Bajans MUST Demand Final Word on IMF Deal
Submitted by Tee White
The decision of the new BLP government to seek the support of the International Monetary Fund (IMF) for the implementation of its comprehensive economic reform programme has provoked reactions from all sides.
Those who support the decision have argued that the country had no alternative, given its poor credit rating and high level of indebtedness. Prime Minister Mia Mottley put this at over 170% of GDP and stated that, measured against GDP, Barbados is the third most indebted country in the world, placing it after only Japan and Greece. The supporters of the move further argue that with an effective negotiating team and negotiating strategy, there is no reason why Barbados might not benefit from engaging with the IMF. Finally, they argue that the IMF of today is no longer the big bad wolf of previous years.
Those, who oppose the decision, point to the country’s previous engagement with the IMF, in the early 1990s, when job losses and cuts in public sector wages led to protests and the downfall of the Sandiford DLP government. They also point to the experience of Jamaica which has been entangled with the IMF for the last 40 years and is still considered to be in need of IMF support.
The key aspect of the current situation, as it is presented to the people of Barbados, is the government’s fiscal deficit. While the government collects BD$2.7 billion in taxes, it spends BD$4.4 billion, of which some BD$1.5 billion is used to service the existing debt of BD$15 billion. In order to cope with this situation, the previous government are accused of running down the foreign currency reserves. According to Prime Minister Mia Mottley, on 31 May, these stood at BD$440 million, or the equivalent of seven weeks’ worth of import cover. This is the main problem that the government’s comprehensive economic reform programme with IMF support is intended to address.
However, it is clear that there are numerous ways to solve a problem of a government’s budget deficit and the choice of option will indicate the political preferences of those making the choice. For example, the people of Barbados remain in the dark about the origin of this BD$15 billion of public debt. For each individual loan within the portfolio of debt, Bajans need to know, who borrowed it, how much was borrowed, what the interest rate was, what it was used for, how much has been repaid and how much is still outstanding. Bajans need to demand that the government make this information public so that we can judge for ourselves our responsibility for the repayments. Obviously, if money has been borrowed and used for purposes other than those stated in the terms of the original loan, then we are looking at the issue of odious debt for which Bajans should not be held responsible. Furthermore, if money has been borrowed and used to enrich politicians and private interests, then those who benefited from the loans are the ones who should take the responsibility for the repayments.
Another important point to bear in mind is that looking at the government’s finances alone does not give us a clear and all round picture of the state of the economy, since government revenue accounts for only some 30% of Barbados’s GDP. We also need to know what is happening to the other 70% of the country’s GDP in order to be able to make informed decisions going forward. Recently reported statements from Mr Eddy Abed, President of the Barbados Chamber of Commerce and Industry (BCCI), that there is some BD$8 billion sitting in the banking system in Barbados also needs to be factored into any solution. Bajans may well ask how it is that in ‘dire economic times’ the ‘private sector’ aka the local elite have the equivalent of 80% of the country’s GDP sitting in the banking system. If this is the case with the local elite, what is the situation with the foreign elites? We need information on all of this to be in a position to make informed judgments about how best to address the budget deficit.
With regard to the IMF, a careful reading of its Article IV report which was recently released by the government indicates that it is focusing its attention on attacking those streams of government spending which benefit ordinary people, such as public sector pensions. Bajans need to be aware that other options exist. A budget deficit can be reduced by increasing government revenue as well as by cutting government expenditure. For example, the government could increase its revenue by charging corporation tax on companies’ income rather than on their declared profits. It could also place a temporary moratorium on all tax concessions which are currently in operation. The important thing is that various options exist and the ones that are chosen reflect a political choice about whose lives and interests are important. The question is should decisions favour the working people of Barbados or those of the local and foreign elites.
In the new situation, it is essential that ordinary Bajans demand that their views and interests be fundamental in shaping any agreement with the IMF. This means being given access to information which allows us to make informed choices and demanding that any agreement reached with the IMF be put to a binding referendum in which the people of Barbados have the opportunity to make a decision on this crucial issue for the well-being of the country.