IMF Makes Declaration ….. Grenada is Bankrupt and Uncreditworthy Again

Grenada is once again considered as a bankrupt and uncreditwothy country by the Washington-based International Monetary Fund (IMF).

These were the sentiments expressed by the head of an IMF Mission, Aliona Cebotari that concluded a visit to the island last week to access the economic and financial performance of Grenada under the seven month old New National Party (NNP) government of Prime Minister, Dr. Keith Mitchell.

THE NEW TODAY was able to get a copy of the minutes of a meting held last week Friday between the IMF team members and several persons from the Civil Society grouping in the country.

The document quoted the IMF official as saying that the Mitchell government cannot pay its bills and the IMF was in fact lending money to the administration to make these payments.

“The Government of Grenada cannot pay its bills. Therefore it is not creditworthy and cannot borrow any money. Therefore the IMF was lending money to help Grenada pay its bills. World Bank and the Caribbean Development Bank were supporting the Government of Grenada with its other programmes”, the minutes quoted Cebotari as saying.

The last time Grenada was declared uncreditworthy by the fund was 1989 at the end of term in office of the first NNP governmnent of late Prime Minister Herbert Blaize who went on to form The National Party (TNP) after he lost a leadership battle with his then Works Minister, Dr. Mitchell.

Faced with the prospects of harsh measures from the IMF, the incoming National Democratic Congress (NDC) administration of Sir Nicholas Brathwaite was forced to implement a home-grown Structural Adjustment Programme (SAP) to take the country out of its uncreditworthiness.

The architect of the programme was then Finance Minister, the late George Ignatius Brizan who received assistance from several Caribbean leaders including former Vincentian leader, Sir James Mitchell, John Compton of St. Lucia and former President of the Caribbean Development Bank (CDB), Crompton Bourne.

Within three years, Grenada was once more able to borrow funds from international organisations to engage in capital development projects but the electorate voted out Congress from office in June 1995 in favour of Mitchell’s NNP.

Over the next 13 years, Dr. Mitchell engaged in a massive borrowing and spending spree that was the island’s debt shot from 373 million E.C dollars in 1995 to just over EC$1.8 billion when it was voted out of offive in July 2008.

The IMF official also addressed the members of the Grenada civil society group on charges being made by Prime Minister Mitchell that his cash-strapped government is not prepared to accept a programme from the fund that does not have growth and job-creation as its centre-piece.

She said that whatever programme the Government wanted to propose had to be in line with what the Board of the IMF would support.

“It was the responsibility of the IMF Technical Team to so advise the government. IMF’s role was limited to addressing macro-economic issues”, the report added.

During the meeting with the Civil society organisation, the controversial Citizenship by Investment programme involving the sale of passports to get quick cash by government was also raised.

Cebotari said the IMF does not have an official position on Citizenship by Investment and from an economic perspective, it all depended on how the programme was managed.

“It needed to be transparently managed”, the document quoted the IMF official as saying.

THE NEW TODAY has decided in the public interest to reproduce some of the main highlights in the minutes of the meeting between the IMF delegation and the CSO grouping.

Representatives of Civil Society Organisations met with Members of the IMF Mission to Grenada as well as representatives of other institutions on Friday, September 13th, 2013:

* Aliona Cebotari, Head of IMF Team to Grenada

* Wayne Mitchell, IMF Resident Representative to the OECS

* Ronald James, Grenada Country Economist, Eastern Caribbean Central Bank

* Clarence Hinkson, Country Economists, Caribbean Development Bank

Opening Remarks by Ms. Judy Williams:

The meeting got underway at around 2.45 p.m. and was chaired by Ms. Judy Williams, Chairperson of the Non State Actors Panel and the Grouping of Civil Society Organisations.

Ms. Williams thanked the members of the team for affording CSOs a meeting and hoped that in the future, CSOs would be included in the official itinerary of future IMF Missions in Grenada.

She apologised for the absence of a number of persons who were unable to attend because of the last minute rescheduling of the meeting from Thursday September 12th to Friday September 13th.

In her remarks, Ms. Williams noted the following:

*While the Grouping of CSO recognised that it was not the elected government, it recognized that it had a voice. It could represent issues and concerns that the members of the Mission needed to hear/ought to hear in order to have an appreciation of the reality of real people who do not have a voice.

*Arrangements with institutions were made by the sitting government. However, there were issues and concerns that were not represented by the elected government. The policies of these institutions will cause hurt and hardships to those who do not have a voice. Government is making arrangements to deal with those hardships.

*The CSO Grouping identified broadly with the general framework put forward by the Government in a presentation to the Committee of Social Partners. However, there were many questions and gaps for Social Partners since they did not have the required information.

*Among the unanswered questions for the Social Partners were the issue of Lessons Learnt – what were these lessons? What will be the mechanisms that will be put in place to ensure that the learnings from the previous experiences are applied to the benefit of the country?

Social Partners also had questions about measures proposed for Revenue Enhancement and Revenue Expenditure.

Other CSO representatives offered the following queries and observations:

*Where was the country heading under an IMF programme and what could civil society contribute?

*What model could be applied to the Grenada situation?

*What relief could an IMF programme bring to a sector such as fishing that had been experiencing phenomenal growth?

*How would the IMF programme contribute to building the resilience of Grenada’s communities and economy so that in the future, the country would be able to withstand external shocks?

Remarks from Ms. Aliona Cebotari, Head of IMF Mission:

* Debt “Cancer”:

Ms. Cebotari likened Grenada to a “patient which has cancer”. In order for the patient to heal and thrive, the cancer has to (be) removed.

* Insidious Fiscal Situation:

She described the fiscal situation as “insidious”. The Government cannot pay its bills to local businesses and these in turn could not pay their bills. Since the government was a significant player in the economy, this situation was affecting the entire economy.

* Fiscal Adjustment:




The treatment required was “fiscal adjustment” – enhancing revenue and decreasing expenditure.

Among considerations would be:

*What could be done to protect the most vulnerable in society?

*What conditions were required to support the strong aspects of the economy?

*Debt Restructuring and Debt Forgiveness:

If Government was seeking debt restructuring and debt forgiveness, it had to show how it would sacrifice.

*High Monthly Deficits:

Government was running high monthly deficits re wages, transfers and infrastructure costs. The debt situation has to be fixed.

* Fixing the Debt Situation:

Huge adjustments were required in order to stabilise the debt situation. There has to be comprehensive adjustment. Grenada’s income has been shrinking yearly. It now has to make adjustments when resources are less.

* Adjustments:

Wealthy people are not paying taxes but can afford to pay taxes. E.g. people who have yachts.

* Social Safety Nets: Social safety nets have to be increased. Government can increase cash transfers for the most vulnerable. There will have to be objective criteria by which targeting is done.

* Potential for Growth: Focus on sectors that are healthy and can grow.

* Costs of Energy: This has to be addressed since Grenada’s energy costs are too high. Serious attention should be given to the matter of renewable energy.

Discussion:

The following queries and observations were noted:

* Focus should be on the sectors that could generate income and growth as opposed to sectors where there is a “perception of generating income”.

Poultry was one of those sectors which had the potential to generate income. However, there were policies that were strangling the sectors such as the incentives given to the “local” feed mill.

In order to realise its potential, the poultry sector would require incentives and therefore (there) was concern about any blanket measures which could negatively affect incentives to the local poultry sector.

* In the Caribbean, when people heard about IMF, they thought about the Jamaican experience. In spite of having been on several IMF programmes, the country was mired in debt. Were there any examples where the level of adjustment had put the country on the right path?

The IMF Representative resident in the Eastern Caribbean gave the examples of Barbados and Trinidad. In Barbados, a Social Pact was forged between government, private sector and trade unions.

In order to avoid devaluation, there was agreement about an 8 percent cut in wages to avoid job losses and a pact between private sector and trade unions about holding wages steady.

* While the Barbados and Trinidad programmes may have been considered economic successes, had the social impact been assessed?

* Grenada’s Voluntary Structural Adjustment Programme (in the early 1990’s involving late finance Minister George Brizan) which had the blessings of the IMF could be considered a success.

In the context of Grenada, had this programme been reviewed for lessons learned?

* Generally a consequence of IMF programmes was political fallout.

* Current IMF programmes had a stronger focus on improving social programmes for the poor and vulnerable.

* To what extent could the IMF impress on the Government of Grenada the need for consensus in respect of its proposals to and agreement with the IMF?

* What was the view of the IMF on the proposed Citizenship by Investment programme proposed by the GoG as a revenue enhancement measure? There were many social risks associated with the Citizenship by Investment programme and increased the vulnerability of the country’s citizens.

Response by IMF Head of Mission, Aliona Cebotari:

* Lessons Learned: Grenada has been on an IMF programme during seven of the last ten years. Therefore lessons from the previous programmes would be taken into consideration when deciding on the programme to address the current situation.

There would be expert assessment of the last two programmes.

* Role of the IMF: The Government of Grenada cannot pay its bills. Therefore it is not creditworthy and cannot borrow any money. Therefore the IMF was lending money to help Grenada pay its bills. World Bank and the Caribbean Development Bank were supporting the Government of Grenada with its other programmes.

* Societal Ownership: It was recommended that the programme be presented to the broader society in order to build ownership of the programme.

* What the GoG Wants to Do vs. What the IMF Will Support: Whatever the programme the Government wanted to propose had to be in line with what the Board of the IMF would support. It was the responsibility of the IMF Technical Team to so advise the government. IMF’s role was limited to addressing macro-economic issues.

* Citizenship by Investment: The IMF does not have an official position on Citizenship by Investment. From an economic perspective, it all depended on how the programme was managed. It needed to be transparently managed.

 

 

 

 

 

 

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