June 18, 2012
Last Friday, the IMF released a Public Information Notice on the Executive Board’s discussion of Jamaica’s Article IV consultation, an annual report in which the IMF assesses member countries’ economic programs. Of course, the timing was perfect, released just one day after the conclusion of the Jamaican parliamentary debate on its 2012/13 budget. The Article IV discussion clearly shows which way the IMF’s Executive Board—or at least 62.5 percent of it— wants Jamaica to go: further fiscal austerity.
The Jamaican Finance Minister had told Parliament that there were no pre-conditions that had to be met before securing a new IMF loan. Nonetheless, Jamaica’s new “creditor’s budget” is explicitly designed to placate the IMF after the previous loan agreement veered off track over a year ago, when the Jamaican government defied the IMF by paying out back wages and giving already agreed-upon raises to public sector workers. The new budget for 2012/13 cuts non-interest expenditure by two percentage points of GDP—this despite the fact that GDP remains below its 2007 level and per capita GDP is not projected to reach its 2007 level until after 2017.
The IMF praised the cuts, as the Executive Directors “welcomed the authorities’ efforts to increase the primary surplus in this fiscal year.” In addition, “[t]hey were generally of the view that a strong upfront fiscal adjustment would provide credibility to the program.” But not all of the 24 Executive Directors agreed. In a rarely seen move, the IMF press release notes that a “number of Directors, however, supported a balanced pace of adjustment to safeguard the fragile recovery and social cohesion.” Flipping to the convenient “Qualifiers Used in Summings Up of Executive Board Meetings,” one finds that a “number” of Directors means from six to nine. In other words, over a quarter of the Executive Board cautioned against such front-loaded fiscal austerity.
Perhaps with poverty twice as high as before the recession, unemployment over 14 percent and an incipient recovery threatened by further austerity both in Jamaica and the rest of the world, a “number” of Directors realized that cutting spending on health and education could threaten the “social cohesion” of Jamaica. Of course, while a “number” of directors may have dissented, “The Directors” still suggest continued “fiscal consolidation,” going forward.
The IMF also calls out the Jamaican authorities for having wasted the opportunity that the Jamaican Debt Exchange (JDX) afforded them, regretting that it “had not been accompanied by fiscal consolidation.” Yet this misses the point. As my colleague Juan Montecino and I pointed out last year and again last month, the JDX never went far enough in reducing Jamaica’s debt anyway. It only dealt with domestic debt and simply kicked the can down the road, failing to reduce the principal at all. What the JDX did was, at least temporarily, lower interest payments that could have freed up some fiscal space to get the economy growing again. Unfortunately, in order to satisfy the IMF, Jamaica has kept non-interest expenditures basically flat since the JDX, failing to make the needed investments to kick-start the economy.
The window that the JDX opened is now closed. Total interest and amortization payments this fiscal year are budgeted to increase by over 34 percent, taking up over half of the budget, leaving even less money available for productive investments. This prioritization of paying down the debt over the needs of the Jamaican people amounts to a consistent transfer of income from taxpayers to domestic and foreign creditors, and a serious impediment to the formulation and implementation of a development agenda. Unfortunately, this is unlikely to change as long as at least 15 of the IMF’s Executive Directors think continued fiscal austerity is the best way forward.
