PURELY POLITICAL: IMF, or no IMF?
Amidst the prolonged quiet on the economy by Government spokesmen, there are concerns about the failure of the 19-month fiscal adjustment programme introduced in August last year.
And this past week, the Barbados Chamber of Commerce and Industry (BCCI) hosted a panel discussion on the demerits and merits of going to the International Monetary Fund (IMF).
The topic suggested the BCCI believes the IMF is worth considering as a partner in rectifying the serious economic issues facing Barbados. This view was implied by the presence of a financial analyst and member of Jamaica’s Economic Programme Oversight Committee who painted a success story of that government’s efforts to date in going to the IMF.
The BCCI president expressed disappointment that a hybrid approach suggested more than a year ago has not been embraced by Government. The belief is that the size of the fiscal problem requires a political will beyond the scope of the Cabinet to implement.
While it is being argued by the Minister of Finance that the revenue owed to Government would go a long way on narrowing the fiscal gap, that is taken as another attempt to give hope where action is required.
The fiscal problem is recognised as one of excessive spending but Government believes, for political reasons, that it is easier to raise revenue than cut expenditure. The real issue is further job losses in the public sector.
To package this perspective, Government has chosen to impress upon the public that it is owed millions of dollars which can be used to make the adjustment less painful if the revenue is paid. Nowhere in the message is it made clear that the revenue dates back to several years. Indeed, much of it would have been owed under the previous Government.
If all the money had to be paid now, the argument that the country is overtaxed would take on a new dimension. Further, experts have been arguing that the existing level of taxation has slowed economic activity by reducing spending and forcing individuals to reduce their savings or increase their borrowing, which has been all negative for Government.
From a political perspective, Government’s cry about the revenue owed, allows it to win some sympathy from people who generally believe that it is the business sector that owes the majority of the taxes. This spin is not to be put beyond a Government that has engaged in winning public relations battles for the most part.
However, there is one public relations war that it does not want to engage in and that is finding the justification to the go to the IMF for fiscal and financial support. It is a war that has its roots in a previous Democratic Labour Party (DLP) administration and notwithstanding the perceived economic success of the IMF programme in the early 1990s, that came with political scars.
The current administration has no intention of reliving the experience, no matter how necessary it may be in arresting the economic decline. It is accepted that it would be cheaper to borrow from the IMF than to go on the international financial market at much higher interest rates, given the several downgradings in recent years. However, there is a significant political cost in going to the IMF because it will impose targets that have to be met.
In the circumstances, it does not take an expert to reason that an expenditure problem has to be solved by addressing expenditure. This means cutting the size of the public sector even more, which is against the political will of the current Government.
The home-grown fiscal adjustment, which was on the cards since 2009, has not been effective. In fact, it has failed to deliver on its objectives. Four months from now, Government would have been in office for two years in its second term and not much has been achieved. Indeed, the evidence points to economic decline, rising unemployment, growing debt and no obvious improvement in the fiscal deficit.
Given the magnitude of the economic crisis, the question is, does Government have enough time to enter into a formal IMF programme from which it can escape before the next election?
If the answer is no, then BCCI’s wish for a partnership may not be viable. If the answer is yes, then Government has conceded defeat in the eyes of the voting public.
• Albert Brandford is an independent political correspondent.