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When the IMF boss visits...

Sunday, November 12, 2017

The managing director of the International Monetary Fund (IMF), Ms Christine Lagarde, is scheduled to visit Jamaica next week. This will be her second visit which, we hold, is quite a feat for a small developing economy.

Some people will naturally wonder why the IMF is giving so much attention to Jamaica.

The visit, we believe, is intended to encourage the Government to stick to the implementation and schedule of the IMF programme, which is easily one of the most draconian imposed on any country.

One of the key targets of the programme is the reform of the public sector and a reduction in the wage bill. Both are very tough measures which have notably been resisted by every Government since the 1970s. However, the current Administration has not disguised its view on this matter, as Prime Minister Andrew Holness has, on many occasions, made it clear that the country cannot continue kicking this can down the road. In fact, he has been making the case that public sector reform has benefits for the country, including the business sector.

Ms Lagarde's second visit should also be seen in the context of the IMF needing a success story — to show even one case of a country where the government implemented a complete series of IMF programmes.

The drastic reform programme that Jamaica has had to implement is economic arithmetic. It had to be done with or without the IMF, because had we not done it, the country would have continued to sink in the economic quicksand into which it was pushed by the reckless policies of the Government of the 1970s.

Jamaica therefore had no alternative to implementing the IMF programme because, without it, the availability and cost of external financing would have been uncertain and more difficult.

Without wanting in any way to discourage economic growth or the Government's commitment to completing the IMF programme, we are duty-bound to warn of the following.

First, IMF programmes do not produce economic growth. Instead, they aim at stabilising the macroeconomic fundamentals, which are necessary, but not sufficient for achieving economic growth.

Second, the IMF programme does not fix the structural and managerial problems of developing countries; they merely suppress them at a high economic, social, and political cost.

These are things that the present Government needs to bear in mind as it seeks to complete the programme. However, we believe that the Administration can use the fiscal discipline demonstrated by the country thus far as leverage for some amount of wiggle room in the reform programme.

Ms Lagarde's visit could provide an opportunity to start that discussion.