What should happen when this IMF agreement ends?


Wednesday, May 16, 2018

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Last year, on November 16th, the Jamaican Government partnered with the International Monetary Fund (IMF) in a high-level forum called 'Unleashing Growth and Strengthening Resilience in the Caribbean'. The conference was in large part organised by then Ambassador Nigel Clarke, and its second session was on fiscal policy and political cycles.

The panel, moderated by Oliver Clarke, included former co-chair of the Economic Programme Oversight Committee Richard Byles; former Prime Minister Bruce Golding; former President of Guyana Bharrat Jagdeo; and Andrea Repetto, president of the Chilean Fiscal Advisory Council. The panel was meant to answer the question: How can improved fiscal institutions safeguard fiscal discipline and ensure that political and electoral motives do not lead to policy reversals, for example fiscal profligacy?

Repetto noted that Chile's Fiscal Council had an independent panel of experts with two separate panels to forecast gross domestic product (GDP) and prices, and that the credibility of the Fiscal Council was “not built in a day”.

Golding praised the tremendous success of EPOC in terms of government credibility, and noted that 97 countries had fiscal rules covering, for example, the fiscal balance, debt to GDP and, in some cases like Jamaica, wages to GDP.

The latter, he observed, “speaks to the size of government”.

He noted that 10 countries had imbedded fiscal rules in their constitutions, an approach for which he expressed a preference.

Byles, using the example of an audit committee, observed that the IMF would soon be giving up its own “audit” role, and that this needed to be replaced by an EPOC-type mechanism, representing business, labour and civil society, with the same access to information as the auditor general (currently tasked with administering the review of our fiscal rules) and the right to express a public opinion (like EPOC currently).

It is this EPOC-type “oversight committee” that Opposition Leader Peter Phillips has suggested should be legislated.

Encouragingly, as a clear follow-up action to a speech last Thursday titled 'Enhancing Jamaica's Fiscal Responsibility Framework', new Finance Minister Dr Nigel Clarke revealed that his first Cabinet submission in his capacity, prepared in April, was to recommend the establishment of an independent fiscal institution, such as a fiscal council, with what he described as similar principles to how EPOC and its companion entities have been founded, namely: enhancing policy making accountability, deepening government finances transparency, strengthening credibility of Jamaica's fiscal path, promoting inclusive policy discussion, and taking greater societal ownership of Jamaica's economic direction.

It would not, he noted, be a case of “legislating EPOC”, which was “essentially created to monitor agreements between the Government of Jamaican and the IMF”.

In the absence of a fund agreement, and without the fund's analytical capacity and detailed, written and published reviews, he argued that EPOC as constructed “would not work”.

He also argued — correctly — that the emergence of EPOC (and its related partnership institutions Public Sector Transformation Oversight Committee and the Economic Growth Council) “would arguably not have been possible without the prior existence of the partnership and the social dialogue that it introduced”.

As he rightly observed, the consensus-building mechanism of the social partnership had an indispensable role to play, representing the background against which the administration approached members of the financial community with a second debt exchange, and the unions with a multi -year wage freeze, in prior actions for entry into the first IMF agreement.

“Both groups correctly insisted on the right to monitor Jamaica's economic programme in return for such sacrifices in order to ensure Jamaica maintained its commitments to the reforms embedded in the agreement with the IMF. And so EPOC was born, and it has been a success.”

Minister Clarke summarises Jamaica's Independent Fiscal Council as being “the guardian, interpreter and arbiter of Jamaica's fiscal rules”, and that it would embody the principles of “credibility, accountability, transparency, inclusiveness, ownership and permanence, which would help Jamaica maintain a path of fiscal prudence, enhancing our economic independence”.

If designed and implemented in the inclusive manner he suggests, I would have no hesitation in endorsing Minister Clarke's proposal as potentially a worthy home-grown successor for when the current IMF agreement ends.

The question of whether Jamaica would need a new IMF agreement would also depend on the degree of the acceptance by the society of the fiscal council, and the level of “credibility”, particularly internationally, that it has achieved in what would be a relatively short time period, as well as the state of the world seconomy.

Nevertheless, it is indeed overdue for Jamaica to become economically independent and take full charge of its own economic policymaking. Strengthening our institutions, including the still nascent social partnership, is the correct approach to take.

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