Returning to the IMF, the only way for JA?

July 23rd, 2009

After weeks of speculation, Minister of Finance and the Public Service Audley Shaw, on Tuesday announced that Jamaica would be seeking to borrow funds from the International Monetary Fund (IMF) for balance of payments support.

Government as well as sections of the private sector and the labour movement said the country had no choice but to return to the international lending agency.

The global economic crisis has hit an estimated US$ 1.3 billion of export revenue out of the country’s coffers. Revenue collections internally is also way below projections. While IMF funds cannot be used for government housekeeping expenses, it would give the country fiscal space as these borrowed money would be targetted at paying for imports such as oil.

Many analysts have said Jamaica needs to reduce its dependence on  imported goods, which would reduce the balance of payment deficit. The analysts have said that the IMF borrowing cannot be the panacea of the country’s problems and have prescribed growth as the only medicine to counteract the economic predicament.

But how possible is this? How can Jamaica earn and grow its way out its trillion dollar debt woes? Have your say….


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14 Responses to “Returning to the IMF, the only way for JA?”

  1. Kevin Forge says:

    Both views are correct. Proper use of multilateral borrowing is a key route to growing the economy, which in turn is key to getting out of debt. Let me clarify.

    Currently the largest expense on the budget is interest payment. If we could drastically reduce interest rates, we would have a balanced budget. If we had a balanced budget, we could reduce interest rates. Chicken and egg? Not exactly. One way to break into that loop is to start borrowing from All the multilaterals at low rates (from 1.3% to 3%).

    With enough funds to pay for the next few rounds of maturing instruments coming in at these low rates, the Government can offer those same low rates for the next round of bonds. Investors must then either accept these lower rates on their money or find something else to invest in. Either way, we will be better off.

    You see, most government paper is held by local financial institutions. So when, that government paper only pays 3% or less, they will have to start paying their depositors and investors 2% or less. To compound it, most don’t have the efficiency of scale to make that a viable proposition. As such they will have to find people to borrow that money. The only way for them to attract borrowers, they don’t already have is by sharply reducing interest rates and removing most of the unnecessary red tape currently faced by borrowers.

    What dose this mean for the economy? It should lead to a sharp increase in new businesses and expansion in existing businesses. Exactly what we need to grow our way out of the debt.

    One other thing that needs to be done in preparation for this is to simply abandon any attempt to collect taxes on the transfer of land. A huge proportion of the property in the country cannot be used as collateral simply because those who inherited it cannot find the transfer related taxes. Reduce those taxes on more expensive parcels and completely remove them from the cheaper properties and sustained double digit growth can be achieved

  2. Steve says:

    When I read the budget after it was presented I wrote then that it was not credible and I predicted that we will have to go back to the IMF.

    The usual partisan penny section derided me for saying so.

    These partisan cheerleaders having never prepared a budget much less understand the importance of a budget took me to task. Well today we know that I was right and Shaw and those cheering from the nose bleed section were wrong.

    The so-called captains of industry in Jamaica were cheering loudly too..This was a credible effort by the Minister they said..They were wrong then but they are not being held accountable for their premature celebrations. Mr. Azan et al are not being asked to defend their statements then by our inept journalists.

    Fast forward to today and they (private sector) are making statements that the government had no choice but to go back to the IMF..Which is it Mr and Mrs Private Sector?? Was the budget credible or was it not? If it was credible why do we have to go back to the IMF?? and if as you say we had no choice but to go back to the IMF why did you say the budget was credible??

    Returning to the IMF is not the only way, but it is the best option at this time. I understand the trepidation that many have when it comes to the IMF..Frankly speaking the IMF’s history brings this about, but if we have smart people in the halls of power we can use these challenges to create opportunities.

    When one is given lemons, we not only make lemonade, but we should also sell lemonade.

    Stay tuned for more suggestions from me..signing off.

    P.S

    I hate saying I told you so when there is nothing concrete to show for it..

  3. Steve says:

    Kevin you have made a compelling argument for borrowing from these Institutions. That is exactly what should happen in a free market economy. But will it??

    When Government borrows money at the levels our government does, it has what economists call the crowding out effect. Whatever money is left in the banks is being chased by a large pool of borrowers. When demand exceeds supply then price (interest rate) goes up. As long as the Government of Jamaica borrows money on the local market the cost of borrowing money by you and I will be high. Whether they borrow it at 2% or 3%, as long as they are the major borrower on the local market then banks have no reason to compete for local business. Mind you banks compete by offering competitive rates. As it is in Jamaica banks have no reason to compete for business, in fact they can afford to charge as high a rate as possible because they know that their best customer (JA Govt) is providing adequate returns to keep their businesses profitable.

    Should the Government suddenly finds itself with the luxury of options way better than the current ones, then these banks will have to begin to look elsewhere to make money.

    The trick is to guard against spiraling inflation. In the USA the FED have enough instruments to set the tone to manage interest rates without actually saying what that rate should be.

    The only mechanism the BOJ has is to issue bonds which will impact the fiscal policies set by the IMF (believe me they will be setting some).

    So like you postulate in your post…it is a case of egg and the chicken..which come first???

  4. BOB says:

    MR FORGE.

    EXPLAIN TO ME WHY I WOULD BE FORCED TO ACCEPT JAMAICAN GOVERNMENT LOW PAYING BONDS? WHEN I COULD GET MORE FROM FOREIGN SOURCE WHERE THEY ARE MORE SECURED, AND I WOULD BE EARNING A HIGHER INTEREST RATE. AND IN FOREIGN CURRENCY AT THAT?… HERE IS ANOTHER FLAWED WITH YOUR THINKING, WHEN YOU DROP PROPERTY TAXES. WHERE ARE YOU GOING TO GET THE MONEY TO MAKE UP THE SHORT FALL?…

    IT WOULD BE VERY NICE IF THINGS WOULD WORK AS YOU ARE DREAMING!… YOU ARE YOUNG AND YOU SHOULD HAVE KNOWN BETTER THAN THAT… OR MAY BE YOU DON’T HAVE THE CAPACITY TO KNOW BETTER.

    THE PROBLEM IN JAMAICA , IS THAT THEY HAVE NO MANAGEMENT SKILLS. THEY BELIEVE BORROWING MONET IS THE WAY TO GO. BUT EVEN IF THEY GET THESE LOANS AT THE RATE YOU ARE SUGGESTING!… THEY DONT HAVE THE DISCIPLINE TO DO THE RIGHT THING AND STICK TO THE GUIDLINES IN WHICH THEY CAN MANAGE TO TURN AROUND THE COUNTRY ECONOMY.

    THEIR IMMEDIATELY INSTINCT IS TO START SPENDING WHAT THEY STILL DON’T HAVE . AND WE WILL ENDED UP BACK AT SQUARE ONE.

    WHAT JAMAICA WANTS IS A DICTATOR THE LIKES OF SADDAM HUSSIEN. ITS TOO BAD THAT GEORGE BUSH HURRY AND KILL HIM. OR ELSE WE COULD USE HIS STYLE OF DISCIPLINE . WHERE GUNMEN WOULD BE NO MORE.
    MOTHERS WOULD GIVE UP THEIR UNRULY CHILDREN WITH EASE. BABY MOTHERS WOULD ROUSE OUT THEIR CRIMINAL BOYFRIENDS, CORRUPT COPS WOULD BE EXECUTED IN THE PUBLIC SQUARE. AND JAMAICA WOULD RETURNED TO PROSPERITY!…

  5. Ommugabe says:

    Watch and learn!

    http://www.youtube.com/watch?v=R6WstddMJZQ&feature=related

    For those who want to be LEARNED, want to be more than being mere literate, want to be informed about european-created vulture organization like IMF, World Bank, International (european) Criminal Court.

    For those who yet do not recognize the relentless efforts of Europeans to DIVIDE, DOMINATE & PLUNDER countries like Jamaica with lost leaders who are more than willing to act as political prostitutes for the wealth-addicted.

  6. Kevin Forge says:

    Steve,

    You and I are actually on the same page. One interesting point is that the IMF itself has complained about the high rates of interest in Jamaica. Since they can do something fairly straightforward to lower those rates. I.e. Back government bonds at very low rates in the guys of provideing bridge financing or whatever.

    As for the crowding out. Finantial houses have overhead expenses (Electricity, security Salaries etc…) Most of those in Jamaica have annual expenses running at a couple of percent of thier total investeble assets.

    This eans that if all they can get fro Government is 3% and they drop the rates to thier customers to 1%, they cannot stay in business on the 2% left over.

    They would have to go out and start lending at 5% and 8%, Just so they have enough money to stay afloat.

    For the country as a whole. A business that’s limping along while paying 30% interest would be very profitable at 8%

  7. SEAN says:

    It is time for our Beautiful Jamaican people , rich and poor to get up and defend our blessed island
    from these heatless workers of Satan and let them know,, WE AIN’T GONNA TAKE IT NO MORE!!!

    Our Mothers and fathers are dying.
    Our children are suffering and dying
    I’m tired to hear and see my people crying

    The only way the senseless cold blooded killing can stop is if we,
    out of many one people come together AGAIN as ONE.

    What has happened of our hearts, our pride, our love for each other, and our blessed island Jamaica?

    Why are we sitting down turning our heads the other way
    doing nothing to stop the vicious devil workers from killing our children, mothers, and fathers every day?

    I write with tears falling from my eyes……My hearts rhythms are like the sound of rain drops….. as i cry….. Why, Why, oh sweet sweet
    Jamaica……..why???????

    Why when the police gets the best of a murderer our people demonstrate, block roads, and defend the same ones who
    been robbing. raping and killing our love ones?
    where’s the support from out people for our brothers and sisters who leave their homes and love ones every day to go
    serve and protect you and I ?
    Why do our people allow these snakes to eat, sleep, and drink with them?

    knowing that at any given moment they too will be bitten and strangled by the same ones they protect and fed?
    knowing that at any minute they will lick off them head,,,,,,,,what minute,,,, what hour their blood too will be shed

    why, why my Jamaica people, why?
    I ask these questions as my heart cries. why, my Jamaicans why?

    Help!…….the police are crying……… they need your help.

    The Police alone can not stop these vipers………. Help. they need your help!

    Our great Bob Marley sang…. Don’t worry……….. about a thing……… cause every little thing … gonna be alright……….

    that was then.

    Let me see the hands of those who don’t worry each day that they awake and can see the sun
    Knowing that at any minute,, men of evil can come take their life, or come stop their fun……..

    Today i sing…………… Yes worry………. about everything.. cause every little thing…….. not gonna be alright

    No it won’t not unless we stand up together, support our force……………….. and help them fight that’s right

    Jamaican. My people. Lets come together as one people and give our brothers and sisters, the great men and women of the force who are dying every day the supper they been LONGING for.

    Don’t be afraid. Together we are strong. Stand up Jamaicans and lets shine again

    Its been too long the bloodshed, the suffering, the rain of pain…….
    Its time for us Jamaicans to hold our heads high to the sun …….ONCE AGAIN….

    And let the world hear us shout…………………………..

    JAMAICA……………… NO PROBLEM………………… ONCE MORE……..

    Blessings
    Drlove

  8. TrevDiMan says:

    In answer to the headline question, a qualified ‘Yes.’ Jamaica borrowing from any international lending institution now will have to understand that there will be conditions attached to such borrowing. The IMF is the lesser of all the evils currently out there.
    Jamaica’s economic woes have been these last two years in the making but from the 1970s, there was a brief respite in the 1980s, until now. For the last 20 yrs, economic growth, on an annual basis, has averaged barely 1%. From the 1970s to now, we have seen the public sector become ever more bloated and ever more increased gov’t spending and yet the average Jamaican is not much better off.
    The ossified/calcified thought processes that, unfortunately, have come to define government and governance in Jamaica must change if the island is to become better. That the IMF will surely impose some conditions on lending to Jamaica goes without saying but if the previous gov’t and this current one had taken some concrete steps to address Jamaica’s existing economic condition then it’s quite possible things would not have come to this. Funny thing (if one can describe it as such) is that the conditions the IMF will likely insist on in lending Ja. money are ones that most Jamaicans already know. Why, therefore, do I have that nagging suspicion that thy will be made, by some, to look as if they were unexpected and is seemingly asking a lot?

  9. TrevDiMan says:

    A correction to my previous post: I meant to say that Jamaica’s economic woes have NOT been these last two years in the making but have been since the 1970s with a brief respite in the 1980s.

  10. Chris Kehlmani says:

    NO! What we need to do is to cut the bloated programs and encourage a mindset of tightening the belt. It had not yet come to it that we needed to go to the IMF.

    Major things like free highschool education could have been cut. Yes education is important but the studies show that despite it now being free attendance had not changed! It does us no good to have everyone as a high school graduate. Sounds nice but not necessary. Put a greater emphasis on trade schools, apprenticeship etc. Like it or not we are still a developing country and so we do have a real time need for such things, and no need to have all children go all the way up through a traditional 5th form.

  11. Chris Kehlmani says:

    While I agree in theory with the points made by steve and kevin, my question is how will we ensure that growth and investment spikes during the period of lower interest rates? I think we would need a stimulus package for that which we can’t afford, and so we will only end up in greater debt.

    I think it’s time to sort out a 2nd citizenship.

  12. Girl Kids says:

    I think every country should seek to educate it’s citizen for free. Trade schools and regular high school attendance are not mutually exclusive, we should find a way to continue free education AND create more trade schools in that way we are certain we ensure that everyone gets a fair shake. I don’t think that attendance was a main factor when the Prime minister considered free education. It was the easing of the burden on parents, freeing up money to do other things like feedin the children.

  13. chibbert says:

    borrow and borrow very big to pay off all deptthen live off the balance and pay your intreast out of the small change you had left

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