Go to the International Monetary Fund (IMF) without any further delay or Barbados will have to take a much more bitter economic pill to recover from its troubles.
That message to the Freundel Stuart Administration came today from head of Jamaica’s Independent Oversight Committee for that country’s IMF programme, Rolston Hyman, who expressed fears that Barbados could end up like Jamaica with a tainted reputation in the multilateral lending community.
His advice coincided with a recommendation by president of the Barbados Chamber of Commerce and Industry (BCCI), Tracey Shuffler, and chairperson of the BCCI’s trade and economic policy committee, Ryan Straughn, that the Government should enter a standby arrangement with the IMF, taking into consideration that its 19-month adjustment programme was well behind target.
“When you eventually go, the conditions are going to be more onerous,” warned Hyman who said his country had paid dearly for failing to approach the Fund sooner.
He was speaking this morning at the Hilton Barbados as he shared a panel with Straughn and economic advisor to the Opposition Leader, Dr Clyde Mascoll, at a BCCI discussion on the merits and demerits of a structured IMF programme.
Stating that Jamaica and the IMF have had a love-hate relationship for the past 39 years, Hyman recalled his country’s apprehension about going to the lending institution, even though it was running a current account deficit of 20 per cent of Gross Domestic Product (GDP), a fiscal deficit of 10.7 per cent of GDP and a total public sector debt of almost 13 per cent of GDP.
“We delayed in approaching the IMF. We took a standby agreement, like shock treatment; so you are ill, you take long to go to the doctor, then when you go, it’s emergency surgery,” he said.
“That agreement was so onerous that we could not successfully navigate the agreement . . . . It had a negative impact on Jamaica’s reputation in the multilateral community
. . . and when we went back it took us longer, because the multilateral community was reluctant to engage us.”
However, Hyman said Jamaica has been successful in getting a longer-term structural agreement.
“So it’s a matter of being pragmatic in order to re-engage, because the IMF is the lender of last resort. Nobody is going to lend you if you are in that kind of situation running those fiscal and debt ratios if you do not engage in a programme with the International Monetary Fund.”
Hyman said Barbados had to learn that being downgraded by international rating agencies and not having a formal arrangement with the IMF would make it difficult to attract capital and borrowing.
Speaking on behalf of the BCCI, Straughn also recommended that Government engage the Fund since “the adjustment programme is not working”.
“Yes, we have supposedly stabilized the reserves and, from a national point of view, that might be good to protect the [currency] peg. But, at the same time, we have increased the interest payments component of the expenditure problem that we already had,” asserted the former president of the Barbados Economics Society.
Straughn also expressed concern that the revenues from the current adjustment programme were underperforming and no real movement was being seen on the expenditure side.
“We need to have more clarity, see more urgent action and credible results . . . to be confident that the process will work. We could go and try to engage new investment and the truth is, so long as that problem remains, there will always be a credible threat to the exchange rate. We need to remove the perception of that threat. Nobody is going to bring new money into Barbados to invest if there is a perception that there is a potential balance of payment problem,” he cautioned.
While not saying whether Government should enter a structured agreement with the IMF, Mascoll said the only variable over which the Freundel Stuart Administration had any control was its debt.
He noted that it had increased by $5.3 billion during the last six years, compared to $3.5 billion between 1994 and 2008 and suggested that Government set targets for debt going forward and “control those targets”.
“But it cannot only be about controlling debt. There is a major fiscal crisis to resolve,” Mascoll added.
His solution for achieving growth in the economy is to switch from increasing current expenditure to introducing a capital works programme.
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