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Shakeups and shakedowns
HEART TO HEART
Betty Ann Blaine
Tuesday, April 14, 2009
Dear Reader, This past week must have felt like Christmas for our political pundits. Within seven days, what might very well be the most austere budget the country has ever seen was presented to the people, followed within a matter of hours by the announcement of a major Cabinet shakeup, and capped the following day by the announcement that the government would resume talks with the International Monetary Fund.
The triple dose of political and economic medicine may very well have been a deliberate strategy to distract pundits from focusing on any one particular issue, and the strategy may actually have worked. As the media and analysts scrambled to ferret out information about which cabinet ministers would be moved and why, it seemed to me that very little attention was paid to the grave implications of returning to the IMF, and the ramifications of that move for the present and for the future.
In 1979, Jamaica became the first Caribbean country to receive IMF balance of payments support. Between 1979 and 1996, the country received almost uninterrupted IMF support, agreeing to six standby arrangements and three extended fund facilities. Jamaica's initial approach to the Fund in the late 70s resulted from its chronic balance of payments problems. Those problems were triggered primarily by the oil crises of the mid-70s and falling revenues from the bauxite industry that resulted when producers retaliated by cutting production in response to a government-imposed levy on bauxite. In an attempt to maintain its previous spending levels, government responded with rapid increases in borrowing from the central bank and overseas institutions.
At the height of the balance of payments crisis, the government ran out of reserves after trying unsuccessfully to ration its supply. In 1977 there was only US$30 million in available reserves down from US$120 million in 1975. A series of controls that were imposed and aimed at stemming the outflow of reserves simply resulted in a large parallel foreign exchange market and the government was eventually forced to devalue the currency. Jamaica therefore entered the decade of the 80s with accelerating inflation, falling output, a severe foreign exchange crisis and political and social tensions. Between the end of 1987 and May 1988, the Jamaican dollar had been devalued by 95 per cent. In addition, the external debt increased steadily throughout the 1980s reaching US$4.5 billion in 1989, or equivalent to 125 per cent of GDP.
Despite the country's tough economic and social challenges, there was substantial opposition to the IMF and its stringent "conditionalities" that led increasing numbers of PNP supporters to begin describing the IMF strictures as "imperialistic" and designed to destabilise the Manley regime. As a result of the IMF's austerity measures, the PNP felt that it was losing too much public support, and in 1980 the party's National Executive Council voted to terminate relations with that lending institution.
<span style="font-weight: bold">But when a country doesn't grow, it has to borrow, and within a matter of months after its victory at the polls the Jamaica Labour Party under Edward Seaga turned to the IMF for assistance. The "structural adjustment" conditionalities placed on Jamaica during the decade of the l980s resulted in almost no growth,</span> and further deepened the social problems that contributed to the abandonment of the poor and the consolidation of "self-governing" enclaves ruled by strongmen in an array of inner-city communities.
Having been made to become a partisan political football, Prime Minister Patterson took pleasure in saying "Ta-ta" to the IMF in a speech where he vowed never to return to what many Jamaicans viewed as the country's rapacious slave masters. <span style="font-weight: bold">It is an interesting twist of fate that the current JLP government when in Opposition, criticised the then finance minister Dr Omar Davis, for not coming clean with the country about its intention to return to the IMF.
So here we are getting ready for talks with an entity with which Jamaica has had, and perhaps still has, a love-hate relationship.</span>
The nagging questions are: Has the IMF changed? What lessons has it learned from its unsuccessful past, and what are these new conditionalities?
There are those who believe that the IMF beast can never be tamed. <span style="font-weight: bold">In an article entitled, "The IMF Rules the World", Michael Hudson insists that "the international financial system's double standards remain alive and kicking - at least, kicking countries that are down or are falling." Hudson continues, "Debtor countries must borrow US$1 trillion from the IMF not to revive their own faltering economies, not to pursue counter-cyclical policies to restore market demand (that is only for creditor nations), but to pass on the IMF "aid" to the poisonous banks that have made the irresponsible toxic loans." Hudson asserts that "anything that bolsters IMF authority (referring to the US$1 trillion pledged by the G20 countries) cannot be good for countries forced to submit to its austerity plans. They are designed to squeeze out more money to pay the world's most predatory creditors. So in practice this G20 agreement means that the world's leading governments are responding to today's financial crisis with "planned shrinkage" for debtors. quite a contrast with the United States, which is responding to the downturn with a giant Keynesian deficit spending programme despite its glaringly unpayable US$4 trillion debt to foreign central banks".</span>
So it appears as if Jamaica has begun to mark time as it marches towards the IMF, despite the history behind us and the uncertainties before us. The arguments, like all the other ones before, are that we have no choice and we must do what we have to do. So as our government engages in its internal shakeups, the Jamaican taxpayers and the IMF have been put on alert for the external shakedowns.
With love,
[email protected]
www.jamaicaobserver.com
HEART TO HEART
Betty Ann Blaine
Tuesday, April 14, 2009
Dear Reader, This past week must have felt like Christmas for our political pundits. Within seven days, what might very well be the most austere budget the country has ever seen was presented to the people, followed within a matter of hours by the announcement of a major Cabinet shakeup, and capped the following day by the announcement that the government would resume talks with the International Monetary Fund.
The triple dose of political and economic medicine may very well have been a deliberate strategy to distract pundits from focusing on any one particular issue, and the strategy may actually have worked. As the media and analysts scrambled to ferret out information about which cabinet ministers would be moved and why, it seemed to me that very little attention was paid to the grave implications of returning to the IMF, and the ramifications of that move for the present and for the future.
In 1979, Jamaica became the first Caribbean country to receive IMF balance of payments support. Between 1979 and 1996, the country received almost uninterrupted IMF support, agreeing to six standby arrangements and three extended fund facilities. Jamaica's initial approach to the Fund in the late 70s resulted from its chronic balance of payments problems. Those problems were triggered primarily by the oil crises of the mid-70s and falling revenues from the bauxite industry that resulted when producers retaliated by cutting production in response to a government-imposed levy on bauxite. In an attempt to maintain its previous spending levels, government responded with rapid increases in borrowing from the central bank and overseas institutions.
At the height of the balance of payments crisis, the government ran out of reserves after trying unsuccessfully to ration its supply. In 1977 there was only US$30 million in available reserves down from US$120 million in 1975. A series of controls that were imposed and aimed at stemming the outflow of reserves simply resulted in a large parallel foreign exchange market and the government was eventually forced to devalue the currency. Jamaica therefore entered the decade of the 80s with accelerating inflation, falling output, a severe foreign exchange crisis and political and social tensions. Between the end of 1987 and May 1988, the Jamaican dollar had been devalued by 95 per cent. In addition, the external debt increased steadily throughout the 1980s reaching US$4.5 billion in 1989, or equivalent to 125 per cent of GDP.
Despite the country's tough economic and social challenges, there was substantial opposition to the IMF and its stringent "conditionalities" that led increasing numbers of PNP supporters to begin describing the IMF strictures as "imperialistic" and designed to destabilise the Manley regime. As a result of the IMF's austerity measures, the PNP felt that it was losing too much public support, and in 1980 the party's National Executive Council voted to terminate relations with that lending institution.
<span style="font-weight: bold">But when a country doesn't grow, it has to borrow, and within a matter of months after its victory at the polls the Jamaica Labour Party under Edward Seaga turned to the IMF for assistance. The "structural adjustment" conditionalities placed on Jamaica during the decade of the l980s resulted in almost no growth,</span> and further deepened the social problems that contributed to the abandonment of the poor and the consolidation of "self-governing" enclaves ruled by strongmen in an array of inner-city communities.
Having been made to become a partisan political football, Prime Minister Patterson took pleasure in saying "Ta-ta" to the IMF in a speech where he vowed never to return to what many Jamaicans viewed as the country's rapacious slave masters. <span style="font-weight: bold">It is an interesting twist of fate that the current JLP government when in Opposition, criticised the then finance minister Dr Omar Davis, for not coming clean with the country about its intention to return to the IMF.
So here we are getting ready for talks with an entity with which Jamaica has had, and perhaps still has, a love-hate relationship.</span>
The nagging questions are: Has the IMF changed? What lessons has it learned from its unsuccessful past, and what are these new conditionalities?
There are those who believe that the IMF beast can never be tamed. <span style="font-weight: bold">In an article entitled, "The IMF Rules the World", Michael Hudson insists that "the international financial system's double standards remain alive and kicking - at least, kicking countries that are down or are falling." Hudson continues, "Debtor countries must borrow US$1 trillion from the IMF not to revive their own faltering economies, not to pursue counter-cyclical policies to restore market demand (that is only for creditor nations), but to pass on the IMF "aid" to the poisonous banks that have made the irresponsible toxic loans." Hudson asserts that "anything that bolsters IMF authority (referring to the US$1 trillion pledged by the G20 countries) cannot be good for countries forced to submit to its austerity plans. They are designed to squeeze out more money to pay the world's most predatory creditors. So in practice this G20 agreement means that the world's leading governments are responding to today's financial crisis with "planned shrinkage" for debtors. quite a contrast with the United States, which is responding to the downturn with a giant Keynesian deficit spending programme despite its glaringly unpayable US$4 trillion debt to foreign central banks".</span>
So it appears as if Jamaica has begun to mark time as it marches towards the IMF, despite the history behind us and the uncertainties before us. The arguments, like all the other ones before, are that we have no choice and we must do what we have to do. So as our government engages in its internal shakeups, the Jamaican taxpayers and the IMF have been put on alert for the external shakedowns.
With love,
[email protected]
www.jamaicaobserver.com