It is no secret that since the 1970s the International Monetary Fund (IMF), as part of its mandate to maintain stability in financial systems and economies around the world, has been playing its role in the stabilisation of several economies in the Caribbean.
Antigua and Barbuda, Barbados, Dominica, Grenada, Jamaica, St. Kitts & Nevis, and Trinidad and Tobago, just to name a few, have all experienced the effects of IMF-type remedies to help soothe ailing economies at times when no other institution will provide much needed financial support to those countries.
Given the purpose of the IMF in these circumstances and taking into account the mix of policies normally suggested by the IMF to resolve the burning economic woes confronting countries seeking its assistance, one thing is always certain: the infliction of severe pain and suffering on the citizens of the countries that sign IMF-type Agreements. And that is so because of the restrictive fiscal and monetary policies involved in these types of stabilisation packages.
Since a mountain of evidence exists all across the Caribbean in strong support of the suffering that the people usually undergo under IMF’s stabilisation programmes, then, why would our governments not avoid the IMF at all cost? After all, there is no secret when it comes to the financial and economic conditions that often force countries to seek help from that notorious international financial body.
Generally, the IMF suggests stabilisation programmes to countries showing symptoms of economic agony. The symptoms commonly observed are budgetary/fiscal deficits (particularly on the current account); heavy external debt (debt to GDP ratio that approaches and exceeds 100%); stagnant productive sectors (especially the export-oriented sectors); rising levels of unemployment; high inflation rates; large current account deficits (on the external side); and chronic shortage of foreign reserves which makes it very difficult, if not impossible, to facilitate imports and service foreign debt.
What this theoretical list suggests is that once any or all of these major macroeconomic indicators start moving in the wrong direction and a trend begins to emerge, corrective actions must be instituted instantaneously. And that is the only way in which our governments in the region can avoid the IMF. Evidently, we do not seem to appreciate this basic fact. The net result is that our governments are left with no other choice but to enter into financial agreements with the IMF.
Case in point, Grenada. In his 2013 budget, the Prime Minister and Minister of Finance characterised the present state of the Grenadian economy as follows: “In 2012, the deficit on government’s fiscal account was about $7.9 million. On December 31, 2012, the total public sector debt was $2.33 billion or 108% of GDP. Since 2009, the Grenadian economy has declined on average by 2.0% per year (only life in agriculture). The present rate of unemployment stood at 40%, while the level of Poverty exceeded 37%. On the external side, the deficit on the current account has widened as the growth of Grenada’s imports increased but the growth of exports has been sluggish.”
Clearly, the Grenadian economy could only have gotten to that terrible state because those in authority, ad infinitum, failed to recognise the clear “danger signs.” It is no wonder that despite all the public pronouncements by the Prime Minister and Chief Policy Adviser in the Ministry of Finance that Grenada will not be going to the IMF, as of today’s date, the country is awaiting the singing of a financial and economic agreement between the IMF and the Grenadian government. Fascinating!
Dr. Brian Francis, the former Permanent Secretary in the local Ministry of Finance, is a Senior Lecturer in the Department of Economics at the Cave Hill Campus in Bridgetown, Barbados of the University of the West Indies)