Opposition Leader Arnhim Eustace. (IWN file photo)

The views expressed herein are those of the writer and do not represent the opinions or editorial position of I-Witness News. Opinion pieces can be submitted to [email protected]

Dear Sir,

I write in response to an article posted on I-Witness News on 13th August under the headline “Eustace accuses gov’t of entering austerity deal with IMF”. The article was written by E. Glenford Prescott.

In it, the writer of the article understood the Honourable Leader of the Opposition to assert that the Government of Saint Vincent and the Grenadines was “subtly introducing austerity measures on its citizens as a result of an agreement with the International Monetary Fund (IMF).” The article goes on to quote the Honourable Leader of the Opposition at length, both in his interpretation of the IMF’s recent US$6.4 million disbursement to Saint Vincent and the Grenadines (SVG) under their Rapid Credit Facility and Rapid Financing Instrument; and in his praise of the “tough decisions” taken by the governments of Barbados and Saint Lucia to fire and/or cut the salaries of thousands of public servants. I assume that Mr. Prescott accurately reported the Hon. Leader of the Opposition’s comments.

The Hon. Leader of the Opposition’s experience, competence and vision as an economist is an oft-discussed topic in Saint Vincent and the Grenadines. I do not intend to add to that debate in this letter. I am sure that the Hon. Leader of the Opposition will have future opportunities to expand on his thesis that the government of SVG is imposing “austerity” policies, in spite of increased hiring, continuing wage increments, on-going social programmes, greater investment in Information Communication Technology, no across-the-board tax increases, the construction of an International Airport, and a generous and compassionate response to the Christmas Floods.

Additionally, I am confident that he will explain the distinctions that cause him to apparently condemn the alleged “wage freeze” in SVG while praising the salary cuts in Saint Lucia and the firing of 5,000 public servants in Barbados as “tough decisions” that will have a “positive effect” on those countries’ economies.

Rather, the intent of this letter is to take issue with the Hon. Leader of the Opposition’s assertion in the article that the government of SVG is imposing austerity “to satisfy the agreement which they have made with the IMF.”

The Hon. Leader of the Opposition must know that the government of SVG has no austerity agreement with the IMF. I can only assume that he misspoke.

The word “austerity” and the acronym “IMF” are emotionally charged terms in developing countries, and the two are often linked in the minds of people. Long ago, when the Hon. Leader of the Opposition was a young economist, the IMF’s sole function was to impose austere “conditionalities” on financially struggling countries in exchange for bailout funds. These conditionalities were often harsh, and had disproportionate effects on poor people.

The IMF is still in the business of imposing conditionalities on countries as part of bailout agreements. But as the Hon. Leader of the Opposition has aged and evolved, so too has the IMF. In addition to the conditionalities associated with its traditional lending, the Fund has also developed mechanisms that lend money to countries at extremely favourable terms, and without conditionalities. These mechanisms are usually triggered in response to an external shock or natural disaster that affects the country’s economy. Countries that take advantage of these new facilities, like SVG, do not enter into “austerity programmes” with the IMF, and are not held to any conditionality targets or reviews.

Conditionalities and the IMF – The “Big 3”

A number of CARICOM countries have been forced to enter into austerity arrangements with the IMF in recent years, particularly in the wake of the 2008 global economic and financial crisis. Within our region, the IMF has a number of different packages and programmes that impose conditionalities on countries. These include:

  1. The “Stand-By Arrangement,” which the IMF has recently entered into with Saint Kitts and Nevis and Antigua and Barbuda. According to the IMF website, “Stand-By Arrangements” involve conditionalities that include “agree[ing] to adjust its economic policies,” adhering to “quantitative program targets,” and “regular reviews by the IMF’s Executive Board.” Money under a “Stand-By Arrangement” is distributed in multiple tranches, and those disbursements are linked to how well the country is adhering to the agreed “conditionalities.”
  2. The “Extended Credit Facility,” under which Grenada has recently requested support, is targeted to Low-Income Countries and small island states. If your country requests money under the Extended Credit Facility, it is subject to “focused conditionality.” That conditionality includes “agree[ing] to implement a set of policies that will help them support significant progress toward a stable and sustainable macroeconomic position over the medium term.” It involves adherence to “quantitative conditions,” “structural benchmarks” and “program reviews” by the IMF Board.
    The “Extended Credit Facility” was previously called the “Poverty Reduction and Growth Facility.” In 2003, Dominica entered into an IMF arrangement under the Poverty Reduction and Growth Facility.
  3. The “Extended Fund Facility,” such as the one in place in Jamaica, is a long-term arrangement that aims to tackle “deep-rooted weaknesses” in the country’s economy. The “Extended Fund Facility” can run for twice as long as the more traditional Stand-By Arrangement. The IMF website makes clear that countries seeking assistance under the Extended Fund Facility must subject themselves to “deep and sustained structural reforms” with a “strong focus on structural adjustment” and “specific conditionality” criteria. This is a particularly far-reaching IMF programme.

The IMF’s non-conditional programmes

You will notice that the US$6.4 million that SVG received from the IMF dis not come via the “Stand-By Arrangement,” the “Extended Credit Facility,” or the “Extended Fund Facility.” Rather, the IMF press release quoted by the Hon. Leader of the Opposition clearly states in its very first paragraph that the money is “to be drawn equally from the Rapid Credit Facility (RCF) and the Rapid Financing Instrument (RFI).”

The Hon. Leader of the Opposition is aware that the “Rapid Credit Facility” and “Rapid Financing Instrument” are distinguishable from other IMF programmes in a number of ways. Chief among these distinctions is the fact that these programmes lack the conditionality and review features of traditional IMF lending. If the Hon. Leader of the Opposition visited the IMF website, he would see that the Rapid Credit Facility provides assistance “without the need for program-based conditionality.” The website further states that the Rapid Credit Facility is used “in a wide variety of circumstances, including shocks, natural disasters, and emergencies resulting from fragility.”

In the case of SVG, the Rapid Credit Facility clearly came into play as the result of the natural disaster of the Christmas Floods. As the IMF states, the “RCF is provided as an outright disbursement without explicit program-based conditionality or reviews.” This is in direct contradiction to the Hon. Leader of the Opposition’s assertion that the government of SVG had entered into an austerity arrangement with the IMF.

Similarly, the “Rapid Financing Instrument” is triggered in response to “a broad range of urgent needs, including those arising from commodity price shocks, natural disasters, post-conflict situations and emergencies resulting from fragility.” Again, the natural disaster of Christmas Eve is obviously the event that enabled SVG to access this Instrument. Like the Rapid Credit Facility, the Rapid Financing Instrument provides assistance “in the form of outright purchases without the need for a full-fledged program or reviews.”

In light of this, the Hon. Leader of the Opposition clearly erred when he attempted to link disbursements to SVG under these instruments to some sort of austerity agreement or programme by the IMF.

Why a $6.4 million austerity programme?

Another fact that flies in the face of the Hon. Leader of the Opposition’s claim that SVG had entered into an austerity agreement with the IMF is the relatively small amount of money involved. US$6.4 million is hardly enough money to spur structural adjustment in SVG. Nor is it worth the sacrifices and intrusion inherent in an IMF Programme.

If you look at examples of recent “austerity” programmes by the IMF in the Caribbean, you will notice that Grenada is requesting US$22 million under the Extended Credit Facility, while Saint Kitts and Nevis received US$84 million and Antigua and Barbuda accessed US$118 via Stand-By Arrangements. Jamaica is currently in the midst of a massive US$932 million IMF programme under the Extended Fund Facility.

Given that neighbouring OECS countries have sought between US$22 million and US$118 million from the IMF to support structural adjustment programmes, it begs the question of why SVG would “agree” to “austerity” in exchange for a relatively paltry $6.4 million. Surely, if the Vincentian economy is in the dire straits proclaimed by the Hon. Leader of the Opposition, SVG would need more, not less, support from the IMF.

WHY hide an austerity agreement with the IMF?

According to Mr. Prescott’s article, the Hon. Leader of the Opposition accused the government of “subtly” entering into an austerity arrangement with the IMF. The Hon. Leader of the Opposition also claimed that “you have got to study this language [in the IMF Press Release]” to discern the government’s true intentions. Further, he suggested that the government of SVG “come clean” with the public, presumably about the nature of this alleged IMF agreement.

I must confess to being baffled by these statements.

In every other incidence of every other IMF austerity programme, there is no “subtlety” involved. There is also no requirement to “study” and read between the lines of an IMF press release. Why? Because the IMF loudly announces the broad terms and conditions of all of its so-called “austerity programmes.” The information is right on its website. Why would the IMF suddenly resort to subtlety and subterfuge in the case of SVG?

Further, in every other case of IMF austerity, the governments involved clearly state that the cuts and restrictions involved are as a result of IMF conditionality. There is no need to “come clean.” Why? Because there is political cover in being able to blame the IMF for the cuts and austerity. Is it more sensible to explain to the electorate that austerity is being imposed as a result of IMF conditions, or to simply have them think that the government is arbitrarily cutting salaries, jobs and social programmes for no reason?

‘Prudence and enterprise’

The 2014 Budget for SVG, which the Opposition declined to debate fully, contained an unequivocal rejection of austerity policy. However, the Prime Minister’s Budget speech explained the need for “‘Prudence’ on all fronts especially on recurrent expenditure.” The Prime Minister also outlined a policy involving “the pursuance of a programme of fiscal consolidation within the framework of ‘prudence and enterprise’ so as to ensure, among other things, that fiscal deficits and debts stay within manageable limits.”

As such, the supposed clues that the Hon. Leader of the Opposition so carefully unearthed through his study of the language in an IMF press release were in fact stated policy objectives easily found in SVG’s Budget of seven months ago. Indeed, much of the language of the IMF’s press release came not from the IMF, but from the letter written by the Prime Minister to the IMF requesting post-flood relief!

No austerity agreement with the IMF

Even a casual reading of the IMF Press Release will show that the US$6.4 million received by SVG came as a result of the Christmas Floods, and were disbursed via mechanisms that do not impose conditionalities — much less austerity — on the receiving country.

Further, the idea of a small $6.4 million austerity package defies fiscal logic, especially when neighbouring countries have sought and received up to $118 million for IMF adjustment programmes.

Finally, there is no precedent for secret or subtle austerity agreements with the IMF. The IMF is a transparent international body that makes public the broad outlines of the arrangements and conditions of its agreements with countries. No special economic knowledge is required to understand these agreements; just an Internet connection and the ability to read.

I certainly understand that is easy to misspeak in a live radio format, and I am willing to give the Hon. Leader of the Opposition the benefit of the doubt in that regard. However, given the emotive nature of the “IMF austerity” charge, I thought it necessary to offer this rather lengthy attempt to set the record straight. Hopefully, the Hon. Leader of the Opposition will offer his own clarifications on this apparent misstatement, as well as further explanations of his support for salary cuts and/or the firing of public servants in our current context.

Sincerely,
Camillo M. Gonsalves

The views expressed herein are those of the writer and do not necessarily represent the opinions or editorial position of iWitness News. Opinion pieces can be submitted to [email protected].

10 replies on “Eustace is wrong on alleged IMF-SVG agreement”

  1. Excellent reply to the specific claims by the NDP. Too bad Eustace and his motley crew never aim before they shoot.

    At the same time, let there be no doubt that the economy of SVG is very unhealthy with no sign of the sick patient ever improving. With friends like the IMF we need no enemies because all these loans and grants mean there is little need or incentive to do the heavy lifting at the local level to increase the health of the economy. If the long-term goal is economic self-sufficiency, we are heading down the wrong road to further dependency, helplessness, and hopelessness.

  2. If I put 2 names in a bag and close my eyes to pull one out, I pray to God that I pull Mr. Eustace…credibility!

  3. Wow. That’s really clear, and I’m not into these economical matters. I think young mr. gonsalves is being too kind to mr eustace. he says eustace misspoke. i say he was being dishnest, smh.

  4. It seems the young Gonsalves has taken from his father for talking around corners and jumping through hoops and at the same time, saying nothing. What Camillo fails to talk about is that his Father said that we will never be a colony of the IMF and we would never go to them. Well we have gone to them now how many times? He said we are on an economic takeoff, and we can see how good that is working out for us. So we have a PM who is incompetent and doesn’t know what he speaks about 95 percent of the times. So I don’t understand why you are comparing SVG to other countries who are austere, didn’t you hear, “WE ARE ON AN ECONOMIC TAKEOFF AND THE GLOBAL FINANCIAL CRISIS CAN’T TOUCH US”. This is the issue I have with the government, they keep moving the goal post and hopes no one would notice. We I will repeat Camillo “WE ARE ON AN ECONOMIC TAKEOFF AND THE GLOBAL FINANCIAL CRISIS CAN’T TOUCH US”. Get it now, that just made almost everything you say moot, and it’s your father who said it, the master of Gunzinomics.

    The leader of the opposition also said that the airport would cost over a billion and the PM said 400 mil, and look again the opposition leader was right. The man just knows what he is talking about period!! What you have written here is nothing but nonsense. What you didn’t explain is that the IMF uses money to put the noose around the necks of many countries and uses there printed to hang us, the way you speak it’s like they are our friends. Well guess what buddy I have news for you, they are not our friends. If austerity measures are a prerequisite for the loan then would could tick that off seeing that we have been freezing salaries for years among other things, so they wouldn’t tell us again about austerity when we already ticked that off the list by doing it ourselves. This long winded nonsense is just full of legal language and technicalities to run around the real issue.

    Wow unbelievable, the apple doesn’t fall far from the tree after all, pappa doc and baby doc. OWN THE JAIL.

  5. Its such a load of crap that I have written a whole opinion on it, I hope Kenton will publish it.

    Blane, thanks for all the reminders, we need to keep repeating the truth, they just hate the truth.

  6. Urlan Alexander says:

    As a ‘untutored learned helpless Vincentian” Camillo I am amazed at how your father and now you believed in your hearts that we are stupid and dotish to the extent that you can just say to us any thing in flurry languages. So the fact that we get a loan from the IMF without conditions as you are claiming, why the hell does the government attached its own conditions when it didn’t have to? Were these self imposed conditions an admission of failure in exercising prudent fiscal policy on the part of your daddy led government? So the opposition refused to debate the budget? Did you Camillo debate the budget? Did any of your colleagues on the government side in parliament debate the budget that you all prepared? Did the letter you claimed Daddy wrote to the IMF begging for the assistance have all the preconditions already enshrined so the IMF will not have to add the conditions because daddy already agreed he will impose them? After all he knows how the IMF works so he jump the gun; another master stroke? Another thing Camillo, could you please point me to the text or audio where the Hon Arnhim Eustace has stated that he will cut salaries and lay off workers? I know you always back u your statements with the facts so please show the evidence.

  7. I have read and re-read this article by C. M Gonsalves and it really does not explain anything.

    To end speculation, and to put this issue to ‘bed’, all Senator Gonsalves had to do was address, in lay man’s terms, the following points:

    1 – What are the conditions of the loan
    2 – How are the conditions of the loan going to be met

    By answering those 2 questions, again in lay man’s words, we can all get a clear understanding of what Our (as Vincentians) obligations are to the IMF. And I would like to point out that this is an obligation on Vincentians as no matter which ‘Government’ enters into these agreements, the people are the ones who repay these, sometimes for generations to come.

    Regardless of which IMF Program the loan was lent under, there will be terms and conditions. Unlike a commercial lending institution however, it will not be a case of simply setting up a standing order each month!

    So, in order that we are all clear, please explain to us the conditions of the loan and how the conditions are to be met. And in your response, please assume that you are explaining it to ‘your average Joe on the street’ who doesn’t know anything about Finance, Economics nor Politics.

    Kind regards,

    E

  8. I am very glad that the debate about the Economic Management of the country has been opened up, particulary with the continued need of Caricom members to resort to the IMF for funds. Minister Gonsalves article though, just highlights the problem when politicians resort to “smokescreens” to divert attention away from the real issue.

    While it is an obvious political attack on the Opposition Leader, at the end of the day it is not an NDP or ULP problem; it is a Vincentian problem, therefore it is incumbent upon ALL Vincentians to educate themselves on matters which will affect not only themselves, but future generations to come.

    To that end, I would like to ask the Honourable Minister , why have they not requested the IMF make the most recent Article IV reports available ? Before i presume that everyone who might read this knows what Article IV is , it is basically an Annual audit report done under IMF convention on all member states.

    What the Opposition Leader and the Minister has been commenting on is the Press Release, which only gives an overview, not the Article IV, which provides in-depth detail.

    While it is a mandatory requirement for all members, the report is ONLY published at the behest of the member country The last one that was published was Country Report 11/343

    http://www.imf.org/external/pubs/ft/scr/2011/cr11343.pdf

    It is interesting to see the change in the Government Policy in respect of these reposrts and what they describe about the state of the Economy.

    Take this snippet from the 2009 report :
    “Construction of a new international airport. Diversifying and developing the tourism
    industry will require a new airport. However, staff has concerns regarding the financing
    challenges of the project, especially in the current juncture, and its potential impact on
    debt sustainability. The authorities’ goal is to have the new airport completed by 2011.
    The total cost is now estimated at about EC$608 million (37½ percent of GDP). Identified
    grant and concessional financing (mostly in-kind from Venezuela and Cuba) falls short of
    total funding requirements by approximately EC$185 million (11½ percent GDP). The
    planned contribution of government land sales to the financing gap is progressing, albeit
    at a slow pace, and could now be even more difficult in light of the global slowdown and
    financial crisis. There is also a risk that the global financial turmoil could delay some of
    the expected grants and concessional financing.
    • To mitigate the above risks, the mission recommended that the authorities (i) adopt a
    comprehensive fiscal reform package to help cover the airport financing gap without
    compromising debt sustainability (see below) (ii) implement, to the extent technically
    feasible, a more flexible construction timetable for the airport (which may also be more
    realistic) to help minimize domestic bridge financing needs and avoid crowding out the
    private sector; and (iii) continue efforts on seeking additional grant and concessional
    financing. The authorities noted that continued fiscal reforms remain on the agenda, and
    these could reduce recourse to commercial borrowing. However, they expressed their
    intention to complete the project as scheduled to provide the foundation for tourism-led
    growth, and noted that any commercial borrowing would be of a bridge finance nature, as
    they remained optimistic about the sale of state-owned land.”

    And then compare with this from the 2011 report two years later:

    “Revenue measures:
    – Introduce market-based property taxes: Theauthorities reiterated their commitment to
    introduce these in the 2012 budget. The Inland Revenue Department (IRD) estimates that moving to a market value system could double the collection of property taxes.
    – Enhance revenue collections: While there have been significant improvements in tax
    collections since the mid-2000s, reflecting the introduction of VAT and excise taxes,
    and tax administration reforms, there is room for further improvement.
    Expenditure measures:
    – Reduce the wage bill: Real wages have increased an average of 2½ percent per year over the last 5 years and the wage bill is among the highest in the region. The authorities agreed that anchoring average wage increases to inflation could generate significant savings.
    – Limit transfers to state-owned enterprises (SOEs). With technical assistance from CARTAC, the authorities have been making efforts to improve the governance and
    monitoring of SOEs to contain potential fiscal risks.8 The authorities pointed out that privatization of the NCB (and the consequent elimination of the NCB as a financing source) has reduced a potential source of financing for SOEs and reduced fiscal risks for the central government. Authorities agreed that further streamlining was necessary and agreed to reenergize the Oversight Committee to ensure systematic reporting, closer
    monitoring and increased accountabilityfrom SOEs. ”

    I can only assume that the reports for 2011- 2014 are even more descriptive, and more releveant in the current context .

    So , Honourable Minister, if you would be so kind as to fulfill this request so we can make our own minds up withought having to rely on the political verbiage between yourself and the Opposition.

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