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PURELY POLITICAL: What will IMF find now?

Albert Brandford

PURELY POLITICAL: What will IMF find now?

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Propagandists are alive and well in Barbados in 2013; only their methods and media are changing.
The thought came after an initial reading of a post on social media that the dreaded International Monetary Fund (IMF) had given Barbados a passing grade and made positive comments about its management of the economy.
Now, that has to be taken within the context of unconfirmed reports that an IMF mission has been here, and the impression was that it had left generally “satisfied” with Government’s performance. Then, I found what might have been the source of either the misapprehension by the would-be propagandist or a delicious nugget with which to create mischief.
In the mainstream media was a report from a seminar for domestic financial institutions, quoting an official of the Financial Services Commission as saying that having completed the first part of a joint IMF-World Bank assessment, Barbados had received “generally very positive comments” on the management and regulation of its financial system.
Clearly, these were two different assessments but the initial impression was created that in spite of the fiscal crisis and the austere Budget measures, the “Beast from Washington” had given a passing grade to the management of the economy.
The casual reader could be forgiven for falling for the propaganda which wrapped the innocence of the professional report around a mischief. But it could only have succeeded because of talk about the IMF being here for preparatory work on an Article IV Consultation.
Country surveillance is an ongoing process that culminates in regular consultations.
“The consultations are known as ‘Article IV Consultations’ because they are required by Article IV of the IMF’s Articles of Agreement. During an Article IV consultation, an IMF team of economists visits a country to assess economic and financial developments and discuss the country’s economic and financial policies with government and central bank officials.”
The last such consultation was in 2011, with the Public Information Notice (PIN) published on December 7.
There are reports that none was done for 2012 since an election was pending and the IMF was advised by a senior technocrat that a mission at that very sensitive time, might be, to say the least, inopportune.
So, what did the IMF find when the country was told that we were in the grip of the worst recession in a century?
According to the PIN: “The difficult global economic conditions continue to pummel Barbados with growth at anemic levels and inflation and unemployment rates moving up sharply. After two years of decline, real Gross Domestic Product (GDP) growth was only 0.2 per cent in 2010, while estimates for the first nine months of 2011 show an expansion of one per cent due mainly to improved tourism and construction activities. With overall economic activity remaining subdued, the unemployment rate almost doubled from 6.7 per cent in 2007 to 12.1 per cent in June 2011. Pressures on prices have increased with inflation estimated to have reached 10.6 per cent (year-over-year) in August 2011 as commodity prices surged.”
And we all know that the situation has grown worse, particularly after the February general election. So what would the IMF find now?
Perhaps, the greatest turnaround among economic indicators has been the inadequacy of the foreign reserves. Previously, the Governor of the Central Bank reassured the public the cover was adequate. In recent times, not only have they fallen but an explanation has not been forthcoming.
The danger with the latter is its potential impact on the confidence of investors and consumers. Even the Minister of Finance in the Budget was concerned.
“If this is indeed the case, and noting the loss of over $300 million in reserves in just over three months,” he said, “it would be reasonable to deduce that much of this could be attributed to a decline in the level of confidence in our economy by foreign and domestic investors alike.”
That was naïve; and might itself have triggered even greater speculation about the true nature of the economy.
Nevertheless, Government has gone on the private international market to raise a $1 billion loan, notwithstanding our junk bond status, which makes the borrowing more expensive. This will add to the existing debt that is already a source of concern. In addition, Government says it will borrow from the Chinese and Japanese to help restructure the sugar industry and rebuild Almond Beach hotel.
The minister outlined a set of proposals to reduce the fiscal deficit over a 19-month period. The harsh tax measures and the proposal to send home public sector workers were met with public outrage, especially given the promise by Government during the election campaign not to send home anyone.
The IMF will find an economy in worse condition than last year and a Government more confused about which direction to take. No one is sure that Government truly intends to make adjustments to its spending; certainly, it does not intend to reduce the national debt in the foreseeable future and the experts are agreed that the Budget will not restore economic growth.   
In short, Barbados will be at the mercy of the IMF, from the perspective of its failure to address the issues clearly outlined in previous Article IV Consultations. In the face of all of this, the economy’s lack of growth forces Government to increase tax rates to raise revenue rather than rely on economic growth – killing the goose that lays the golden egg.
The IMF will conduct surveillance in an environment in which there is a very tender balance between revealing the truth and concealing the bad.