Edward Seaga, Contributor
The winds of change are now apparently blowing through the corridors of the International Monetary Fund (IMF). This is a good sign.
It is now becoming apparent that the IMF is not the fountain of wisdom on development strategy which it is supposed to be in so far as emerging countries are concerned. If it was, it would have had many success stories to its credit. But the IMF often finds that its dogmatic intransigent policies are the wrong route.
In 1985 when I confronted the IMF with a determination not to follow their standard policy formula for adjustment by devaluation, I asked point blank to be given the name of one country in which the IMF strategy had restored an ailing economy to health. I was greeted with silence and that touch was the final touch in winning my argument with the Fund.
The fact is that the IMF is run by staff and governors who really believe that one shoe fits all feet. The Fund fails to differentiate between the strategies appropriate for developed and developing countries.
A good example is the view of the Fund on a fixed exchange rate. To the IMF, exchange rate flexibility is necessary to adjust the rate of exchange in order to improve the competitiveness of exports, or to compensate for loss of competitiveness. The solution is always to depreciate or devalue the currency, or rarely, appreciate the value to make the adjustment.
Export commodities
The rigidity of this approach has overlooked countries which do not, indeed, cannot, improve their external accounts through adjustment of the exchange rate because their export commodities are insensitive to value changes or the earnings are in U.S. dollars.
Examples are easy to find. In the case of Jamaica, and almost all of the Caribean Community (CARICOM) countries, export earnings for tourism and in Jamaica's case, bauxite/alumina, are in U.S. dollars which would not be changed by devaluation nor depreciation. Any advantage gained by dollar earnings on being converted to more Jamaican dollars in a devaluation, is quickly wiped out by the increased cost of fuel, energy, telephone and other import-based supplies. Hence, there is no benefit accruing to export earnings.
In the case of banana and sugar, the price differential between actual cost and competitive cost is so huge that it would require a massive devaluation to bring the cost of sugar and bananas to internationally competitive levels. Such a steep adjustment of the exchange rate would virtually wipe out whole sectors of the economy.
This is why all CARICOM countries, except Jamaica, Trinidad, Guyana, Haiti and Suriname, have not followed the IMF path but have pegged their rate of exchange to the U.S. dollar rather than allowing it to float. Trinidad, in this group, does benefit from the use of a managed float in which it can change its rate of exchange to suit export policy because it is a large exporter of liquefied natural gas (LNG), methane and, to a somewhat less extent, steel, all of which face competitive markets.
Trinidad is an industrial country and, therefore, fits into the category of countries for which the IMF supports a flexible rate.
The difference between the two categories of countries is lost on the IMF. Hence, their dogmatic view that Jamaica should continue to use a flexible exchange rate although it cannot, and does not, serve any purpose whatever.
Having a broader base of appointed governors, as is apparently now being contemp-lated, the Fund would benefit from alternative approaches which will be to the good.
In this mix, there is likely to be a deeper understanding of the role and benefit of labour-driven, rather than capital-driven programmes as the strategy for economic develop-ment. Jamaica is an instance of how this labour-intensive policy worked well, as it has in China.
In the last half of the 1980s, I employed this strategy deliberately to increase employment by introducing labour-intensive projects, notably hotel expansion, garment exports, then for a while Agro 21, and later the Digiport for information technology. These projects were the main providers of a record 100,000 new jobs or 33,000 per annum average over three years in the late 1980s.
During the last three years, 2003-2005, the increase in employment was 18,000 or 6,000 new jobs on the average per annum. This sharp difference in employment, decreasing from 33,000 to 6,000 new jobs on the average per annum was because the strategy was not to target labour-intensive projects.
What is of greater interest is that the level of capital formation required to create 33,000 jobs per annum in the late 1980s was 24 per cent of GDP. Yet, with a higher level of capital formation, 28.7 per cent matching the peak in the last half of the 1960s, only 6,000 jobs per annum have been created.
Hence the main reason why growth in the last half of the 1980s averaged five per cent per annum instead of less than one per cent over the last 16 years.
This is not the kind of strategy relished by the IMF. Standard IMF policy regards job creation as the outcome, rather than the driver of development.
Jamaica must stop treating the policies of the IMF as gospel and evaluate its own strategic paths.
The beautification programme announced by Prime Minister Portia Simpson Miller last weekend fits right into this labour intensive picture, although it must be recognised that the outcome can spin both ways. Plants need water to grow otherwise they will fade and die. There has been more than one attempt at beautification, for instance, Marescaux Road and East Heroes Circle, which provided blooming flowers for a few months using NWA tankers to water the plants. As soon as this stopped, the plants died.
This is a caution I add to the proposed new project because the praise which will come from beautifying areas will quickly turn to scorn as the flowers fail to bloom or they die.
Appropriate irrigation
In the 1980s, I avoided this predicament by using drip irrigation, one of the lessons learned from Agro 21, to provide a continuous flow of small quantities of water to the roots. Marescaux Road and Heroes Circle, it will be remembered, were a beautiful sight to behold. What is more important is that they remained that way, because of appropriate irrigation, until the government changed.
It would add much to the image of the country and its branding if the new highways could, where possible, be beautified. As one whose passion is for flowers, I hope this proposed new project will be a second chance to make the face of Jamaica beautiful again.
Edward Seaga is a former Prime Minister. He is now a Distinguished Fellow at the University of the West Indies. Email: odf@uwimona.edu.jm
