St. George’s, Grenada, June 11th 2010: People
of Grenada; be ready; Grenada is going back to the IMF and it will mean more
hardship for you in addition to what you are already suffering by the hard
economic situation.
As many Grenadians may not know, the IMF was
in Grenada from February 1-10, 2010, to conduct the Fifth Review of the
government’s home grown economic programme. This programme was developed by the
NNP in 2006 and received financial support from the IMF Extended Credit
Facility, more commonly known as the Poverty Reduction and Growth Facility. The
programme was necessary then, as it formed the basis for the release of millions
of dollars from the international community following the passage of Hurricanes
Ivan and Emily in 2004 and 2005 respectively.
That Fifth Review was not completed because
the government failed to meet two of the targets under the programme. Very
importantly, the IMF noted that one of the targets the Government did not meet
on time was the payment of the country’s debt to its creditors. When a
government fails to meet its debt servicing on time it is in fact negatively
affecting the credit worthiness of the country, and it is making it difficult
for other countries and institutions to give further loans to Grenada. Our
credit worthiness is now under threat.
Before the IMF left Grenada, it issued a
statement in which it stated that the government reached an agreement in
principle with the IMF to implement a three–year programme which will be
supported by the Extended Credit Facility referred to above. It therefore begs
the question, why is the government going back to the IMF, having just completed
a programme with them. The answer is obvious. The IMF is not satisfied with
the performance of the government, because the latter failed to meet the
objectives set.
What therefore does this new programme
entails? Would that programme lead to millions of grant for Grenada as happened
under the NNP, or would it mean more belt tightening on the part of the
population? Based on its content this new programme will mean more belt
tightening for Grenadians.
According to the IMF statement, the new
programme entails the following objectives:
·
Fiscal and debt sustainability
·
Improved supervision of the non
bank financial sector
·
Structural reforms
·
Poverty reduction
We need to explain in detail what these
specific objectives means for the people of Grenada.
Fiscal and debt sustainability
This objective could only be achieved through
fiscal adjustment. To do this the government will have to put more taxes on the
people to raise revenue and place greater penalty on those persons who cannot
pay their taxes on time. The government can also reduce its expenditure, which
in effect would mean less work for poor people. With regards to increasing
taxes, the IMF statement made it clear that the government will have to
“implement enforcement programmes to deal promptly with non-filers and
stop-filers.? What this in fact means is that there will be no more tax breaks
for persons and institutions and the property of persons failing to pay on time
will be confiscated.
The other means by which the government can
attain fiscal and debt sustainability is to reduce expenditure. In this regard,
the IMF has asked the government to cut the wage bill. This the government can
do by only sending people home. Therefore if the programme really comes through
then many public workers are down to lose their jobs in the near future. In its
report, the IMF has also asked the government to reduce expenditure on goods and
services. For this to happen the government will have to give less contract to
contractors to build roads, schools and bridges, which in effect means less jobs
for people.
Improved supervision of the non bank financial
sector
Improving the supervision of the nonblank
financial sector (i.e. insurance companies, credit unions, etc), simply means
passing laws to control the amount of loans these institutions can give out,
which would require the hiring of highly paid staff at GARFIN, the regulatory
body.
Really, this is a long term measure and would
not have any immediate impact on the lives of Grenadians. In fact it would be
useful to know how much would be spent in that particular area. The point is
that given the present hardship we are now undergoing it seems not sensible to
put money in supervising credit unions and insurance companies which infact are
presently well regulated by GARFIN and were not negatively affected by the
economic crisis.
Structural reforms
These are measures geared towards improving
the operations of Customs, the Registrar of Companies and for the passing of
laws relating to Intellectual Property. Also included here is an additional
Civil Court to reduce delays at Court. While these may be considered important,
they do not address the immediate bread and butter issues affecting our people;
and in fact if these bread and butter issues are not addressed immediately,
there is the likelihood that the Court matters will not be greatly reduced.
Poverty Reduction
Obviously, this is the only component of the
programme that is of merit, as poverty is a major problem affecting the people
of Grenada today. But it must be noted that the IMF itself does not money for
poverty reduction. It may well mean that the government may have to find other
sources of income to finance poverty reduction initiatives. These sources today
are hard to come by, and if you do find them, the cost is in deed high, which
places further pressure on the country’s finances.
The NNP needs to warn the people of Grenada
that it needs to be mindful of this new programme the government is going to
involved with the IMF. There will not be any short-term benefits for the people
of Grenada. It is obvious that the government is simply doing what the IMF says
to it and is lacking in ideas to put forward alternatives to counteract IMF
proposals. In a period of economic slowdown there is no need for austerity
measures. This is what John Maynard Keynes, the greatest Economist of the
twentieth century wrote, and it is well accepted in Economic Theory today. In
fact Keynes called on the government to increase its spending (not cut it) to
create the conditions for economic recovery in a period of downturn, since the
private sector will not do it on its own.
What therefore the government should be doing
is not to go to IMF, but rather to a development institution like the World
Bank, or the Caribbean Development Bank, that give loans not for austerity
measures, but for projects that create jobs and income for the people of Grenada
and hence cause the economy to grow and recover from its present depressed
state.
