Till debt do us part

... Crash course (literally) in IMF economics

  Gordon Robinson, Contributor

To properly respond to Audley Shaw's recent invitation to submit ideas for economic growth (wants us to 'think outside the box'), we must first face some inconvenient home truths about our economy and current imposed economic 'policies' best described as It's Mostly Foolishness (IMF).

The most fundamental truth is that economic growth must be driven by government spending. It's as simple as that, and all other tired clichés like 'private sector as the engine of growth' are pie-in-the-sky dreams. The main reason the United States economy is dangerously close to a double-dip recession is that Obama didn't have the courage to match his rhetoric and compromised from the outset on an inadequate stimulus package.

Then his recent weak-kneed surrender to the Tea Party has caused a further savaging of public expenditure. This is why the US unemployment rate still exceeds the magic nine per cent number with which only one president has ever been re-elected.

That's the bad news. The good news for Obama is that, since the Tea Party has triumphantly claimed ownership of the recent economic suicide bomber disguised as a plan, it'll have to accept the blame for its predictable failure at the next election.

'Government spending' doesn't mean pork-barrel economics. What's required is strategic expenditure on vital sectors to drive both human and infrastructural capital development, which is the requirement for any economy to grow. Instead, we're burying our noses in the IMF's rear end and about to make significant expenditure cuts followed, no doubt, as soon as the next election is over (hence the constant harping on the 'medium term' being the sticking point), by severe public-sector job cuts.

Handling the real problem

Is this 'Independence'? Who will have the courage to address our real problem? The reason we can't spend as we should to stimulate the economy is our huge public debt, which is now 129 per cent of GDP. We're using more than 45 per cent of our annual Budget to service this debt, leaving no fiscal space to stimulate growth.

We must accept fact and ignore political rhetoric. In so far as the credit-rating agencies are concerned, the countries with 'safe' triple-A ratings (the US no longer among them) include economies of every size and shape. What's the common denominator? Let's look (2010 debt-GDP ratios quoted):

Australia: rich in natural resources; low population (21.5 million), lower labour costs, low unemployment rate; public debt 22.4 per cent of GDP.

Canada: vast natural resources; population under 34 million; public debt 34 per cent of GDP.

Denmark: well-educated population; small population (just over 5.5 million); strategic government spending (aided by a fiscal surplus) to drive the economy; a sub-five per cent unemployment rate; public debt 46.6 per cent of GDP.

Germany: the No. 5 global economy; population of 81.4 million; healthy unemployment rate (for a European nation); a highly skilled labour force; public debt 78.8 per cent of GDP.

Holland: population 16.8 million; high budget deficit (5.6 per cent of GDP); public debt 64.6 per cent of GDP.

Norway: probably the best of the AAAs; rich in resources; low population (almost 4.7 million); unemployment very low; public debt 47.7 per cent of GDP.

Singapore: investors' favourite; tiny population (4.74 million); an artificially high public debt (102.4 per cent of GDP) but that's a government tie of the Central Provident Fund; Singapore hasn't borrowed to finance any government deficits since the 1980s.

Sweden: the largest Scandinavian nation (more than nine million population); public debt 40.8 per cent of GDP; and

Switzerland: the world's banking centre; population just over 7.6 million; unemployment shockingly low; public debt 38.2 per cent of GDP.

These countries have both low and high populations; some are rich in natural resources; some depend heavily on foreign trade. All have low public debt-GDP ratios. Our financial God, the IMF, isn't addressing this issue. It couldn't care less. Why? The IMF's main focus is to get countries like Jamaica to reduce expenditure in order to ensure it pays its external debt. The idea of reducing its external debt in order to permit an increase in local expenditure would cause panic in the halls of the IMF.

Any reader interested in knowing what the IMF's true purpose is must study the April 2011 presentation to the IMF's International Monetary and Financial Committee meeting (allegedly on behalf of Caribbean nations) by Canadian Finance Minister James Flaherty. Keep a barf bag nearby. You'll need it.

He identified the IMF's objective as "global policy coordination" and "global economic stability" and described its role as follows:

"The IMF was an important contributor in assisting the global economy through the worst of the financial crisis. Its role in overseeing a lasting recovery and preventing future crises through the timely identification of risks and the fostering of global economic cooperation will be equally important as we look to the future."

Eliminating 'risks'

The IMF is interested in the global economy, not that of any individual country. Let me translate. It wants to ensure that the multinational holders of national debt instruments are not compromised. Ever. Jamaica is one of those 'risks' it must identify. Then, Jamaica must be eliminated as a 'risk'. Among Flaherty's Freudian slips, including the trumpeting of a forced 3.75 per cent of GDP budget cut (oops, sorry 'adjustment measure') in Ireland, came the following under the heading 'Caribbean Developments':

"In the Caribbean, a very slow recovery has begun, paced by a firming in tourism activity. While output gains are expected to be consolidated in 2012, medium-term performance is still expected to trail Latin America ... . However, this growth potential has to be enhanced to underpin sustainable medium-term fiscal consolidation, sustain further poverty-reduction efforts and aggressively confront structural unemployment. Caribbean authorities are, therefore, committed to policies to strengthen the business environment, enhance labour force productivity, and diversify the sources of growth ... ."

Pardon me while I translate that highfalutin economic gobbledygook into plain English. Apparently, we must depend on tourism to grow for Jamaica to grow. But tourism growth depends on US recovery. Encouraging, isn't it? "Output gains" can only refer to increases in GDP, which hasn't occurred in Jamaica since 2007. Tourism contributes about 10 per cent of Jamaica's GDP.

The most important sentence is: "This growth potential has to be enhanced to underpin sustainable medium-term fiscal consolidation, sustain further poverty-reduction efforts, and aggressively confront structural unemployment." This means that the IMF plans to do everything upside down. First, we must implement "fiscal consolidation" (budget cuts) then depend on growth "potential" (from "tourism" and other non-existent "output gains") to be "enhanced" (i.e. perform better than now) to compensate ("underpin") for the reduction in spending and produce growth. In other words, pay your external debt at all cost; reduce fiscal deficits to ensure this; then dream of "medium-term growth potential" to rescue your nation from the dire consequences of such unpatriotic policies. Is he serious? How to "diversify the sources of growth", if we have no money to spend?

In a critical analysis of foreign debt headlined 'How to make a modern empire' (Gleaner, January 13, 2010), I wrote: "Our foreign debt is an anti-developmental tool used by financial imperialists to create economic empires under the guise of offering aid to Third World countries while, in reality, diverting funds into the pockets of their corporate friends who, in return, make large campaign and other contributions back home."

As I wrote then: "The plan, as it has always been, is to borrow our way out of economic distress. Production, obviously, isn't an option. But is this plan ours alone? What of the lenders? What's their plan? Have you noticed that whenever we borrow vast sums for infrastructural monstrosities (like toll roads or multi-purpose stadia), these funds end up paid to foreign contractors? If it weren't for our hard-working extortionists, Jamaicans wouldn't see a penny of these funds. And, after grand political announcements, the final structures are useless to the majority of Jamaicans. What use is a toll road to a small farmer who can't even get to the main road from his farm because of the abysmal condition of feeder roads where they exist? To the captive Portmore resident, it's but a tool of official extortion."

Now that we have succumbed to the temptation of borrowing instead of producing our way out of cash crises by slurping up low-interest loans obtained with IMF seals of approval until we are bursting at the seams with a debt-GDP ratio of 129 per cent, here comes the same IMF to tell us to sacrifice national priorities to repay these foreign loans. In essence, every Jamaican child is born owing more than US$7,000.

Bad prescription

Then the IMF economic prescription forces us to undereducate that child. When the child has passed through our ill-equipped education system born of lack of fiscal space and thus unwanted globally, the IMF instructs that the child mustn't be offered a job in the public sector because an 11 per cent wage-GDP ratio is just too high. In fact, IMF policy is to reduce the number of such jobs currently on offer. Why? Because our first priority must be the repayment of these loans the IMF enticed us to take and we were too mentally lazy and careless of the future to refuse.

Is it no wonder our finance minister keeps returning to the public-sector wage settlement; the "additional revenue needs or expenditure cuts connected to/arising from the settlement" which he says "will be outlined in the supplementary budget"? It's no surprise he's obsessed with concluding negotiations with public-sector unions on a formula for wage settlements in the medium term (2015) that is consistent with the "agreed" wage-to-GDP target (9 per cent). Agreed by whom? Our parliamentary representatives? Or the finance minister? He seems content to call the finalisation of a supplementary budget, reducing already inadequate government spending, "significant progress" and to blame public-sector workers (who insisted that GOJ honour its contractual commitment to them as zealously as it approaches payment of its external debt) for creating a budget "gap".

Do we need a rocket scientist to ferret out the IMF's purpose and intent? Is it our economic recovery, or is it "global economic stability", whatever that is?

My question to Audley Shaw, who asked for 'out-of-the-box' thinking, is: Whose box? Audley, don't you dare come with any new taxes. Don't even think about another JDX. Maybe it's time to consider negotiating an EDX.

Peace and love.

Gordon Robinson is an attorney-at-law. Email feedback to columns@gleanerjm.com.