Marla Dukharan

Coup d’état PTSD? Or same old disinformation and fear mongering? Or both?

by Marla Dukharan

On May 12th 2021, T&T’s Minister of Finance tweeted “We keep being told to go to the IMF for loan financing. What the ‘experts’ don’t disclose is that the IMF requires a commitment to structural adjustment before they give you one cent. This means retrenchment and removal of subsidies and social grants. This ‘advice’ is dangerous.” Oh, the irony.

In the first place, ‘Structural Adjustment’ is 1980’s terminology which was discontinued along with many of the reforms prescribed back then to ‘liberalize’ (developing) economies in debt / balance of payments (BoP) crises. T&T underwent an IMF Structural Adjustment program in the 1980’s which arguably contributed to socio-economic deterioration and the 1990 attempted coup d’état. Continuously demonizing the IMF and (implicitly) citing this historical event to justify avoiding critical reforms and mitigating KNOWN risks today, is irresponsible at best, and demonstrates an absence of leadership. At this critical and delicate juncture, finding solutions is of existential importance. Which is precisely why the Minister’s statement is where the real danger lies — pun intended. What is his alternative solution? Asking for a crumbling nation.

T&T is currently hemorrhaging over USD1 billion in FX reserves annually

#FactCheck — T&T is hemorrhaging over USD1 billion in foreign reserves annually (absent HSF drawdowns and USD borrowing) and will run out of USD by 2022, falling into a BoP crisis UNLESS there is reform. Seeking IMF support implies some commitment to reforms which we desperately need anyway, to mitigate the risk of repeating our ‘mistakes’. These reforms are not imposed by the IMF — arriving at an agreement involves a negotiation process based on the evidence, resulting in a bespoke reform agenda. For example, Jamaica agreed to depreciate its currency while Barbados did not. Barbados agreed to external and domestic debt restructure, while Jamaica only restructured its domestic debt — twice. Barbados and Jamaica agreed to address their public sector wage bill via retrenchment, but Grenada did not. And finally, the Minister should be pleased to know that the IMF in fact imposes a FLOOR — which may imply an actual increase — on social protection spending and prioritizes the mitigation of any negative social implications of the agreed reform agenda.

Before T&T borrows from the IMF, we could opt to drawdown our ~242 million Special Drawing Rights (SDR), currently worth ~USD350 million (SDR1 = USD1.444), which carries no conditions whatsoever. Furthermore, it is important to remind the Minister that the cost of borrowing from the IMF is among the lowest worldwide. When (not if, absent critical reforms) T&T succumbs to a BoP crisis, we would be able to access up to 400% of our SDR quota of ~470 million, about ~USD677 million in IMF support. There would likely be additional sources of support / lending from other development partners as well. Reforming to avoid a painful BoP crisis would be ideal (see Suriname’s experience), but it requires leadership. Alas!

The true ‘dangerous’ advice, which the Government follows blindly, is aimlessly withdrawing from the HSF and borrowing USD to finance recurrent spending, including interest on existing debt and tax refunds. This can only end one way.

Economist and leading advisor on the Caribbean