Changing the IMF model

Clyde Mascoll,

Added 25 October 2012

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I stumbled on THE MINUTES  of the meeting held in Tokyo on October 14th between the managing director Christina Lagarde of the International Monetary Fund (IMF), the World Bank president Jim Yong Kim and Caribbean delegates with particular interest in finance and economic affairs. Two things stood out: the IMF’s focus on fiscal consolidation and the contribution of the Governor of the Central Bank of Barbados. On the occasion, Ms Lagarde noted that “on the debt issue, again there are not many, many remedies. There is the fiscal consolidation route that is obviously the difficult and sometimes long road that many countries have  to take”. In response to Ms Lagarde, Minister Sinckler said: “I note with interest your point on the position of fiscal consolidation. We believe that fiscal consolidation is, in fact, a correct path that we can follow, but it is the variance, it is the extent, the degree, the pace at which such is undertaken, and the impact which extensive fiscal consolidation can have on very small populations, who take a much longer time to recover from such than would  be the case for larger economies that have a greater possibility to recover.” What frankness when the audience  is non-Barbadian! To date, Barbadians have not been given any details in respect of the Government’s fiscal consolidation programme with the Inter-American Development Bank (IDB). In May,  I wrote that a fiscal consolidation with the IDB is tantamount to a stabilization programme with the IMF. To demonstrate my position, I quoted  the following from the IDB document:  “A general condition for the disbursement of the tranche of this programme will be a stable macroeconomic policy. This shall  be set out in the country’s policy letter  to the bank [IDB].”    The onus is on the Government to set out the policies it intends to implement as part of the fiscal consolidation programme. The policies have to be approved by the IMF. After all this time, the public has not been informed of the policies. Perhaps the pending election is a concern. This brings me to the Governor  of the Central Bank’s contribution, which concluded with “we persistently and consistently get bad advice from the IMF . . . and we have consistently got bad advice on policy options because the model is wrong, and we need to change that, if you are to be helpful to us”. The problem is that Minister Sinckler is telling the IMF that fiscal consolidation is a correct path and the Governor is telling them that the model is wrong. This is conflicting, since Barbados’ Medium Term Fiscal  Strategy (MTFS) is based on the  IMF financial programming model without devaluation.    If the IMF is wrong and it needs  to change, then the policies in the MTFS are wrong. What fascinates me about all of this is that the Governor is on record saying that no one has a “magic bullet” and that there are no alternative policies to help the Barbados economy.   The problem is that while no one else has an alternative, according to deputy managing director of the IMF, Zhu Min, “Governor Worrell has his own model”. It is driven by productivity gains. But how do we get people to work harder without increasing their pay? The answer to this question is the key  to Barbados’ economic recovery and there are alternative perspectives. On several occasions in the recent past, both the Minister of Finance and the Governor have praised the Government’s fiscal strategy. At a recent conference in Trinidad, the regional director of the IDB proclaimed part ownership of Barbados’ MTFS, which does not support the label  of home-grown.   Furthermore, it is now being advocated that Barbados does not have a debt problem, yet the MTFS  is predicated on the need to reduce  the overall fiscal deficit and generate  a balanced budget or even a surplus  in the near future. “This will ensure a reduction in the debt ratios  to sustainable levels.” Barbados has problems with economic growth, unemployment, fiscal deficits, rising cost of living and debt. There  is a lack of clarity in what the Government’s priority is. Nevertheless, at the core of any solution is adequate economic growth, some of which has to be inspired by increasing local spending.     While protecting Barbados’ exchange rate is sacrosanct, there is an obsession with the Central Bank’s foreign reserves that eventually becomes a deterrent  to economic growth. Change the focus  of the model!    • Clyde Mascoll is an economist and Opposition Barbados Labour Party spokesman on the economy. Email clydemascoll@gmail.com.

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