In many ways, the International Monetary Fund (IMF) has been used like a bogeyman in Barbadian politics to scare people into siding with one party or another.
One recalls the furore in the early 1980s when Prime Minister Tom Adams went to the IMF for a loan and increased taxes followed. A decade later Prime Minister Erskine (now Sir Lloyd) Sandiford went and the eight per cent salary cut for civil servants plus a hike in taxes were imposed.
Of course, these examples pale in significance to what happened in Jamaica and Guyana. Their march to the IMF resulted in currency devaluation, severe economic dislocation and social deprivation.
The IMF is therefore an unwelcome guest in these parts and any talk about its involvement with our economy can create jitters.
So when Minister of Finance Chris Sinckler assured the House of Assembly during his recent presentation of the Appropriations Bill that Government would not tinker with the economy “to the extent to ravish this country to suit anybody’s [read IMF’s] purposes”, that was welcomed by Bajans.
The opposite effect of that assurance could have been conveyed when it was revealed last week that Prime Minister Freundel Stuart would be visiting Washington in ten days’ time for meetings with the IMF and World Bank.
According to the report, Stuart “will call on new IMF managing director Christine Legarde and senior officials of the World Bank and is expected to discuss the state of Barbados’ economy and how the country was coping with fallout from the global financial debacle”.
Sinckler was the one who went to Washington to speak to the IMF and World Bank. In fact, he was there last September. What has happened between then and now that makes it necessary for Stuart to visit these institutions?
Is what is going to be discussed so weighty and the decisions to be made so far-reaching that the Minister of Finance cannot lead the discussions and make the decisions – and this is why the Prime Minister will be there?
We are aware that the IMF and World Bank usually holds a Spring meeting and the dates for Stuart being there coincide. But if this is just a customary meeting, why can’t Sinckler handle this – as he has competently done in the past? Why does Stuart need to be there?
As yet, we don’t know what the agenda for these discussions will be, or if Sinckler and officials from the Ministry of Finance will be accompanying Stuart. What seems certain though is that something big could be happening.
Of course, some would dismiss my questions as alarmist, as was done before. But each time I was proven right.
Given what could be at stake, I hope though that this time I am on the wrong track.
I have to question this visit, given the statements by the IMF on Barbados in the last seven months. Last October the IMF called for a two-year wage freeze for public servants and a limit on social spending to the “most vulnerable parts of society”, given Government’s “limited fiscal space”.
More important, the IMF told Government that if this country did not effectively manage its fiscal deficit, we may have to consider foreign exchange rationing or, worse, devaluation.
Then in December in its Article IV Consultation report, the IMF urged Government to minimize fiscal costs in any plan to resolve the CLICO problem and to seek a private sector solution to the case. The IMF again expressed strong concern about Barbados’ fiscal stresses in light of its “anemic” economic growth and escalating double-digit inflation and unemployment.
The IMF encouraged Government to make further sustained efforts to curtail and prioritize spending and enhance revenue, including broadening the tax base and making permanent the temporary hike in the Value Added Tax to 17.5 per cent.
Though the IMF did note that budgetary measures put in place looked on track to achieve an overall central government deficit target of 5.1 per cent of gross domestic product (GDP), they pointed to a projected medium-term decline in international reserves and among other things emphasized that a credible fiscal consolidation, together with efforts to enhance competitiveness, would be crucial to support our dollar’s exchange rate to the US dollar.
In January the IMF warned Government about its continued use of National Insurance Scheme (NIS) funds to finance public sector borrowing. That caution came 24 hours after the Central Bank of Barbados defended the controversial use of NIS funds in the stalled Four Seasons project.
That said, another explanation for Stuart’s trip could be his desire to take a more hands-on approach to this country’s finances.
That would explain why, since the start of the year, he has been more visibly involved. So maybe this Washington trip is consistent with Stuart’s increasing engagement. Only time will tell.