From left, Seaga: "... Government has inherited an economy which, measured by almost any indicator, is in a severely depressed state." At right, Manley who started talks with IMF in 1977.
Garwin Davis, Assistant News Editor
FOR MANY Jamaicans recent suggestions of the Government possibly re-entering a borrowing relationship with the International Monetary Fund (IMF) evoked images of severe austerity measures, massive staff cuts in the public sector and devaluation.
These fears would have been based on the experiences of the Michael Manley-led regime after the 1976 elections and its being forced to seeking funding from the IMF given the reduction in earnings from tourism and capital flight.
The tough conditionalities imposed as part of the IMF agreements helped to fuel arguments of the supporters of the then Government that these were 'imperialistic designs' aimed at destabilising the Manley regime. With each round of austerity and belt-tightening measures, the Government felt under increasing pressure and a saw further decline in public support.
Eventually in 1980, debate within the People's National Party led to a majority vote by its National Executive Council for the country to terminate those relationships.
But that was not the end of the relationship.
Four months after the elections of October 1980 and faced with an economy that then Prime Minister Edward Seaga des-cribed as being in a 'severely depressed state', the Jamaica Labour Party (JLP) Government again turned to the International Monetary Fund (IMF) for financial assistance.
In a confidential submission to Cabinet, dated February 25, 1981 and detailing the discussions the Government was having with the IMF, Mr. Seaga said the economy was in such a mess that failure to secure assistance "including credit extensions from donor countries would worsen the economic crisis Jamaica was facing.
"The IMF is requested to support a three-year programme with an extended facility arrangement of US$621 million," Mr. Seaga told Cabinet. "In addition, Jamaica is requesting a purchase of the outstanding balance in the first credit tranche of US$28.34 million and an amount of US$57 million from the compensatory financing facility. A grand total of US$706 million, of which $288 million would be made available in the first year."
Mr. Seaga was quite upbeat in his submission.
"Discussions with external commercial banks are satisfactory so far 1981/82 and 1982/83 maturities are to be deferred and re-financed; incremental credit of US$70 million will be marketed. A preliminary meeting of donor countries held recently in Washington showed positive responses for financial support of the Jamaica programme. A pledging session will be held in Jamaica on the 11th March, 1981."
And in what he called "objectives and strategies for economic recovery", Mr. Seaga then outlined the country's presentation to the IMF.
"This Government has inherited an economy which, measured by almost any indicator, is in a severely depressed state," he wrote. "Gross domestic product has declined in real terms every year since 1973, and its absolute decline was 18 per cent over this eight-year period. At the same time inflationary pressures have been strong, reaching a peak in 1978, when domestic prices increased by almost 50 per cent, but prices still rose in 1980 by about 30 per cent. Unemploy-ment reached 30 per cent of the labour force by March 1980 and by about 30 per cent, the last month for which data are available. There are, however, strong indications that it has arisen even higher since then."
Mr. Seaga continued: "Invest-ment activity declined substantially in both the public and private sectors. Gross fixed capital formation fell by 1979 to 13 per cent of GDP, compared with 25 per cent in 1973. Currently, utilisation of manufacturing capacity is below 40 per cent; hotel occupancy is at 45 per cent of capacity; utilities and other government services have markedly deteriorated. A dominant cause of the deterioration in the economy has been the persistent and severe shortage of foreign exchange, which made it impossible to provide adequate levels of imports of raw materials, spare parts, and equipment to sustain economic activity."
Mr. Seaga's perspective merely supported an earlier Cabinet submission made by Hugh Small, then Minister of Finance under the Michael Manley Government, only three months before the 1980 General Election.
"The foreign exchange budget has so deteriorated that a programme of action must be urgently pursued if we are not to be faced with choices which will have very far reaching effects for the future of the economy," he told Cabinet. "Inflation on the best assumptions is likely to be over 30 per cent for the year 1980 and could possibly exceed 40 per cent if certain foreign exchange inflows do not materialise."
Mr. Small continued: "In addition, wage settlements are now running at such levels that the percentage change, on a wages fund basis, could easily exceed 20 per cent. When compounded by the budget credit requirements, it is estimated that inflation for the calendar year 1980 could attain a rate of 40 per cent per annum. Such a level of inflation would, of course, erode considerably Jamaica's external competitiveness. Even the programmed internal rate of inflation of 23.5 per cent can erode our competitive advantage to 11 per cent below our trading partners. It might well be that in order to contain spiralling inflation downward adjustments in the budget may be necessary. The situation also has to be watched closely and assessed month by month."
And on the foreign exchange budget, Mr. Small painted this extraordinarily gloomy picture. "The stark reality is as follows," he said. "We can pay our way up to the end of August assuming receipt of all outstanding promised loans. The judgment is that if the economy is to continue to function at current unsatisfactorily level, the minimum incremental resources needed for the next five months will be US$210 million in addition to a US$10 million loan. This is infeasible and, therefore, economic decline at a rate faster than programmed is inevitable. A programme of action must be urgently pursued and without delay."
There are many, particularly within the Opposition JLP, who are of the view that Jamaica in 2003 is facing an economic crisis similar to the one Hugh Small spoke so candidly about in his submission to Cabinet in 1980. Critics of the Government have been accusing Finance Minister Dr. Omar Davies of not coming clean with the country, pointing to a recent visit by an IMF team as an indication that the Government was frantically seeking a way out of its economic mess.
Dr. Davies, cognisant that an admission to being in negotiations with the IMF would be an embarrassing reversal of Prime Minister P.J. Patterson's famous 'ta-ta' to the IMF speech in 1996, where he vowed that Jamaica under his watch would never again go back to the IMF, denied last week that the Government was trying to return to a borrowing relationship with the international lending agency.
It is somewhat ironic too that Mr. Seaga, whose Government had to turn to the IMF in 1981, is again in a position where he can urge Mr. Patterson to bury his pride and seek assistance from the agency.
But back to 1981.
"It will take at least three years to get the economy back on a path to self-sustaining growth," Mr. Seaga told the IMF.
"With the plant and equipment now in place, real growth targets of 3 per cent can be achieved in 1981. For 1982 and 1983, the growth targets of four per cent and five per cent respectively will require adequate incremental formation. The Government realises that, to secure the initial push and momentum, a substantial external borrowing programme is inevitable in the first year. This would include mainly special balance of payments assistance from multi-lateral agencies and from countries friendly to Jamaica and their agencies. It is recognised that it is not in Jamaica's interest to maintain external borrowing for balance of payments support at such levels because the country's problems cannot be dealt with by such assistance alone, but must be solved by incremental earnings from trade in goods and services and spontaneous capital inflows."
It would appear that the more things change, the more they remain the same.
