Transcript Unit VII - WordPress.com

Stabilization and Structural
Adjustment Programmes in Jamaica
1
Objective
Discuss the rise of Neo-liberalism and the
impact of structural adjustment on social
policy in the Caribbean.
 Note some Caribbean examples of the
effects of structural adjustment

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Definitions
In economics, the debt-to-GDP ratio is
one of the indicators of the health of an
economy.
 It is the amount of national debt of a
country as a percentage of its Gross
Domestic Product (GDP).
 A low debt-to-GDP ratio indicates an
economy that produces a large number of
goods and services and probably profits
that are high enough to pay back debts.

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Definitions
External debt (or foreign debt) is that
part of the total debt in a country that is
owed to creditors outside the country.
 The debtors can be the government,
corporations or private households.
 The debt includes money owed to private
commercial banks, other governments or
international financial institutions such as
the International Monetary Fund (IMF)
and World Bank.

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The Situation Today
Five of the world’s 13 most indebted
nations (as a share of GDP) are now in the
Caribbean.
 Debt has accumulated because of successive
years of fiscal deficits and, since the mid
1990s, borrowing by public enterprises and
off-balance sheet spending, including
financial sector bailouts.
 With mounting interest bills, the global
financial crisis caused serious problems for
debt management.

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The Situation Today
Antigua & Barbuda – 130%
 Barbados – 103.9%
 Jamaica – 126%
 St. Kitts and Nevis – 200%

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The Situation Today
In the Dominican Republic the impact of the
crisis is severe, but governments have
responded proactively, relaxing considerably
monetary policy in the Dominican Republic,
and pushing through fiscal adjustment and
debt restructuring.
 Innovative ideas about how to manage debt,
include the recent experience of the debt
exchange by Jamaica and debt restructuring
by Antigua.

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The Situation Today
Even before the crisis, economic growth in
the region has lagged other parts of the
hemisphere because of weak productivity
growth―not low rates of investment―and
weak integration with the so-called new
global “growth poles.”
 These are the large, vibrant, emerging
market economies like Brazil and China
with spillovers that drive growth in other
countries.

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The Situation Today
Diversification of economic partners and
export markets, which some countries are
already pursuing, should become a
deliberate strategy going forward.
 “Like most of the advanced economies, the
Caribbean needs to tackle the obstacles to
higher growth, and come up with new,
home-grown ideas to enhance its
prospects,” - Nicolás Eyzaguirre, Director of
the IMF’s Western Hemisphere Department

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The Situation Today
New sources of growth: other offshore
services, for example, in the areas of health,
education, and specialized financial services.
 Some countries would need to improve the
efficiency of key factors like information
technology and energy production to make
this possible.
 Cost
savings from scale economies,
particularly in the area of integration of
institutional activities like financial sector
supervision and regulation.

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The Situation Today

Three Caribbean countries have taken on
IMF programmes to guide the adjustment
processes, the region’s engagement with the
Fund has more generally intensified through
the Fund’s heightened surveillance activities
and the increased technical assistance being
provided, particularly through the focused
work of the Caribbean Regional Technical
Assistance Centre.
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The Situation Today

Antigua and Barbuda, the Bahamas,
Barbados, Belize, Dominica, Grenada,
Jamaica, Saint Kitts and Nevis, Saint Lucia,
and Saint Vincent and the Grenadines have
all had IMF programmes
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The Situation Today – The Bahamas
Economic activity grew by about 1½
percent of Gross Domestic Product (GDP)
in 2011, up from near-zero in 2010, on
improved tourism activity and ongoing
investment projects, including the large
US$3.5 billion private Baha Mar project.
 Unemployment remained high at 16 percent,
and inflation more than doubled to 3
percent, mainly due to higher world oil
prices.

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The Situation Today – The Bahamas
The fiscal deficit in FY2011/12 (July to June)
is estimated to have increased to about 6
percent of GDP, up from 4½ percent in the
previous fiscal year.
 Despite higher exports in the wake of the
gradual global recovery, the external current
account deficit widened in 2011.
 This is due to higher imports, which reflect
a surge in foreign direct investment (FDI)related imports and high world oil prices.

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The Situation Today – St. Kitts &
Nevis
Economic activity continued to shrink in the
first semester of 2012 on account of a sharp
slowdown in the construction sector which
outweighed a modest recovery in tourism.
 Despite this contraction, now in its fourth
year, and the sluggish global environment,
the authorities have continued to
successfully implement their home−grown
economic programme.

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The Situation Today – St. Kitts &
Nevis
The outlook is a contraction lasting through
2012, followed by a modest economic
recovery in 2013, partly supported by a
rebound in FDI.
 Uncertain global economic conditions
remain the key downside risk to growth.

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What is Neo-liberalism?
The liberal school of economics became
famous in Europe when Adam Smith
published The Wealth of Nations.
 He
advocated
the
abolition
of
government intervention in economic
matters.
 No restrictions on manufacturing, no
barriers to commerce, no tariffs, free
trade was the best way for a nation's
economy to develop.

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What is Neo-liberalism?
Such ideas were "liberal" in the sense of
no controls.
 This
application
of
individualism
encouraged "free" enterprise," "free"
competition - which came to mean, free
for capitalists to make huge profits.
 Economic liberalism prevailed through the
1800s and early 1900s.

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What is Neo-liberalism?
The Great Depression of the 1930s John Maynard Keynes - theory that
challenged liberalism as the best policy for
capitalists.
 Full
employment is necessary for
capitalism to grow and it can be achieved
only if governments and central banks
intervene to increase employment.
 Used by Barack Obama – stimulus
package.

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What is Neo-liberalism?

Neo-liberalism" is a set of economic
policies that have become widespread
during the last 25 years or so with global
decline in profitability for capitalist
enterprise.
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Characteristics of Neo-liberalism?
THE RULE OF THE MARKET:
Liberating "free" enterprise or private
enterprise from any bonds imposed by the
government (the state).
 Greater openness to international trade
and investment, as in NAFTA.
 Reduce wages by de-unionizing workers
and eliminating workers' rights.
 No more price controls. - total freedom of
movement for capital, goods and services.

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Characteristics of Neo-liberalism?

The argument is that an unregulated
market is the best way to increase
economic growth, which will ultimately
benefit everyone.
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Characteristics of Neo-liberalism?
CUTTING PUBLIC EXPENDITURE
FOR SOCIAL SERVICES like education
and health care.
 Reducing the safety-net for the poor,
cutting maintenance expenditure of roads,
bridges, water supply - again in the name of
reducing the government's role.

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Characteristics of Neo-liberalism?
DEREGULATION: Reduce government
regulation of everything that could diminsh
profits,
including
protecting
the
environment.
 PRIVATIZATION.
Sell state-owned
enterprises, goods and services to private
investors.
 This
includes banks, key industries,
railroads, toll highways, electricity, schools,
hospitals and even fresh water.

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Characteristics of Neo-liberalism?

Although usually done in the name of
greater efficiency, which is often needed,
privatization has mainly had the effect of
concentrating wealth even more in a few
hands and making the public pay even more
for its needs.
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Characteristics of Neo-liberalism?
ELIMINATING THE CONCEPT OF
"THE
PUBLIC
GOOD"
or
"COMMUNITY" and replacing it with
"individual responsibility."
 The poorest people in a society must find
solutions to their lack of health care,
education and social security.
 Remember the re-emergence of welfare
pluralism.

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1980s Neo-liberalism, Debt Crisis and
structural adjustment
Rise of Neo-Liberalism Doctrine
 Margaret Thatcher in UK
 Ronald Reagan in US - "supply-side" and "trickledown" economics

Washington Consensus (IMF,WB, US)
◦ Reducing state involvement in economy
◦ “Free” markets – market should allocate resources
with limited govt. regulation
◦ “Free” trade, limited protectionist measures
◦ Increased privatisation of social sector
◦ Residualising welfare – temporary safety net,
providing for the very poor.
1980s IMF Stabilization Programmes

Devaluation -to
increase exports by making them cheaper
and reduce imports by making them more expensive. Generally,
not successful as
◦ Demand for most commodities- price inelastic, also
recession in North reduced demand for exports
◦ First World technological substitutes for primary
commodities also reduced intl. demand, e.g High
fructose corn syrups (HFCS) substitute for sugar,
soy oil for tropical oils
◦ Devaluation did not reduce imports significantly as
Jamaica is very import dependent. Devaluation
increased domestic inflation.
1980s IMF Stabilization Programmes

Reduce Fiscal Deficit - What is fiscal deficit?
The difference between total revenue and
total expenditure of the government is
termed as fiscal deficit.
 It is an indication of the total borrowings
needed by the government.
 While
calculating the total revenue,
borrowings are not included.

1980s IMF Stabilization Programmes
Generally fiscal deficit takes place due to
either revenue deficit or a major hike in
capital expenditure.
 Capital expenditure is incurred to create
long-term assets such as factories, buildings
and other development.
 A deficit is usually financed through
borrowing from either the central bank of
the country or raising money from capital
markets by issuing different instruments like
treasury bills and bonds.

1980s IMF Stabilization Programmes

Reductions in size of Fiscal Deficit via
◦ reduction in state borrowing
◦ Reducing size of civil service (govt workers
redundancies),
◦ Wage guidelines/ freezes/wage cuts
◦ Reduction in public spending on social
programmes,
◦ Removal of price controls on basic food
items/ food subsidies.
◦ Increasing fees for state services
What is Structural Adjustment?

Structural adjustment can be defined as
the varied policy action (whether home
growth or externally driven) that
attempts to alter the nature, structure
and functioning of economies.
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Structural Adjustment – T&T

The early post independent Caribbean
societies, leaders set about restructuring
their societies and sought to raise the
mass of their population from poverty
through a combination of broad-based
social policy (i.e. aggressive social
spending) and economic measures aimed
at modernising their economies via the
route
of
import
substitution
industrialisation (i.e. altering the economic
base).
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T&T Structural Adjustment?
These broad-based social policies reaped
significant successes as captured in
improvements in a number of social
indicators.
 The model of development being pursued
proved unsustainable for a number of
reasons, both internal and external to the
countries.

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T&T Structural Adjustment?

Since the late 1970s, the paradigm of
adjustment as advanced by the
International Financial Institutions (IFIs)
has come to dominate policy discourse
and policy action, and structural
adjustment has come to be associated
with the policy recommendations
emanating from the IFIs (adjustment a la
IMF/World Bank) and more recently the
World Trade Organisation.
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T&T Structural Adjustment?
This heralded a fundamental shift in policy
focus, in the priority accorded economic
issues
as
against
social/human
development issues and in the approaches
to addressing these.
 Growing inequality of incomes was found
for Trinidad and Tobago under structural
adjustment (1986 – 1993).

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T&T Structural Adjustment?
Government's approach to reigning in its
expenditure, attempted to minimise the
social impact.
 Mass public sector retrenchment was
avoided and employment was reduced
through the introduction of voluntary
separation employment packages (VSEP)
and by natural attrition; the wage bill was
lowered by a freeze on salaries and actual
salary cuts.

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T&T Structural Adjustment?
Nevertheless, many workers suffered a
decline in real incomes through decreases
in nominal income and rises in prices and
many fell below the poverty line.
 Domestic prices, especially food prices,
escalated under adjustment.
 Employment in the agricultural sector and
the informal sector expanded.
 Spending on the social sector declined and
this adversely affected their operations.

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T&T Structural Adjustment?
Government workers, service workers
and others employed in labour intensive
activities in the manufacturing sector were
most severely hit by the decline in income.
 Real minimum wages in these activities
dropped and the labour share of GDP
diminished considerably.
 The share of GDP going to profits also
rose.

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T&T Structural Adjustment?
Poverty rose over the period of
adjustment.
 The incidence of poverty was found to be
greater among the urban poor and
particularly high for government workers.
 Rural workers who had access to garden
plots or were less dependent on wage
income fared better.

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T&T Structural Adjustment?
There was an expansion of job
opportunities for women in the public and
private sector.
 Social programmes up to 1993 were ad
hoc and not focussed on providing
immediate relief to the dislocated
persons.

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1980s World Bank Structural
Adjustment Programmes

World Bank Structural Adjustment
Programmes
Trade Liberalisation - opening up economy,
lowering tariffs, duties. Removal of import
controls/import quotas to “remove trade
distortions/increase competitiveness”
 Privatisation


Tax reform – from progressive to flat rate
(more regressive)
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Neo-liberalism, Stabilization and Structural
Adjustment
Mexico - wages declined 40 to 50% in the
first year of NAFTA (1994) while the cost
of living rose by 80%.
 Over 20,000 small and medium businesses
failed and more than 1,000 state-owned
enterprises have been privatized in Mexico.

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Neo-liberalism, Stabilization and Structural
Adjustment – The Caribbean

Loss of preferential trading arrangements
for key producing sectors, as the new rules
of engagement for international trade take
hold.
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1980s Neo-liberalism, Stabilization and
Structural Adjustment

Financial Sector Liberalisation
◦ Foreign Currency Market Liberalisation

Jamaica received loans from IMF/WB and
other MLs throughout 1980s. These agencies
had cross-conditionalities.

Between 1981 and 1989, Jamaica’s debt almost
doubled, net transfers to official creditors
(multi and bilateral creditors) became negative
after 1985 (Anderson and Witter, 1994)
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1980s Neo-liberalism, Stabilization and
Structural Adjustment
Net transfers on external debt are net flows
minus interest payments during the year; negative
transfers show net transfers made by the
borrower to the creditor during the year.
 Net resource transfers from poor to rich
countries remain high despite a decline resulting
from the global contraction of output and
employment.

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1980s Neo-liberalism, Stabilization and
Structural Adjustment
Developing countries as a group are expected to
have continued to provide net financial resources
to developed countries in 2009 at a level of $568
billion.
 While still substantial, this amount is notably
lower than the all-time high of $891 billion
reached in 2008.

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1980s Neo-liberalism, Stabilization and
Structural Adjustment

User fees introduced
education in 1990s
in
health
and

Wage earners and the poor suffered the
brunt of adjustment, while a thriving
merchant class emerged.

Increased income inequality in Jamaica.
(Anderson and Witter, 1994)
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1980s Neo-liberalism, Stabilization and
Structural Adjustment

Labour market shifts - Public sector jobs
replaced by jobs in the secondary sector
(garment export processing zones (EPZs),
tourism, retail) and informal sector selfemployment (Both low skill, low wage, few/no
benefits or protections)

Cutbacks in education budget between 197787 was 30% in real terms, school infrastructure
deteriorated
(Anderson and Witter, 1994)
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1980s Neo-liberalism, Stabilization and
Structural Adjustment

Student attendance rates declined, also
performance in CSEC. Pass rate for English
fell from 43% in 1986 to 25% in 1993,
(Handa and King, 1997).

Reduction in healthcare personnel due to
migration, budget cuts, stock of reg. nurses
fell by half, number of community health
aides reduced by more than 50%
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1980s Neo-liberalism, Stabilization and
Structural Adjustment

Health outcomes declined –Gastroenteritis,
typhoid and malnutrition increased (Anderson
and Witter, 1994)

Increase in number of days lost to illness
(Handa and King 1997)

Food Stamp Programme Introduced in 1980s to
address increase in poverty
Increase in remittances in early 90s also offset
rise in poverty and inequality

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Mid 1980s - 1990s

Rethinking meaning of Development
measurement of living standards
&

Role of Internally Displaced Persons (IDPs):
Poverty Reduction became important as SAPs
caused poverty to climb in the Third World.
New focus on sustainable human development
 Human Development Reports – started in
1990

Realisation that economic growth may not
result in improved social welfare/ development
Sustainable Human Development

SHD – focus shifted from economic
growth to the well-being of individual
human beings

Concept of “human development” was
developed by UNDP in 1990, it is the
process of enlarging people’s choices.
53
Human DeveIopment Index

The Human Development Indicator (HDI) is
comprises of the following components:
1) Longevity (life expectancy at birth)
2) Knowledge (adult literacy rate, gross
enrolment ratio in primary, secondary and
tertiary levels)
3) Decent standard of living (GDP per capita)
Jamaica and Trinidad are at high human development
Barbados - only Caribbean country at very high level
54
GDI/GEM

Gender-related Development Index
(GDI), measures achievement in the same
basic capabilities as the HDI but measures
inequality in achievement between women
and men. (UNDP website)

Gender Empowerment Measure
(GEM), is a measure of agency. It
evaluates progress in advancing women's
standing in political and economic forums.
55
HPI - Human Poverty Index
Human Poverty Index – introduced in 1997
– measure for developing countries
 vulnerability to death at an early age,
measured by the probability at birth of not
surviving to age 40.
 Knowledge – the adult illiteracy rate.
 A decent standard of living- the percentage of
the population with no access to clean water
and the percentage of children under five who
are underweight.
(See website for Measure for Developed
Countries)

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Sustainable Human Development

Reassertion of Social Sector

Social Policy Paradigm Shift
◦ Residual Model included elements
universalism. Still had cost-sharing
of
◦ Empowerment the focus of social policy; not
welfare (handouts)
 E.g. PATH focus on human capital / training
of beneficiaries, Steps to Work
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Sustainable Human Development
 Participatory
social
policy
making,
including all stakeholders in decision
making. In Jamaica, JASPEV established.
 Focus
on
ends/output
 Focus
means/process,
not
just
on outcomes, rather than output
◦ E.g. – concern over outcomes in education led
to the Education Transformation Taskforce
which produced its report in 2004.
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