Owen Arthur has suggested that the International Monetary Fund (IMF) may not be entirely sold on Government’s plan to restructure state-owned enterprises while ignoring its own recommendations.
In addition, the Prime Minister and Minister of Finance in the 1994-2003 Barbados Labour Party (BLP) administration, warned that if Government relied solely on IMF funding, Barbados could still be left in financial peril.
He made the observation while delivering a public lecture, The IMF and the Caribbean: New Directions for a New Relationship, at the University of the West Indies (UWI) at Cave Hill on Monday night.
The IMF announced last week in a joint press conference with Prime Minister Mia Mottley that it had reached a staff-level agreement, subject to approval by its executive board in early October.
This came a week after the Barbados economic recovery team reported that some 5,000 people in an online poll recommended what entities should be merged, privatized or placed into a public/private partnership, and where user fees should be increased or introduced.
But Arthur recalled that the IMF had given Government its own recommendations regarding state-owned entities in its December 2017 Article IV Consultation.
“One can therefore glean the nature of the conditionalities the IMF will require of a country which wishes to get involved in a borrowing relationship with it from the advice rendered and contained in its Article IV Consultation Reports or in Special Reports commissioned as prepared by its Technical Staff,” said Arthur.
“In this respect, in structuring an arrangement with the Government of Barbados to reform the operations of the enterprises owned by the Government of Barbados, it is highly unlikely that the Fund will totally ignore the recommendations it submitted in a special report in December 2017 on the issue of its public enterprises, and it is even more unlikely that it will be prepared to be guided only by the submissions that the people have been invited recently to submit to Government on this matter,” he explained.
The economist stressed that the Washington-based lending institution was not in the business of telling people what their programmes should look like, as he pointed to the Jamaica and Grenada experiences.
But this, he warned, “should not induce any false expectations that it will be smooth and easy sailing for a country operating under a programme with the IMF”, he said while addressing an audience that included academics, senior Government officials, Opposition Leader Bishop Joseph Atherley, diplomats, business leaders and former minister of Education Ronald Jones.
Stating that there were “special concerns which have to be given special attention in a concerted way to ensure that an IMF programme has an intended salutary impact”, Arthur reminded the audience that a country’s access to IMF financing was based largely on its quota with the fund rather than its needs.
As a result, he warned that a country’s reliance on IMF funding alone and meeting all the IMF tests “can therefore still leave it in peril”, as he recalled that Dominica had to get some assistance from Barbados and Trinidad after it received funding from the IMF based on its “very small quota”.
Arthur questioned the adequacy of the $590 million earmarked for Barbados, which is about 220 per cent of Barbados quota under the fund.
The implementation of an IMF programme would require both access to financing and the implementation of policy and structural adjustments in order to correct imbalances and “disorder” in the country’s performance, he said.
“I do not wish to speculate unreasonably on the components of Barbados’ proposed programme with the Fund,” he said, but “what is known is that to stabilize its foreign reserves to accepted levels, Barbados has to increase its reserves by about $600 million. The funds to be provided under the proposed EFF [Extended Fund Facility] will not be enough to solve the country’s balance of payment problems”.
In addition, said Arthur, to reduce Barbados’ debt-to-gross domestic product (GDP) ratio from over 170 per cent to around 60 per cent over a planned period, a “very large fiscal effort” reflecting a primary surplus of at least six per cent would be required.
Government has already indicated that it was estimating a primary surplus of six per cent over the four-year restructuring period, and a saving of about $115 million in the first instance of restructuring of the 40-plus state enterprises.
“To undertake a fiscal adjustment to realize such a primary surplus while also having to use fiscal policies to improve its foreign exchange reserves may prove to be a most difficult undertaking for Barbados,” said Arthur, who insisted that Barbados was facing an uphill battle.
The Inter-American Development Bank (IDB) and the Caribbean Development Bank (CDB) have already pledged their support to help fund the Barbados recovery efforts.
While acknowledging that programmes with the IMF were now determined after consultation with various groups including social partners and civil societies, Arthur said as is the case in Jamaica, special oversight committees were also required as well as certain preventative measures.
“It is therefore unlikely that, given Barbados’ circumstances, a programme with the fund will not include new fiscal responsibility rules, and other legal arrangements that are intended to prevent a political administration from indulging in economic and financial malpractices for its own partisan political gains,” he asserted.
He also warned that as Barbados embarked on its IMF programme it should not forget to address the “urgent matter” of European Union and Organization for Economic Cooperation and Development rules, which he said could affect the country’s future prospects.
“The future of our economy and society may therefore come to depend not only on how we master the design of our programme with the Fund. It may depend even more on how we address the challenges imposed on us by other international institutions to which we do not belong,” said Arthur.