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CARIBBEAN: Returning to the IMF, on Their Own Terms

Peter Richards

PORT OF SPAIN, Aug 4 2009 (IPS) - In 1995, then Jamaican Prime Minister PJ Patterson had a few choice words for the International Monetary Fund (IMF). “Goodbye, ta-ta, au revoir,” he said.

Even though Patterson was speaking at a conference of the ruling Jamaican People’s National Party (PNP), his remarks embodied a mindset that several Caribbean countries had embraced after emerging themselves from harsh conditionality attached to their Standby Agreements with the Washington- based financial institution in the 1970s.

Many Caribbean countries, reeling from the effects of the oil crisis of that period, had turned to the IMF for assistance, then watched hopelessly as the IMF called for cut backs in public sector expenditure, a reduction of social services, and a freeze on salaries that ultimately led to increased unemployment. What occurred next were open street demonstrations, empty supermarket shelves, increasing violent crime and in the cases of Jamaica and Dominica.

Now, 14 years later, a number of Caribbean countries – Jamaica included – are going back to the IMF for assistance, this time on their own terms.

Dominica, St. Kitts-Nevis, St. Lucia and St. Vincent and the Grenadines have already begun using either the IMF’s Rapid Response Facility (RRF) or the Exogenous Shocks Facility (ESF).

Grenada and Antigua and Barbuda have also signalled their intention to follow suit with the latter indicating the approach would be in the context adopted by the Organisation of Eastern Caribbean States (OECS).

“We will be putting to them exactly what we would like to see happen,” Antigua and Barbuda Prime Minister Baldwin Spencer said, adding “it is not that we are going to be dictating to them but in the final analysis we will have to agree or not to agree to whatever prescription that they are coming with.

“What we are saying is that we have a clear idea as to what is possible, what is bearable, what is manageable and what we think we can do at this stage without creating further social and economic dislocations in the country.”

Barbados is seeking 40 million dollars from its IMF reserves. It is not seeking anything more from the Fund. “I am acutely aware of what we went through in 1991,” said Barbados Prime Minister David Thompson.

Jamaica, which is negotiating a 1.2 billion dollar Stand By Agreement with the Fund has made it clear that an agreement would be only on terms beneficial to the island. Jamaican Finance Minister Audley Shaw has told Parliament that the package would not be accompanied by “traditional” IMF conditions.

“Such terms in the past included ‘prior actions’ such as exchange rate action, legislation… and structural changes such as liberalisation. These lending arrangements led to denial of ownership by borrowing countries and the development of a political stigma around IMF arrangements,” Shaw said.

Regional trade unions, especially in Jamaica, have warned that they will not tolerate any job losses as a result of the new approach to the IMF.

President General of the Bustamante Industrial Trade Union (BITU) Kavan Gayle said it was important for the Jamaica government to state whether “there are any conditionalities that… would impact on the government.”

Economics lecturer at the University of the West Indies (UWI), Colin F. Bullock has said that the international economic and financial crisis has highlighted the IMF’s problem defining a role for itself, while also not having enough profit-generating lending opportunities.

“Even prior to the full development of the current crisis, the IMF had sought to re-examine its previous approach to lending and the negative reaction that this had elicited among its borrowers,” Bullock said. “It is this critical review that has informed the IMF efforts to redefine its approach to lending.”

But consultant psychiatrist Wendel Abel is warning countries not to be sucked into the “new IMF” approach.

“The reality is that only a fool lends money on the borrower’s terms,” said Abel, who is head of the Department of Community Health and Psychiatry at UWI. “This is our greatest fear. For the past 30 years, we have been on a downward economic trend. What lies ahead? Will it be pain and more pain? Will we break the vicious cycle of poverty this time around or will it be pain and more pain.”

Even before they had decided to renew a borrowing arrangement with the IMF, Caribbean leaders unanimously believed that unlike the 1970’s, there would be a “clear and focused strategy in response to the crisis that has overtaken us.”

Caribbean Community (CARICOM) Chairman and President of Guyana, Bharrat Jagdeo, said it was vital for the region to have a definitive position before meeting with the leaders of the various financial institutions – such as the IMF – in light of the decision by the G-20 group of rich countries to create a new global financial architecture.

“So we need special attention, a special facility, special instruments. This old way of looking at us through the prism of the larger countries or conditionally based lending terms… simply would not work. Our needs are different,” Jagdeo stressed.

At their annual summit in Guyana last month, Caribbean leaders agreed to create a task force of regional leaders that would have two central functions – mobilisation of resources internationally as well as identification of specific areas in which the Caribbean can move forward in a coordinated way.

“This is the first time that we are having a task force which is of a political nature,” said St. Vincent and the Grenadines Prime Minister Ralph Gonsalves of the group that is holding its first meeting in Jamaica Monday.

But, Bullock has warned CARICOM that in at least one important respect, the IMF approach to lending has not changed. “A country’s capacity to repay debt will ultimately be dependent on its capacity to save. Large excesses of aggregate demand over national production, partly generated by substantial and unpredictable fiscal deficits, will result in balance of payment problems, loss of external reserves and reduced capacity to repay,” he warned.

Caribbean countries, with the exception of the oil-rich Trinidad and Tobago, have seen their economies crumble under the weight of the global economic meltdown.

Jamaica for example, is projected to lose an estimated 1.3 billion dollars in revenue this year as a result of a fall out in the bauxite market, remittances, tourism and other sectors.

Economic growth in the sub-regional OECS is projected to decline significantly over the next two years as well, and Governor of the Eastern Caribbean Central Bank (ECCB) Dwight Venner has warned that the current revenue of the nine OECS governments “is projected to fall by approximately 12.9 percent in 2009.

But despite such gloom, the IMF is urging Caribbean governments to continue strengthening their financial regulations in order to prevent another meltdown of the global credit markets.

In a recent position paper, the IMF says that the region’s agenda for financial sector reform could be “strongly influenced” by the emerging global debate on how to reinforce these regulations.

“While the process of reform will undoubtedly take several years, ministers may want to begin thinking about these issues at an early stage, given the need to build the political consensus for change and the possible need for additional resources,” the IMF urged in the paper, entitled “Global Financial Regulatory Reform: Implications for Latin America and the Caribbean (LAC).”

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