Facing a new wave of social and economic bedlam under the IMF - Jamaica's dilemma

By Fritz-Earle McLymont:

My heart goes out to the families of the 117,000 civil servants who are planned casualties of the Jamaica government’s transformation program. I pity the official upon whom the responsibility for implementing this disaster has been thrust.

Following the resignation of the head of the Central Bank and the Commissioner of Police, I saw the red flag of the IMF. I just concluded reading Naomi Klein’s Shock Doctrine that chronicles the effects of economic “shock therapy” and the consequences to the local economies. From Bolivia, to Chile to Argentina to Russia, the stories are the same: the citizens suffer. Klein attributes much of the disaster to the attempt to carry out Friedmanite economic policies, with the support or complicity of the IMF. But the results have been the same: disaster and terror for large segments of the population whose leaders seek sustenance at the IMF trough.

The IMF issued its first full-fledged “structural adjustment” program in 1983. For the next two decades, every country that came to the fund for a major loan was informed that it needed to revamp its economy from top to bottom. According to Shock Doctrine, David Budhoo, an IMF senior economist who designed structural adjustment programs in Latin America and Africa throughout the eighties, admitted later that “everything we did from 1983 onward was based on our new sense of mission to have the south privatized or die; towards this end we ignominiously created economic bedlam in Latin America and Africa in 1983-88.” I have yet to see real long-term social and economic progress in any of these IMF-adjusted countries.

Somewhere between 1979 and 1981, I was spared personal disaster while managing a government enterprise in Jamaica. I persuaded the workers and union to accept minimum increases in wages for two years to enable the company to increase its assets and consequently its income. The plan worked and when the time came to give the big wage increase from earnings that did accumulate, I was told that IMF guidelines prohibited me from giving the promised increase. Given the social and political tensions in Jamaica at the time, I had no intention of facing more than 150 Jamaican workers to tell them that the deal was off. No one from the IMF was willing to do so either. Fortunately, I learned that the IMF instruction was not a law of the Jamaican government, but a directive from Washington. I found a creative way to get around the IMF policy and my workers got their increase, leaving me safe to walk the streets of Montego Bay.

A few countries, such as Malaysia, have rejected IMF medicine and survived. In the 1990s, when the IMF offered to help the “Asian tigers” withstand a financial assault on their fast-growing economies, Malaysia’s Prime Minister Mahathir Mohamad declined the offer, saying that, with relatively small debt, he did not have to “destroy the economy in order that it should become better.” The IMF official in charge of the talks at the time said, “You can’t force a country to ask you for help. It has to ask. But when it is out of money, it hasn’t got many places to turn.” Malaysia proved him wrong. A predominantly Muslim country whose people had been instructed to save for the pilgrimage to Mecca, it turned to local banks that were flush with pilgrimage cash.

Can we instill in Jamaicans a similar behavioral change of sacrificing a little today for a long-term benefit? In the 1990s I witnessed the fever pitch in long, patient lines as Jamaicans sought quick money from the Partner scams. This same patience, faith and commitment must now shift Jamaica into productive energy if our country is to survive. For the global challenge in this century will be productivity not money.

Jamaicans often compare Jamaica with economically successful Singapore, both former colonies. Jamaica is a victim of its own choices. At about the same time that Singapore’s leaders chose to invest heavily in the development of their productive capacity, Jamaica rejected the direction of industrial development, advocated by Jamaican industrialists such as Robert Lightbourne, and opted for quick money, either borrowed or donated. Tourism, bauxite and agriculture were expected to be significant contributors to growth, but they have performed feebly in spite of considerable investment of the borrowed or donated funds. Today’s generation is paying for those choices in the form of debt burden. From 1980 to 1986, Jamaica's total debt doubled, making the island one of the most indebted countries in the world on a per capita basis. Jamaica's debt peaked in the mid-1980s at US$3.5 billion. With IMF and World Bank conditionalities in force, Jamaica experienced a 30 percent leap in unemployment, a 30 percent fall in public investment and a fall of 48 percent in real incomes between 1983 and 1985. By 1984 the World Bank proclaimed Jamaica one of its success stories because its trade balance had shifted into surplus. But it was a 'success' in which 29 percent of children under three years old were malnourished, 43 percent of mothers were anemic, and polio deaths had appeared for the first time in 30 years. Between 1996 and 2003, Jamaica’s public debt rose by 71 percentage points of GDP – a growth considered a reflection of changing circumstances at home and conditions abroad.

Today, with a public debt in the range of US$15 billion, Jamaica’s Ministry of Finance is preparing the country for another IMF hit. Moody’s, the rating service, has downgraded Jamaica’s rating for internal and external bonds. Alessandra Alecci, its vice president/senior analyst, explained why: “The negative outlook reflects uncertainty associated with the potential consequences of protracted delays in reaching a final agreement with the IMF. Such a situation would lead to a loss of confidence that could negatively affect the exchange rate and exert upward pressures on domestic interest rates. If these conditions were to materialize, they could create a situation in which the government's liquidity would be stretched and investors would face higher losses as the decision to restructure debt would be made under duress.”

I do not expect the financial news out of Jamaica to improve any time soon. However, if change is actually taking place globally, paying serious attention to infrastructure improvement and production by Jamaicans may be the good news for the future. The words of a Morgan Stanley executive on the Asian crisis of the 1990s are worth heeding: “What we need now in Asia is more bad news. Bad news is needed to keep stimulating the adjustment process.”

Let’s respectfully accept the words of such foreign experts as opinions not prescriptions.

There is some consolation in the fact that most of Jamaica’s debt is held by local institutions, which should be more open than foreign lenders to seeking long-term solutions that ease the pain. The short-term situation is bad. Estimates are that over 55 percent of the central government’s revenue goes to service debts that stand at 16 percent of GDP for the current fiscal year. Over the past ten years Jamaica’s public debt to GDP ratio remained above 100 percent. Jamaicans must accept the challenge to produce for its domestic needs. Growth and productivity must come from within, as proven by Singapore’s success.

In a recent interview, Prime Minister Golding acknowledged the positive impact of Rastafari on the Jamaican society over the past 50 years. Much can be learned from the Rastafari experience, a uniquely Jamaican development -- from recycling rubber tyres for shoes and building shelter from scrap to providing a multibillion-dollar cultural product (Reggae) to the global music and entertainment industry. The Ital lifestyle (Google Ital) pioneered in Jamaica is now part of a global alternative lifestyle representing a multibillion-dollar industry. These are testimonies to Jamaica’s ability to produce from within.

While some have been seeking external solutions to our financial and economic problems, our homegrown professionals have been producing world class athletes and performing artists with a fraction of the investment that other countries incur. The health, wellness and sports industries are multibillion-dollar sectors not yet fully exploited.

I hope the next group of esteemed Jamaicans pondering solutions to the island’s productivity challenge will look to Usain Bolt and Mutabaruka, two of the island’s most recognized talents now lecturing to a global audience, as further examples of homegrown successes in their respective industries in and outside the island. They follow such international Jamaican icons as Bob Marley and Marcus Garvey. How far removed these performers seem from the “crisis,” where “a situation in which the government's liquidity would be stretched and investors would face higher losses as the decision to restructure debt would be made under duress.”

I have been known to offer advice when not asked and I shall do it again. Jamaica’s Prime Minister should take the Jamaican creditors for a few days’ retreat in the Cockpit country of Trelawny, a major producer of yam. Start the day with an early morning jog with Bolt, one hour per day with a producing yam farmer, and evenings in a reasoning session on “success” with Mutabaruka.

Somewhere I learned that success is not where you are but the obstacles you had to overcome to get where you are. I remain optimistic about Jamaica’s future success. We have a long history of overcoming obstacles. Our political leaders must look at this history for answers.

Fritz-Earle S. McLymont, a Jamaican, is Managing Partner of McLymont, Kunda & Co. an international trade and development strategist firm, and Managing Director of NMBC Global, a not for profit organization involved in international development. He can be contacted at Fmclymont1@nmbc.org

December 28, 2009

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