January 24, 2013
Once again it seems that Jamaica and the IMF are on the verge of a new lending agreement. And once again, it sounds like more of the same failed policies as before. Last week, after a three-day retreat with Cabinet members, the AP noted that Prime Minister Portia Simpson Miller “said the Cabinet recently signed off on all fiscal consolidation matters to forge a new IMF deal.” Reason to celebrate? Not so fast. As Jamaican analyst Dennis Chung was quick to point out, “further expenditure cuts and tax increases will only pave the way for further economic contraction.” The Economic Commission for Latin America and the Caribbean (ECLAC) is predicting even more job cuts in 2013 precisely because of the impending IMF agreement. Unemployment is already nearly 13 percent.
As Chung notes, also relevant to the discussion is the recent research by the IMF showing that austerity policies have much larger negative effects than previously thought (at least by the IMF). But one need not look outside Jamaica or do a regression analysis to see the deleterious effects of austerity. Faced with extremely high debt payments, and having spent the last few years trying to court the IMF by cutting spending (following a previous IMF agreement which mandated such austerity), Jamaica has been a prime example of the pitfalls of this failed economic policy making. Debt levels haven’t come down, economic growth hasn’t returned, and the downward spiral has continued apace. Even a few dissident IMF directors have expressed concern.
Jamaica was the only country in the Latin American and Caribbean region to see three consecutive years of negative growth from 2008-2010 according to ECLAC, and it hasn’t exactly rebounded nicely since. GDP actually shrank in the first half of 2012 compared to 2011 and ECLAC predicts a paltry 0.1 percent growth rate for 2013, “assuming that an agreement is signed with IMF,” as the Jamaica Gleaner reported.
Unfortunately, while Jamaica needs serious debt relief in order to free up resources for the type of investment that will get the economy moving again, that seems to have already been taken off the table. Last week Finance Minister Peter Phillips stated, “[l]et me make it clear, since there are lot of rumours around, no haircut is contemplated.” The rumors concerned the possibility of a second debt exchange, but the main problem with the first one was that it never went far enough and there was no haircut. Just like with the continued austerity policies, the IMF in Jamaica is providing a great example of how not to learn from past mistakes.