Caribbean & Central America - December 2019

Jamaica’s Stand-By Arrangement (SBA) with the International Monetary Fund (IMF) terminated on 10 November with the IMF praising Jamaica for its “exemplary commitment” to the IMF programme for over six years and across two governments. By contrast, on 25 November, Trinidad & Tobago’s finance minister Colm Imbert explained why the country had rejected the possibility of entering into a structural adjustment programme with the IMF, the likely terms of which he castigated as “stale old measures”.

Jamaica entered into the IMF arrangement in 2013 under the People’s National Movement (PNM) government led by Portia Simpson-Miller. It continued with the programme under the Jamaica Labour Party (JLP) led by Andrew Holness after it won power in 2016 to a large degree on the back of popular discontent with the austerity measures. At the successful end of the programme, the IMF recognised this by praising the commitment of both parties and the “considerable sacrifices” of the Jamaican people.

The IMF’s Deputy Managing Director Tao Zhang said on 4 November: “[The Jamaican government] have institutionalised fiscal discipline and led to substantial reduction in public debt, which is now on track to meet the legislated target of 60% of gross domestic product by March 2026. The unemployment rate is at an all time low, inflation is subdued, the financial system is less vulnerable, and international reserves are comfortable.”

A few days later, on 11 November, the outgoing IMF mission chief on Jamaica, Dr Uma Ramakrishnan, gave her overview of why the IMF programme had been such a success in Jamaica. She gave three reasons.

First, she emphasised the importance of retaining fiscal and wider policy discipline. Secondly, she pointed to importance of building and maintaining social consensus, particularly through the Economic Programme Oversight Committee (Epoc). She said: “bringing the entire country behind these reforms in a way that we have not seen elsewhere is also a huge takeaway”.

Thirdly, she said, a key lesson was the importance of phasing difficult reforms such as the government pension reform and the move from direct to indirect taxation. She contrasted this approach with “shock therapy” and said that it was better to “lighten the load”.

Imbert however gave his very different views on IMF programmes at a Development Bank of Latin America (CAF) seminar in Port of Spain. The seminar was on ‘Restructuring a Commodity Dependent Economy for Growth Without External Intervention’.

Imbert talked about the country’s 1990 agreement with the IMF, which he said resulted in 10 years of slow growth and “focused on contraction without due consideration of the short and long-term adverse effects on our citizens”.

Imbert added that the tripling of GDP between 2001 and 2008 was a result of the rise in commodity prices rather than the benefits of IMF supervision, and so Trinidad rejected calls to turn back to the IMF when, in 2015, oil prices were again “dropping like a stone” and the country was “advised to embrace the same old sterile measures from 1990”.

Imbert went on to relate that the advice the new Keith Rowley government was receiving “had a common theme” including “implementing a property tax system; expanding the tax base; increasing tax collection as well as increasing personal income tax and corporate tax”. He said, “We had had enough of that.”

However, Imbert did also admit that Trinidad had to make some tough adjustments, albeit adjustments of its own devising. He explained: “We immediately embarked on reducing government expenditure to what we felt were manageable levels, from TT$63bn (US$9.3bn) to TT$52bn in the first year, and eventually down to TT$50bn by 2018.” This was achieved through “cutting out waste, mismanagement and inflated costs, also known as corruption”. Other issues that needed addressing included the loss-making national oil company and airline.

The problem for the Trinidad government, however, is that the economic outlook remains supressed. It may have recovered from the 6.5% contraction in 2016, but only to the extent that the economy will be flat in 2019, after a further contraction of 1.9% in 2017 and a very marginal return to growth in 2018 of 0.7%. The outlook for 2020 is for growth of 1.5%.

It is true that Jamaica’s growth outlook may not be greatly more encouraging than Trinidad’s, but it is the contrast with what went before that is impressive. The IMF’s summary of the achievements under its tutelage include:

• Unemployment down from 16% at the start of the programme in 2013 to 7.8% in July 2019.
• GDO growth for FY18/19 forecast to be 2%, which, according to the IMF, is “three times the average of the last 20 years”.
• Public debt down from 147% of GDP to 94%, the first time it has been below 100% since 2001.
• A primary surplus of 7%-7.5% for the last six years.
• Net international reserves up from US$1.1bn at end-2016 to US$2.77bn in November 2019.