Caribbean & Central America - April 2015 (ISSN 1741-4458)

As has been well noted over the past year, Jamaica has become something of a ‘poster boy’ for the International Monetary Fund through its implementation of IMF-invigilated reforms. This has been achieved, in part, as a result of what IMF chief Christine Lagarde has referred to as “a great innovation in ownership”. The decision by US President Barack Obama to visit Jamaica on 9 April, ahead of the Summit of the Americas (SOA) in Panama, was widely taken to be a reward for Jamaica’s rigorous adherence to the IMF’s programme (it was only the second ever visit to Jamaica by an incumbent US president). However, some dissenting voices are being raised about the efficacy of the IMF-imposed remedy.

At the end of March, less than 10 days before Obama’s visit to Jamaica, the IMF completed its 7^th review under the four-year US$932m Extended Fund Facility (EFF) arrangement for Jamaica, and it approved a disbursement of US$39m. Announcing the latest disbursement, IMF Deputy Managing Director Mitsuhiro Furasawa said approvingly: “The authorities’ commitment to the programme under the Extended Fund Facility remains strong. Programme performance is on track and all quantitative performance targets for end-December were met. Structural reforms have progressed largely on target.”

Mitsuhiro added that “macroeconomic performance continues to be good and economic confidence has reached a two-year peak”. He said that the decline in oil prices should help on the inflation front and boost demand. However, he said, “stepping up the pace of reforms is essential to boost growth and employment”.

The message from the IMF is that continued fiscal discipline, as demonstrated in the budget for 2015/16, will help keep public debt on a sustainable path, but that is not enough on its own and “bold efforts are needed to reform the energy sector, improve the business climate, and advance investment in critical infrastructure”.

This all seems relatively positive, and to-date there has been absolutely no sign of backsliding from Jamaica. However, we did report back in October that there were signs that politics were edging to the fore. At the ruling People’s National Party (PNP) annual conference on 21 September, Prime Minister Portia Simpson reaffirmed the strong commitment of the government, and her party, to the reform process. She said: “Our generation has a sacred duty and a moral obligation to secure tour nation’s future by bequeathing to our children and their offspring a better, stronger, more viable Jamaica”. But with the next general election due by March 2017, now less than two years away, it would seem inevitable that politics will begin to weigh more heavily in the balance and test Lagarde’s “great innovation in ownership”. For instance, at the time of the PNP annual conference, the opposition Jamaica Labour Party (JLP) accused the government of keeping the IMF happy while failing the “people’s test”.

In briefings ahead of Obama’s visit, the White House made it clear that the first US presidential visit to Jamaica since 1982 was intended to bolster the government’s determination to stick with the programme. Ricardo Zuniga, Senior Director for Western Hemisphere Affairs at the National Security Council, said: “In Jamaica…we’ll have an opportunity to speak with Prime Minister Portia Simpson-Miller about our strong support for Jamaica’s work to deal with a debt crisis, with a physical crisis, and its strong performance over the last two years in working with the IMF, the World Bank, and others to address that, in support of the prosperity and security of her citizens.”

The Gleaner understood the message being sent by Obama, saying in an editorial that the visit is “signalling to the Caribbean and other indebted countries that the way Jamaica is pursuing an extremely difficult IMF programme is the way to go and is a prerequisite for future financial assistance. It is also an international endorsement of Jamaica, which is being held up as a model to the rest of the Caribbean.”

But the consensus is not entirely complete. On 7 April, just ahead of Obama’s visit to Jamaica, the think tank Center for Economic and Policy Research (CEPR) issued a paper warning that Jamaica was suffering from the “most austere budget in the world” and that “austerity and debt interest payments have brought public investment to a low”.

The paper starts by pointing out that over the past 20 years, average annual GDP growth in Jamaica has been just 0.4%, with average per capita growth even lower at a negative 0.3%. This is comfortably the worst economic performance in the Western hemisphere. The economy is still 3.5% smaller than it was eight years ago at the start of the global economic crisis, and on IMF projections it will not return to its 2007 level until 2016.

The central argument of the paper is that this dismal performance is not being helped by the IMF requirement that Jamaica run a primary surplus of 7.5% of GDP, which the CEPR points out is more stringent even than Greece’s intended (but politically undeliverable) primary surplus of 3.0% this year and 4.5% thereafter.

As a consequence of this austerity, capital expenditure has plummeted. After averaging 4% for the five years prior to the IMF agreement, it was just 1.6% of GDP in FY 2014/15. Unemployment is currently running at over 14%, which the paper points out is “higher than it was during the world recession”. Youth unemployment is even higher.

Nor, says the CEPR, has the IMF programme and linked debt exchanges significantly reduced the overall debt burden. This was still over 140% of GDP at the end of FY 2014/15 and is not expected to reduce to 100% of GDP until 2020. Interest payments last year amounted to 8.2% of GDP.

For the CEPR, the solution must be significant debt relief, and it says that it is only subsidies from Venezuela and investment from China that is preventing a collapse in public support for the IMF-imposed austerity programme. Despite Obama’s praise for Jamaica’s fortitude, these are arguments that are likely to become more persuasive as the early 2017 election comes closer.

Nor is it just electoral politics that will test the government’s resolve. It was interesting to see, for instance, the Ministry of Industry, Investment and Commerce warning publicly about the effects of a lack of investment on Jamaica’s hopes of becoming a logistics hub. On 31 March, the ministry tabled a report in front of the Public Accounts Committee of Parliament (PAC) in which it said that the logistics hub initiative was threatened by insufficient funding and a lack of fiscal space.

The initiative is intended to attract major investment into Jamaica to capitalize on the increased trade flows projected as a result of the Panama Canal expansion, which is due for completion in 2016. Edmund Bartlett, a member of the PAC, responded to the ministry’s warning by saying: “We are looking at a period of time down the road for which there is great uncertainty and that your own expression of high risk in relation to implementation gives no comfort to us.”

The security dimension

In addition to praising Jamaica’s adherence to the tough IMF conditions, Obama used his visit to the country to address Caribbean Community (Caricom) leaders and to talk up the US’s Caribbean Energy Security Initiative and its Caribbean Basin Security Initiative. Of course, the president emphasized the US’s strong commitment to both these initiatives, and it does seem as if there is a renewed push to help the Caribbean reduce it energy costs and “to help move the region toward cleaner more affordable energy”.

On the security front, however, the message given only a few weeks earlier by the head of US Southern Command, General John Kelly, was ambivalent. Giving evidence to the Senate Armed Services Committee in mid-March, General Kelly said: “I don’t have the assets [in the Caribbean]. I have two navy ships, that will go to zero by the summer and that’s not even with sequestration.” He added that Southcom lacks airborne intelligence, surveillance and reconnaissance (ISR) assets in the region.

Kelly noted that the US Coast Guard has said that it intends to double its number of cutters patrolling in the Caribbean, but this is just from three to six and, as Kelly said: “The Coast Guard also has an awful lot of other missions to accomplish – migration up in the Florida Straits and a lot of other things.”