, more from external private markets and local private markets. Quite an additional debt package, especially when converted to J$: 216bn

Section 5: seems that growth / recovery will depend mostly on a global recovery, but what if that doesn’t happen?

Section 6: inflation should indeed trend down if the economy is deflated so much… big deal!

Section 7: So if the primary surplus is to rise, then this means the debt servicing component of the budget is also rising. Is this to pay interest on the larger debt?

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Section 9: reduce public sector deficit from 12 ¾ % of GDP to 5% of GDP by FY2011-12.., reducing government spending by nearly 8% of GDP in such a short period would mean a serious cut in services, or a massive rise in taxes. The better way is to repudiate the debt and reduce the public sector deficit to zero immediately.

Section 9: reduce public debt ratio from 140% of GDP to 136% by FY2011-12… still much too high and a strange goal for a strategy that is supposed to reduce the debt significantly.

Section 9: primary surplus to rise from 6 ¼% to 7 ¾ % of GDP by FY2011-12… simply means more of our taxes paying debt and even less spent on services

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Section 14: the debt exchange (DXC) aims to reduce interest payments to the extent of 3% GDP is a move in the right direction. And it helps to create more equity of sacrifice.

Section 15: But the DXC must not de-stabilise the banking system. Thus the US1bn Financial Sector Support Fund (FSSF). Just about all the initial IMF money is to support the banking sector (Obama’s Wall Street) and none for production / growth (Obama’s Main Street).

Section 16: No access to the FSSF unless you engage in the DXC. No wonder the take-up was so good.

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Section 4: the burden is effectively shared… by the DXC, or the new income tax bands? Maybe a small beginning. Just need to take the progressive income tax approach further and reduce regressive consumption taxes (GCT).

Sections 24/25: better tax collection – this would also help to share the burden, providing it is not targeted at the poor.

And yet what we also have are

Section 10: more consumption taxes which are regressive and are to yield 1.7% GDP (0.5 GCT, 0.9 fuel, 0.3 other) whereas the higher income taxes for higher earners are to yield only 0.1% GDP. Is this sharing the burden?

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Section 7: employment reforms… means loss of public sector jobs, most of which are in education and health care.

Section 22: reducing the wage bill from 11.5% to 9.5% by 2011-12: This is a reduction of 17%, meaning more than 17% cut in the number of public sector jobs, since it will no doubt be lower level employees who are deemed most expendable.

Section 11: freeze on public sector salaries for two years whilst inflation continues at at least 8% means a cut in real wages of 16% over the two years. And this will save another 1% of GDP, making the poor now bear 2.7% of GDP, with the rich still at 0.1%

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Section 4: expanding the social safety net… what kind of pride can we have as individuals, or a nation, if we are to officially live on handouts when we would rather work for our living? This indicates a real failure of the policy even before it starts.

Section 12: PATH expansion - so 360,000 of us forced to live on handouts… wonderful!

Section 11: : freeze on tertiary subsidies and reduction in funding of core school exam fees… so what hope for longer term, skill-driven growth? With a more progressive income tax, funding for education could be increased, and in a more equitable way.

Section 13: JUTC bus fares up by 40% - could be the beginnings of the revolution, since we are now hearing 100% or more

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Section 13: Divesting Air Jamaica, Sugar factories at give-away prices? Why not arrange for workers’ co-operatives to take over, once the debt is written off, as it will be for any financial investor And also Petrojam – so the expansion of capacity put off.

Section 23: closing more than 50 inactive enterprises – are people being paid? They must be or else closing them would be of no significance to the IMF

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Alternatives to the IMF

To repeat, the IMF package, the coming budget and the three budgets from last year on which the IMF loan depended, mean just one thing – more hardship for those who can least afford it.


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A different set of policies is needed, including the following: 1. Repudiation, or a moratorium on the debt2. Radical tax collection measures3. Radical anti-corruption measures4. Nationalisation of the banks to make affordable finance

available5. Exchange controls6. Import controls7. Radical land reform8. Major gov’t sponsorship of agriculture and agri-processing9. A ‘developmental state’ approach to governance

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Not paying the debt would of course mean that no new borrowing is possible. But government could still operate we have seen. We have a PRIMARY SURPLUS which means that the government collects more in taxes than it spends (leaving debt out of the calculation).

With better tax collection (see Judges urged to get tougher on financial crimes, Gleaner 19 March 2010) and less corruption, there would even more to spend on vital services such as education on which our future depends. There can be no growth, no new jobs

tomorrow without an investment in people today.

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Not paying the debt would mean having to nationalise the banking sector and impose exchange controls, without which money would dry up or run away. A nationalised banking system would provide affordable money for production rather than speculation.

Then we need to deal with the trade imbalance by drawing back from unwise WTO commitments which have wreaked havoc on our economy. We need fair trade, not so-called free trade (which gives more

power to the powerful).

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And finally we need to really encourage the agriculture sector with land for those who want to farm, coupled with a vibrant food-processing industry. Along with lower interest rates, this would mean jobs and growth.

Most of all we need an active developmental state, not one that serves the interests of foreign and local finance capital, rather than the people of Jamaica.

60

Budget 2009-10



INCOME SPENDING Taxes etc 321 Spending on Services 321 (up from 245) Spending on Interest 0 New Loans 0 Paying off old Loans 0


Services

61

Alternatives: a new EPP / PPP?

The alternative to the IMF cannot just involve putting government finances in better share. We need more production and better productivity to provide the means to better jobs, better wages, better government services, a better life.

In early 1977, after the sweeping PNP election victory based on the promise of democratic socialism, an Emergency Production Plan was developed as an alternative to the IMF. It was very much a Peoples’ Production Plan, drawing on the input of 7000 individuals, as well as UWI economists and government departments.

62

The 1977 EPP – and its demise

The EPP recognised what has always been obvious, that IMF assistance does not address the real, productive economy. Whilst propping up government finances, its conditionalities reduce the chance of growth and development.

The EPP, as an alternative, focussed on production with the hope that financial relief would come from other sources, and re-adjustment at home.

But in the end it was rejected by those who thought the challenges too great, and too immediate.

63

The 1997 EPP – the problems

But it was a risky venture. The foreign exchange gap of US$150m proved to be the stumbling block. This was this gap which motivated the initial approach to the IMF.

The EPP estimated that resulting shortages of imported raw materials could result in lay-offs from manufacturing of around 30,000 workers, or about one-third of all manufacturing sector workers. That level of lay-offs from the manufacturing sector was politically unacceptable.

As Norman Girvan, one of the main architects of the EPP notes ‘At the time, I was disappointed by what I perceived as a lack of political courage on Manley’s part. In retrospect, I am sure that he was right - the prescription came too late to do any good’.

64

So to the IMF – June 1977And so it happened. But after failing the first test in

December, the IMF suspended the agreement, and the flow of World Bank and commercial credits was halted.

Harsher conditionalities and more devaluations were demanded. The Minister of Finance complained that the IMF’s terms were “unduly harsh”, but insisted that Jamaica had no choice but to accept.

The new IMF programme was accepted and implemented in full with a 15 percent devaluation right at the start. With an inflation rate of 50% in the first year and wage increases kept to 15 percent real wages fell by 35 percent.

The government kept conscientiously to the programme and met all the performance targets. But the promised economic recovery did not materialise.

65

1980 - PNP swept out of office

With the second IMF agreement (June 1978) , the political position of the PNP Government deteriorated rapidly. By the end of 1978 the JLP had overtaken the Government in popular support. In January 1979, violent mass protests were triggered by a gas price increase.

In April 1980, the PNP National Executive rejected further negotiations with the IMF and resolved to fight an election on a platform of the “non-IMF path”. The subsequent elections became the bloodiest in Jamaica’s history: 800 violent deaths were recorded for the year, many, if not most, being politically motivated. In October 1980, the PNP was swept out of office, the Seaga-led JLP winning by a landslide. The Democratic Socialist experiment was dead.

66

The IMF, but then disaster

The elusiveness of sustained growth came in spite of not one, but a whole series of what could be called “IMF paths”. By the end of the 1980s Jamaica had “received more IMF packages since 1977 than any other country.

Cross-conditionalities from the 1990 agreement resulted in the disastrous currency liberalisation of 1990-1991 with the Jamaican dollar plumetting from J$8 to J$30 to US$1 in little over one year, triggering run-away inflation.

The resulting high interest-rate regime together with the over-loose financial liberalisation, led directly to the liquidity and solvency crises of the Jamaican financial sector of 1996-1998, with a cost that represented over one-quarter of Jamaica’s annual GDP.

67

Challenges to the non-IMF path (Girvan)

Political tribalismSuch a path inevitably generates economic hardships

especially given the uncertainties in the supply of imported food, oil, and other basic necessities, providing ample ammunition for counter-mobilisation on the part of political opponents

Ideological polarisationMany in the middle and upper classes saw a “non-IMF” path

as a further sign that Jamaica was “going communist”. The PNPs own supporters may not have gone along.Popular support could only have been sustained with an

underlying belief in the EPP etc as a project for a new society rather than one delivering bread and butter benefits associated with the better social programmes

68

Challenges to the non-IMF path

Political unacceptability of urban unemployment. The idea that some 30,000 urban workers could have been

redeployed to the countryside was evidently unrealistic. Limited economic room to maneuvre.The EPP could have succeeded in 1974 when the government

was flush with cash and foreign currency from the Bauxite Levy. But by December 1976 there no foreign currency reserves were exhausted, a huge government deficit, no possibilities for borrowing, and a shortage of imported raw materials.

Weak world commodity marketsInternational bauxite/alumina markets and sugar prices were

depressed.

69

The economic challenge

Jamaica is still caught on the horns of a cruel dilemma:

a) to maintain a too-high interest rate regime to attract loans, support the exchange rate and limit inflation leading to a stagnant, now growth economy, or

b) to attempt to stimulate growth by cutting interest rates, but at the risk of devaluation and inflation, increasing poverty and worsening distribution of income.

Clearly, successive Jamaican governments must accept the major responsibility for the present situation by adopting a framework of IMF-type policy choices.

How to break out of this impasse? By tackling the debt and other problems much more radically, as we have suggested, rather than turning to the IMF.

70

The social challenge (Girvan)

Deep divisions exist in our society but a minimum degree of social consensus is required. Equity and social justice are needed for economic growth.

Local (and foreign) capital needs to accept a social minimum wage for all as the condition of social stability and improved labour productivity (including decent and adequate housing, public transport, education, and health care, as well as a living wage).

This may emerge out of a shared realisation that we are presently locked in a vicious cycle of economic stagnation and social disintegration from which it is in the interest of everyone to escape, at least those who see Jamaica as the locus of their long-term commitment.

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NOW IS NOT THE TIME TO DO NOTHING

Now is certainly not the time to do nothing, just as so many decided was the case in 1938. Since December, we have known the initial demands of the IMF which include higher taxes, cuts in jobs and services, a public sector pay freeze, more divestment, the debt exchange and yet ever more debt... the list goes on and on.

Further details came out with the IMF agreement in January revealing the extent of the burden that is being demanded to satisfy the appetite of financial investors / capital. The IMF conditions will no doubt become more demanding at every passing quarter. And yet no measures to address the lack of growth in the economy - in fact just the opposite.

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The IMF package is deflationary, pushing back any chance of growth as spending is reduced by a shrinking workforce and a timid government . We are being asked to take a cut in our already dismal living standard for a medicine that cannot work. The IMF package, the coming budget and the four budgets from last year on which the IMF loan depended, mean just one thing – more hardship for those who can least afford it.


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The coming budget debate opens on Thursday 8 April, so now is certainly not the time to do nothing. In December, the Prime Minister withdrew some proposed taxes because he said he 'heard the cry of the people'. In 1938, the people's cry was also heard, leading to the legalisation of trade unions, a national minimum wage, the vote for even the poor and unemployed, and eventually to a constitution and self-government / independence.

If we are not to continue down this IMF road, leading to ever more hardship, we need to take some action, and take it soon.

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2009-10 Budget Measures (1)

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2009-10 Budget Measures (2)

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GREECEGreek Austerity Measures Spark Rising Protests

(early March 2010)

Last week, the Greek government announced a series of painful austerity measures aimed at tackling a budget crisis so serious, it once seemed like the entire country could go bankrupt.

Greece ground to a halt as workers went on a 24-hour nationwide strike and tens of thousands of people took to the streets to protest civil-service pay cuts and higher taxes in the biggest and angriest demonstrations so far against the austerity measures

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ICELAND

Iceland financial crisis: Voters reject debt repayment plan (6 March 2010)

In a nationwide referendum more than 90 percent of voters have resoundingly rejected a $5.3 billion plan to pay off Britain and the Netherlands for debts spawned by the Iceland

financial crisis.

Budget Debate Dates

Thursday

25 MarchFinance Minister, Audley Shaw will table the 2010-2011 Budget

30 March to 1 April

The Standing Finance Committee of the House will meet to consider the estimates

Thursday8 April

The Finance Minister, Audley Shaw will open the 2010-2011 Budget Debate (date to be confirmed)

Tuesday 13 April

Opposition Spokesman on Finance, Dr Omar Davies

Thursday 15 April

Opposition Leader, Portia Simpson Miller

Tuesday

20 AprilPrime Minister, Bruce Golding

Wednesday

21 AprilThe Finance Minister, Audley Shaw will close the debate.

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Thanks for your attention

On behalf of the Campaign for Social &

Economic Justice (Jamaica)www.csej-jamaica.org

Paul [email protected]

Documents

1 CSEJ / Liberty Hall Forum : 21 March 2010 The Debt, The IMF, Alternatives, The Budget Re-kindling the spirit of 1938 [email protected]