IMF – possible impact

Well it is official we are now going back to the IMF and the discussions are abounding as to the conditions that will be attached to the arrangements and whether the IMF has changed.  The years of neglecting the economy and borrowing and then wasting those resources has come back to haunt us.  We are officially bankrupt, living on borrowed funds with seemingly no way out of the situation.

It is likely that the IMF will require us to first deal with the budget deficit. We have to find a way to ensure that we do not spend more than we earn which will at least help us not to increase our total debt.  I would like to point out that we have to earn a surplus in order to start reducing our debt.  This will not be possible without a reduction in interest rates even if it results in a devaluation of the Jamaican dollar.

Another condition may be the reduction in the balance of payments, that is, the surplus of imports over exports resulting in a shortfall of foreign exchange earnings.  The fact is that we import far too many things and do not produce enough for export.  We need to get to a more balanced position reducing our exposure to foreign exchange shortage and further devaluations.

Thirdly, the size of government will surely have to be addressed as it remains the largest drain on the budget outside of debt.  I do not see how it is possible to reduce the budget without reducing the size of government. The past 20 years of no growth have served to restrict employment opportunities for these persons and it has also served to reduce the amount of taxes that government collects.

Finally, any agreement must address the revenue that the government is losing because there are a significant number of persons who do not pay their taxes.  In order to close the budget gap the government has to take firm action on tax evaders.
For me though, these things are necessary with or without the IMF the difference is that if we go through the IMF they will ensure that we do them whereas if we don’t we will be tempted to put it off for a future date.

Feedback question: Should we try to go it alone without the IMF?