Thread by @marcgayle

This is the true story whispered behind closed doors until now about JA's economic reform programme. Can't wait for Part 2.

So, for posterity, I am going to include choice quotes below for reference purposes.

#FinanceTwitterJa

ftalphaville.ft.com/2019/11/04/157…

//Thread

More and more poorer Jamaicans were turning to crime, and wealthier, educated ones fled the country; a brain drain of epic proportions.

Only occasional dollops of aid from international development institutions kept the lights on. But by 2012 even they’d had enough.

Jamaica’s latest IMF programme — the country has been propped up by various kinds of IMF assistance for over three decades of its 57 years of independence — had unwound almost as soon as it had been agreed. [Editorial Note: this is a MAJOR simplification, but w/e].

In Washington, officials were quietly discussing whether to let the country collapse.

Jamaica’s poor track record meant that the IMF insisted on a draconian austerity programme so fierce it made Greece’s look like a cakewalk. Scepticism was rampant.

https://twitter.com/marcgayle/status/1205250373834940422?s=20

One official involved in the tortuous negotiations recalls that follow-up meetings in DC would often start with a grim joke: “Has Jamaica crashed yet?”

[Editorial Note: That "joke" makes me sick.]

Just a few years ago the country’s economic arc was pointing towards oblivion.

“We really hit rock bottom. People were disgusted, distraught. This is what revolutions are made of. And this was a mini-revolution,” says Nigel Clarke, the country’s finance minister.

[Editorial: We have truly had a mini economic revolution].

Jamaica’s ratio of debt to gross domestic product last year dipped below 100 per cent for the first time since 2001. The unemployment rate has hit a record low, inflation has been tamed, international reserves have been replenished, and the Jamaican stock market has climbed...

over 500 per cent over the past five years. Jamaica weaned itself off IMF financial assistance in 2016, and last September graduated from its “precautionary standby arrangement” with flying colours. In November, the Fund’s executive board signed off on the final review...

bringing the programme to a formal end.

This is a stunning development, not just for Jamaica but also the IMF, which desperately needs a big win at a time when its biggest-ever programme in Argentina is on its knees....

— and many other countries are likely to need its aid in the coming years. The organisation is often criticised for exacerbating crises, but Jamaica is arguably an example that its bitter medicine might occasionally heal.

“This is an extraordinarily positive turn of events...

..after 40 years of stagnation,” says Peter Henry. “It shows that countries actually have agency. If Jamaica can do this, my goodness, everyone can . . . It’s a hopeful message.”

Brian Wynter’s first duty as the Bank of Jamaica’s new governor in December 2009 was simple...

..print money to keep the government afloat until an IMF bailout could be agreed.

Indeed, Wynter received the formal request of funding the second he first set foot in the Bank of Jamaica’s building on Kingston’s scenic waterfront. It was only the first of many such letters.

“Ultimately I was buying entire bond issues,” Wynter recalls. [Editorial Note: MY GOD!]

The funding was vital to keep the lights on but as debt servicing consumed an astonishing 60 per cent of the government’s revenues.

To understand the impact of this:

https://twitter.com/marcgayle/status/1205250404189163520?s=20

Wynter’s second job was to help arrange a restructuring of Jamaica’s existing liabilities, a condition the IMF insisted on to unlock a $1.3B bailout. Mr Wynter’s predecessor had been replaced largely due to his resistance to such a move, but the new gov. knew it was necessary.

It had to be done carefully, however, as most of the money had been borrowed from Jamaican banks. Officials feared that too harsh a restructuring would wreck the country’s financial system (including the central bank), so it only extended payment times and lowered interest rates

to make the burden more bearable. [Editor: This was JDX1].

The restructuring was a cautious success..

The IMF’s programme also got off to a flying start, with the first review in August 2010 noting that every target was being hit and the economy was doing better than feared.

“People were even saying Jamaica should show Greece how to do it,” Wynter ruefully recalls. “But it ended up being a disaster.”

Weakened politically, PM Golding reneged on an IMF agreement to freeze pay for civil servants and wrecked the tortuously...

negotiated package with the Washington institutions.

[Editorial Note: Between this wage-to-GDP milestone not being met and the TG fiasco, the IMF programme came crashing down].

BOJ's rapidly-depleting foreign reserves were unnervingly low - enough to only cover 6 weeks of imports. Most alarmingly, debt to GDP ballooned to a new record high of 145 per cent in 2012, the servicing costs consuming a third of the budget.

[Editor: 6 WEEKS IS MADNESS!]

I would like to underline that.

Basically that means that we reached a place where BOJ only had enough reserves to pay for 6 weeks worth of imports (i.e. oil, and EVERYTHING ELSE we import).

i.e. 6 weeks away from hyperinflation, potential food shortages, rioting, etc.

If BOJ runs out of reserves ever, we can no longer import anything. In any small economy...the country essentially goes bankrupt. This could be the beginning of a cycle that is VERY, VERY difficult to break.

We could be in a MUCH different place right now. No hyperbole.

This is why I am so passionate about our current economic recovery programme. We were SOOOOO close to being a failed state and it's never been talked about publicly like this before.

Chances are we would have to take foreign reserves from places that wouldn't serve us well.

“The country was in dire straights,” says Peter Phillips, who took over as the PNP’s finance minister in 2012. “We were on the cusp of a crisis.”

“My first few weeks were spent in a dialogue of the deaf,” Phillips recalls. “There was a view that it would take a complete collapse

...to force Jamaica to change. My job was to convince Washington that we were serious this time . . . But there was a big trust deficit.”

[Editorial Note: This is why even though I am no fan of his most recent moves, I will forever give Dr. Phillips the credit he deserves].

Guys...there were bureaucrats out there that GENUINELY thought it may be best for Jamaica to become a failed state!!

MY God Almighty!

Thank God we never got there, and good sense prevailed and we got the bailout we needed from the IMF.

“The collapse of the 2010 programme put us beyond the pale with some people,” Wynter says. “We weren’t negotiating for an agreement, we were negotiating about starting negotiations.”

Washington’s international organisations are supposed to be neutral and technocratic...

staffed with the brightest economic minds of their member countries. But like any large org they are also riven by politics, and association with failed programmes can stunt careers. Given JA’s blotchy history, there was little appetite to be the latest staffer to fall victim...

to the country’s chronic inability to stick to a programme.

At the back of everyone’s minds was a 2001 documentary titled Life and Debt, an excoriating depiction of the IMF’s previous Jamaican programmes that former premier Michael Manley described...

in the film as brute neocolonialism.

[Editorial: The irony of a documentary decrying the IMF could have been a major deterrent for the IMF dealing with us again is not lost on me. Words & Media Matter!! We need to be responsible.]

“It was an obvious crisis. We didn’t have to spend a lot of time analysing the situation. The question was what we could do,” Martijn says. “The IMF raised a lot of emotions in Jamaica. There was a lot of resistance, both in Jamaica and Washington.”

So the government pulled out all the stops. In November 2012 Wynter met with Maxine Waters, the powerful head of Congress’ financial services committee, to lobby for her help. Waters, of Jamaican descent, agreed to lend a hand, and rallied the Congressional Black Caucus...

to put pressure on the IMF. On Christmas Eve 2012 they made an unannounced march on the Fund’s headquarters, but Lagarde cannily welcomed them in with open arms, defusing what could have been an awkward stand-off.

The attempt initially appeared to fail, with the IMF’s staff unimpressed with Jamaica’s behind-the-scenes lobbying. “We got blowback,” Wynter admits. Martijn insists that the contours of an agreement were at that stage clear, but the govt had to decide whether it was feasible.

That Christmas was a dark, unhappy one for Jamaica’s top economic officials, who were growing fearful of what the new year would bring. Philips recalls the moment vividly: “We were facing a catastrophe”.

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Actual chills reading this in print.

We should never forget this.