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Friday, October 7, 2022
WASHINGTON, May 8 2012 (IPS) - Jamaica’s fragile economic recovery would be dangerously hampered by demands by the International Monetary Fund (IMF) and other donors, according to a new report released here by the Center for Economic and Policy Research (CEPR).
Jamaica is currently paying more debt interest than any other country, including those in Europe that have been reeling under the near collapse of the euro. In total, the island owes around 18 billion dollars.
“Pro-cyclical macroeconomic policies, implemented under the auspices of the IMF, damaged Jamaica’s recent and current economic prospects,” the report warns.
“This policy mix risks perpetuating an unsustainable cycle where public spending cuts lead to low growth, exacerbating the public debt burden and eventually leading to further cuts and even lower growth.”
In the decade and a half before the recent global financial downturn, Jamaica’s growth was already stagnating at just 1.1 percent per year. Since 2008, Jamaica’s debts have climbed by nearly a third.
While growth has picked back up somewhat over the course of 2011, the report suggests that high levels of poverty and unemployment will dampen any positive impact.
“The IMF, World Bank, IDB (Inter-American Development Bank), and other multilateral institutions deserve a large share of the blame,” CEPR co-director Mark Weisbrot said in a statement. “Their contractionary policies prioritise the servicing of debt over growth and development.”
Weisbrot notes that the multilaterals have favoured debt servicing over several common anti-recessionary measures, including public investment and stimulus funding. Such tools, Weisbrot suggests, “could help Jamaica get out of the hole it’s been in.”
For years, the country has owed far more than it has actually made. Last year, according to the IMF, debt-related payments constituted some 126 percent of national income.
To try to get ahead, the government has had to spend around half of its annual disbursements on debt servicing alone. That’s more than twice as much as it is able to spend on, for instance, health and education combined.
Jamaica’s national economy has been limping since the early 1970s, when the global oil crisis forced the country to rely more heavily on multilateral funding.
Jamaican debt increased slowly but steadily through the 1980s, by the end of which the IMF began to demand that the Kingston government impose structural adjustments on the economy, including trade liberalisation and cuts to public services.
According to many analysts, these policies systematically weakened Jamaican industry and safety nets, bringing down gross domestic product and making it increasingly difficult for the country to pay its external debts.
The global financial crisis has hit the country particularly hard, including by crimping remittances.
In December 2011, the new government of Prime Minister Portia Simpson-Miller was voted into office, having campaigned on a pledge to come up with a new agreement with the IMF within two weeks of coming to power. Simpson-Miller previously held the post in 2006-07.
Since the prime minster’s inauguration, two IMF missions have visited the island. While all negotiations have remained strictly confidential, the Kingston government is clearly interested by the type of aid it has seen coming from the eurozone.
“If they could give a bailout like Greece, lord have mercy, you would see Jamaica grow and flourish,” Simpson-Miller said in March.
In truth, the fact that negotiations have restarted between the IMF and Jamaica marked a turnaround of sorts. In January 2011, the IMF cut off all funding to the island after the Jamaican government – driven by a Supreme Court mandate – flouted an IMF policy prescription not to pay back wages to public-sector employees.
The decision quashed a desperately needed 1.27-billion-dollar loan and also halted the IMF’s so-called Article IV consultations, the widely watched annual report on a country’s economy.
That decision had significant ripple effects for other multilateral and bilateral funders, with the World Bank, the European Union and the Inter-American Development Bank all announcing similar halts on funding, pending Jamaican reconcilement with the IMF.
According to the CEPR report, “The cut off in funding made it even more difficult for Jamaica to meet the stringent requirements of the IMF and contributed to the anemic economic recovery.” Further, without the government’s decision to pay the back wages, “the recovery would likely be even weaker.”
Currently, another tranche of 350 million dollars is due for repayment by the Jamaican government in July. With that date looming, government officials have been out trying to raise money any way they can.
Analysts have been calling on the government to issue government bonds worth between 250 million and 500 million dollars, with an announcement on the issue expectedly imminently.
Even if the government makes it beyond the July deadline, observers suggest that the IMF deal may still take until September to finalise.
“If the Jamaican government decides to re-engage with the IMF,” CEPR warns, “any agreement should ensure adequate fiscal space to invest in important areas such as infrastructure, health and education. As long as creditors are prioritised over the country as a whole, Jamaica will remain heavily indebted with persistently low growth.”
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