COLUMN – In defence of the IMF
I had intended this week to come with part two of “If I were Minister of Finance”. I changed my mind, however, after interacting with a political analyst last week and then reading a commentary in the media by another. Both experiences caused me to recognize the fundamental flaw in my own thinking regarding public policy.
Previously, I made reference to using the tax allowance system to generate growth in the economy. More specifically, I had indicated that instead of focusing on ‘feel good’ allowances like claiming for child and spousal support and contributions to trade unions and charities, that I would give one allowance to cover home renovations, home insurance premiums and renewable energy.
The intention was to generate growth within the many segments of the construction sector and essentially put hundreds of tradesmen back to work over the next three years. Listening to and reading political commentaries, I now recognize that my economic approach would not “work” because it would ensure people could independently get work without the need to go to politicians. This, I must admit, is the fundamental flaw in my thinking because, apparently, political considerations outweigh economic circumstances.
Further, it seems that politicians must be seen to be getting work for their constituents rather than creating a system where opportunities are widespread, thereby limiting the need for such dependency. I think I understand now why I only got a grade C in that politics course I read on campus. I had intended to further dissect the budget presented last week but I now recognize it would be an exercise in futility.
I turn, therefore, to my defence of the International Monetary Fund (IMF). You may recall that in my first article, I said I did not expect anyone to agree with anything I may say. During the budget presentation, the Minister of Finance, in patting himself on the back for a job he thinks has been well done, stated the following:
“Mr. Speaker, numerous persons inside and outside of this Honourable Chamber believed, propagated and some even prayed, I believe, that this administration would have failed. They believed and openly stated that we would have had to devalue the dollar; that the Government would have defaulted on its foreign and domestic debt; that Barbados would have had to go (or ought to have gone) to the International Monetary Fund, cap in hand, and that all manner of economic and social calamity would have befallen this fair land of ours.”
However, in a media commentary, a political analyst opined it was an IMF Budget. I am mindful that the IMF is the bogeyman for most Barbadians. Regrettably, this irrational fear is used expertly by practitioners of politics to continually lower the expectations of the unsuspecting citizen with respect to the development and implementation of economic policy.
I have no firm statistics from which to quote but I get the sense that a more than significant proportion of Barbadians actually believe that the IMF just can’t wait to get Barbados. That notion is as unrealistic as the likelihood that two pencils could disrupt the gravitational field and cause inanimate objects to levitate, something that clearly escaped Isaac Newton.
From what I was told, the Government’s 19-month Home Grown Fiscal Stabilization and Economic Revitalization Programme that officially ended March 31, 2015 was developed by CARTAC which is the IMF Training Centre for the Caribbean. Its implementation was so successful that even before its conclusion, the Ministry of Finance engaged the IMF Fiscal Affairs Department in Washington D.C. to send a team of tax experts to Barbados during 2014 to conduct an analysis of several of our major categories of taxes.
Some of their recommendations made their way into this year’s budget policy announcements. Therefore, when I listen to the Minister of Finance and political analysts, I ask myself whether I’m in the twilight zone. None of this is meant to scare the reader but just to put in perspective this irrational fear of the IMF fuelled mainly by practitioners of politics. We seem quite happy to lay blame for the mismanagement of our fiscal affairs on the IMF instead of those we democratically elected. Perhaps, by blaming the IMF, we psychologically absolve ourselves of the responsibility of our political choices.
Over the last four years, I have had the opportunity to meet with members of different IMF Staff Missions to discuss the state of the Barbados economy. During each of those meetings and in the subsequent Article IV consultation reports and press releases, IMF staff has always emphasized the need for economic growth underpinned by significant expenditure cuts. Admittedly, the Government made some 3,000 persons redundant in March 2014 but overall government expenditure still has increased.
I know the IMF did not recommend the retrenchment of those workers as a first option, yet that is the prevailing sentiment. The IMF remains the punching bag for global governments to point fingers for citizens to direct their anger when adjustment to flawed fiscal policy is required. It is rather unfortunate that in spite of all the investment in education, Barbadians continually fall in the same “Blame the IMF” trap. Perhaps, it provides an avenue for absolution.
One thing the IMF does not generally advocate for member countries is debt refinancing. I think debt restructuring/refinancing should be on top of our agenda in Barbados so the IMF and I don’t agree on this particular issue. From my previous article, you would be aware of my position on the savings bonds issuance. You may recall earlier this year that the Minister of Finance indicated that personal income tax refunds for income year 2013 would be paid in June 2015. In his budget presentation, he indicated that over 24,000 envelopes were being stuffed by BRA staff.
I am happy to report that I am one of those who received a cheque last Friday. At least, this is one occasion that something the Minister of Finance said will happen, actually happened and for that I must give credit where it is due. With that in mind, I’d like to thank all those institutions, businesses and individuals who bought savings bonds, therefore allowing the BRA to print and post those income tax refund cheques. I hope that you too were a beneficiary of that long awaited berry in the post.
However, what is particularly disappointing is that the Minister stated explicitly that the refunds included interest. I checked my tax assessment for 2013 online at BRA’s website only to discover that this was not the case. I wonder whether we will also blame the IMF for this. Most people will be satisfied to have received the refund. I am not because the word of the Minister of Finance has to be his/her bond.
I hope that if you or anyone you know bought bonds that you at least got your refund. You would have facilitated the Government’s refinancing mechanism by switching current liabilities (income tax refunds) for longer term liabilities (5 year savings bonds). Despite these refinancing actions by our Government, we are compelled to believe the Minister when he says no debt restructuring/refinancing is required. When that day arrives, in order to cope with the ramifications, we will perhaps resort to our default position and blame the IMF for that too.
Ryan Straughn is a UWI Cave Hill and Central Bank of Barbados trained economist. Email: firstname.lastname@example.org