AT HIS SWEARING-IN CEREMONY IN NOVEM- ber, U.S. Ambassador to Jamaica William Holden made his intentions clear. His stated mission was, for once and for all, "to silence the trumpets of socialism" in Jamaica and the Caribbean. In the 1970s, such a declara- tion by the chief emissary of the United States or any foreign country would have been met with strong protest, if not an expulsion order, by the People's National Party government, led by the once-charismatic social democrat, Michael Manley. But the government of the "new Mi- chael Manley" had little reason to object. The trumpets had long been laid aside. For three months after Manley's re-election on Febru- ary 9 of last year, he was locked in intense negotiations with the International Monetary Fund for a stand-by loan to replace one for $106 million that his predecessor, Edward Seaga, had agreed to the previous September. That agreement called for, among other things, a 10% limit on wage increases (despite anticipated 15% infla- tion), interest rate hikes, credit constriction, and further government spending cuts. These and other measures were intended to improve the country's balance sheet, reduce its ability to purchase imports, and ensure contin- ued payments on the foreign debt. The negotiations resulted in May in a new IMF stand- by loan agreement for $65 million, though Jamaica was only able to withdraw one-fourth of that before it nearly failed an IMF "test" in September.' Although the gov- ernment pleaded for a continuation of the original agree- ment on easier terms, the Fund was not in a lenient mood. During October, Bank of Jamaica officials scrambled to plan further economic sacrifices to placate the Fund; without an IMF agreement, World Bank loan funds would not be released and other sources of credit would be hard to obtain. The result, in the words of a government spokesperson, would be "severe social dislocation." In the first week of November, the government deval- ued the Jamaica dollar and reduced food price subsidies designed to protect the poor. New price ceilings raised the legal maximum for bread, cooking oil, milk, flour, corn- JAMAICA: LEVERAGED SELLOUT Soldiers patrol Kingston during last year's election campaign: Michael Manley inherited a $2 billion foreign debt VOLUME XXIII. NO.5 (FEBRUARY 1990) 2! JAMAICA: LEVERAGED SELLOUT Soldiers patrol Kingston during last year's election campaign: Michael Manley inherited a $2 billion foreign debt A T HIS SWEARING-IN CEREMONY IN NOVEM- ber, U.S. Ambassador to Jamaica William Holden made his intentions clear. His stated mission was, for once and for all, "to silence the trumpets of socialism" in Jamaica and the Caribbean. In the 1970s, such a declara- tion by the chief emissary of the United States or any foreign country would have been met with strong protest, if not an expulsion order, by the People's National Party government, led by the once-charismatic social democrat, Michael Manley. But the government of the "new Mi- chael Manley" had little reason to object. The trumpets had long been laid aside. For three months after Manley's re-election on Febru- ary 9 of last year, he was locked in intense negotiations with the International Monetary Fund for a stand-by loan to replace one for $106 million that his predecessor, Edward Seaga, had agreed to the previous September. That agreement called for, among other things, a 10% limit on wage increases (despite anticipated 15% infla- tion), interest rate hikes, credit constriction, and further government spending cuts. These and other measures were intended to improve the country's balance sheet, reduce its ability to purchase imports, and ensure contin- ued payments on the foreign debt. The negotiations resulted in May in a new IMF stand- by loan agreement for $65 million, though Jamaica was only able to withdraw one-fourth of that before it nearly failed an IMF "test" in September.' Although the gov- ernment pleaded for a continuation of the original agree- ment on easier terms, the Fund was not in a lenient mood. During October, Bank of Jamaica officials scrambled to plan further economic sacrifices to placate the Fund; without an IMF agreement, World Bank loan funds would not be released and other sources of credit would be hard to obtain. The result, in the words of a government spokesperson, would be "severe social dislocation." In the first week of November, the government deval- ued the Jamaica dollar and reduced food price subsidies designed to protect the poor. New price ceilings raised the legal maximum for bread, cooking oil, milk, flour, corn- VOLUME XXIII, NO. 5 (FEBRUARY 1990) 21The Caribbean meal, rice, and other staples by amounts averaging 13%. The government's importing agency announced that it would stop buying salted codfish, an important protein source and essential ingredient in Jamaica's most famous national dish, sal'fish and ackee. The conservative newspaper The Daily Gleaner calculated that a worker earning the standard minimum weekly wage of $18, after buying a minimal food basket for a family of four barely enough to last a few days would be left with only $5 to cover school costs, transportation, rent, utility bills, and all other expenses.2 The devaluation and price hikes created immediate outcries of anger and despair, not just from the right- leaning press but from the public. Even Jamaica Labour Party (JLP) leader Edward Seaga had resisted foreign creditors' demands for subsidy cuts and price increases, holding real food prices at or below their 1985 level. Other Seaga policies, worked out in cooperation with the IMF and World Bank, hurt Jamaicans badly among all but the highest social strata. But by the end of 1989, the desperate PNP efforts to meet lenders' terms left many with the impression that Seaga, despite his highly unpopular aus- terity policies, at least "knew better how to manage." Public confidence in the PNP as well as Manley's per- sonal popularity plunged.3 Easy to forget were the means by which Seaga, whose party governed the country for most of the 1 980s, had achieved this apparent miracle. One was massive U.S. assistance. In an attempt to make Seaga's Jamaica a free enterprise showcase in the Caribbean, AID spent more on its Jamaica program an average of $135 million yearly from 1981 through 1986 than on any other Caribbean country.4 Another Seaga tactic encouraged by the Bank, the Fund, and AID, was the slashing of essential social services, resulting in increases in unemployment, infant mortality and hunger.5 In line with structural adjustment policies and U.S. pressures, Seaga reduced government protection of Ja- maican producers and opened the country to more imports from abroad. He promoted the rapid expansion of the country's Free Trade Zones foreign-run, Jamaican- subsidized, state-of-the-art sweatshops where women with no union representation earn as little as $15 a week, producing garments and toys mainly for foreign markets. Seaga downplayed the loss of jobs resulting from the closure of Jamaican-owned factories due to competition with foreign manufacturers for markets and foreign ex- change; an estimated 10,000 such jobs were lost under Seaga. Jamaica did experience some real GDP growth during Seaga's term, mainly as a result of laundered "ganja" dollars from the marijuana trade, increased tourism earnings, lower fuel import costs, and higher prices for bauxite and alumina. Critics say Seaga manipulated the growth figures to create the illusion of structural adjust- ment success andjustify further foreign and domestic bor- rowing. To reduce demand for legal foreign exchange, channel dollars to favored interests and supporters, and resist pressure for devaluation of the Jamaica dollar, Seaga allegedly condoned some say he organized the illegal but systematic import and re-sale of dollars from the profits of the ganja trade, estimated to be the country's second highest source of foreign exchange earnings. By another sleight-of-hand, Seaga allowed the government itself to become Jamaica's biggest bad debtor. He failed to pay bills to cover maintenance of hospitals, the univer- sity, and other public institutions, and looked the other way while the government importing agency, Jamaica Commodity Trading Corporation, accrued huge deficits. Most important was Seaga's massive accumulation of debt. More than half of the country's current $3.95 billion external debt one of the highest per capita foreign debts in the world was accrued by Seaga's government. By AID's own accounting, Jamaica by March of 1988 was a country with "a crippling debt burden," where economic output was "far below the production level of 1972," where "distribution of wealth and income is highly unequal,.. .shortages of key medical and technical person- nel plague the health system,... [with] severe deficits in infrastructure and housing,... [and where] physical decay and social violence deter investment." This dismal as- sessment was made six months before hurricane Gilbert dealt Jamaica its devastating blow.6 By early 1988, World Bank officials apparently felt they had achieved their goals for Jamaica, and that it was safe, if not preferable, to acquiesce to Manley's return to office. Interviewed in June 1988, Roger Robinson, then Bank senior economist for Jamaica, said "Five years ago, people were still thinking about 'meeting local needs,' but not any more. Now the lawyers and others with access to resources are interested in external export investment. Once you have that ingrained in a population, you can't go back easily, even if the PNP and Michael Manley come in again. Now there's an understanding among individuals who save, invest, and develop their careers that capital will start leaving again if the PNP, or even the JLP, intervenes too much." Michael Manley, Robinson added with an obvious sense of satisfaction, "is making all the right noises" to reassure the bank and potential foreign investors, and to spurn what Robinson called the "irrational" self-reliance strategies and programs to support farming that it had pursued in the 1970s. "The PNP even gave support to Jamaican potato farmers, when it's well known that potatoes coming in from Miami make better French Fries!" he exclaimed. P RIME MINISTER MICHAEL MANLEY TOLD A U.S. Congressional delegation in November, that his country would have to pay half of its export earnings and 40% of all government revenues just to cover its debt service in the coming year. "That means we're running a 50-cent dollar country," he said. With 41% of the debt 22 REPORT ON THE AMERICAS The Caribbean meal, rice, and other staples by amounts averaging 13%. The government's importing agency announced that it would stop buying salted codfish, an important protein source and essential ingredient in Jamaica's most famous national dish, sal'fish and ackee. The conservative newspaper The Daily Gleaner calculated that a worker earning the standard minimum weekly wage of $18, after buying a minimal food basket for a family of four-barely enough to last a few days-would be left with only $5 to cover school costs, transportation, rent, utility bills, and all other expenses. 2 The devaluation and price hikes created immediate outcries of anger and despair, not just from the right- leaning press but from the public. Even Jamaica Labour Party (JLP) leader Edward Seaga had resisted foreign creditors' demands for subsidy cuts and price increases, holding real food prices at or below their 1985 level. Other Seaga policies, worked out in cooperation with the IMF and World Bank, hurt Jamaicans badly among all but the highest social strata. But by the end of 1989, the desperate PNP efforts to meet lenders' terms left many with the impression that Seaga, despite his highly unpopular aus- terity policies, at least "knew better how to manage." Public confidence in the PNP as well as Manley's per- sonal popularity plunged. 3 Easy to forget were the means by which Seaga, whose party governed the country for most of the 1980s, had achieved this apparent miracle. One was massive U.S. assistance. In an attempt to make Seaga's Jamaica a free enterprise showcase in the Caribbean, AID spent more on its Jamaica program-an average of $135 million yearly from 1981 through 1986-than on any other Caribbean country. 4 Another Seaga tactic encouraged by the Bank, the Fund, and AID, was the slashing of essential social services, resulting in increases in unemployment, infant mortality and hunger.' In line with structural adjustment policies and U.S. pressures, Seaga reduced government protection of Ja- maican producers and opened the country to more imports from abroad. He promoted the rapid expansion of the country's Free Trade Zones-foreign-run, Jamaican- subsidized, state-of-the-art sweatshops where women with no union representation earn as little as $15 a week, producing garments and toys mainly for foreign markets. Seaga downplayed the loss of jobs resulting from the closure of Jamaican-owned factories due to competition with foreign manufacturers for markets and foreign ex- change; an estimated 10,000 such jobs were lost under Seaga. Jamaica did experience some real GDP growth during Seaga's term, mainly as a result of laundered "ganja" dollars from the marijuana trade, increased tourism earnings, lower fuel import costs, and higher prices for bauxite and alumina. Critics say Seaga manipulated the growth figures to create the illusion of structural adjust- ment success andjustify further foreign and domestic bor- rowing. To reduce demand for legal foreign exchange, channel dollars to favored interests and supporters, and resist pressure for devaluation of the Jamaica dollar, Seaga allegedly condoned-some say he organized-the illegal but systematic import and re-sale of dollars from the profits of the ganja trade, estimated to be the country's second highest source of foreign exchange earnings. By another sleight-of-hand, Seaga allowed the government itself to become Jamaica's biggest bad debtor. He failed to pay bills to cover maintenance of hospitals, the univer- sity, and other public institutions, and looked the other way while the government importing agency, Jamaica Commodity Trading Corporation, accrued huge deficits. Most important was Seaga's massive accumulation of debt. More than half of the country's current $3.95 billion external debt--one of the highest per capita foreign debts in the world-was accrued by Seaga's government. By AID's own accounting, Jamaica by March of 1988 was a country with "a crippling debt burden," where economic output was "far below the production level of 1972," where "distribution of wealth and income is highly unequal,.. .shortages of key medical and technical person- nel plague the health system,...[with] severe deficits in infrastructure and housing,...[and where] physical decay and social violence deter investment." This dismal as- sessment was made six months before hurricane Gilbert dealt Jamaica its devastating blow. 6 By early 1988, World Bank officials apparently felt they had achieved their goals for Jamaica, and that it was safe, if not preferable, to acquiesce to Manley's return to office. Interviewed in June 1988, Roger Robinson, then Bank senior economist for Jamaica, said "Five years ago, people were still thinking about 'meeting local needs,' but not any more. Now the lawyers and others with access to resources are interested in external export investment. Once you have that ingrained in a population, you can't go back easily, even if the PNP and Michael Manley come in again. Now there's an understanding among individuals who save, invest, and develop their careers that capital will start leaving again if the PNP, or even the JLP, intervenes too much." Michael Manley, Robinson added with an obvious sense of satisfaction, "is making all the right noises" to reassure the bank and potential foreign investors, and to spurn what Robinson called the "irrational" self-reliance strategies and programs to support farming that it had pursued in the 1970s. "The PNP even gave support to Jamaican potato farmers, when it's well known that potatoes coming in from Miami make better French Fries!" he exclaimed. P RIME MINISTER MICHAEL MANLEY TOLD A U.S. Congressional delegation in November, that his country would have to pay half of its export earnings and 40% of all government revenues just to cover its debt service in the coming year. "That means we're running a 50-cent dollar country," he said. With 41% of the debt owed to the IMF, World Bank, and other international agencies, Manley said, "Jamaica will pay $80 million to the IMF alone this year, while they will not pay us one dollar." The prime minister begged the congressmen to persuade multilateral lenders to bend their rules against debt rescheduling, not just forJamaica but for.other debtor nations. He reminded them that the U.S.-sponsored "Brady plan," even if it were to offer substantial relief on the debts poor countries owe to commercial banks, it would be of little help to Jamaica, whose external commercial debt is only 10% of its total foreign debt bill.7 Manley reassured the U.S. representatives that, drastic as the crisis might be, he had no intention of approaching it "in a confrontationist way." "We had enough of that in the l970s," he said, dismissing the massive popular mobilizations and protests against IMF pressure during 1974-1980 as an impolite "hiccup" that would not be repeated. Manley then switched abruptly to describe in detail his "Seven-Point Plan" for a war against drugs. The congressional audience praised his anti-drug stance, but with the exception of the delegation's leader, Rep. George Crockett, said almost nothing in response to Manley's pleas for debt relief.8 Faced with the debt crisis, credit cuts and intensified U.S., IMF, and World Bank pressure, the strategy of the PNP has been to try to "ride out the storm" by postponing more drastic currency devaluations for as long as possible, while grasping every possible source of foreign exchange. The most infamous example thus far has been the sale of $80 million worth of bauxite and alumina in advance to the Alcan corporation and to U.S. speculator and tax fugitive Mark Rich. Jamaica got quick cash from the deal, but the futures buyers will reap the profits of expected increases in alumina prices, perhaps as far into the future as 1995. The sale of the country's 20% block of shares in the national telephone company to British Cable and Wireless Ltd. brought in more funds, but has yet to result in better service from the supposedly "more efficient" private sector. Other public land, rights, and property are on the auction block. The apparent conversion of Manley to a pro-capitalist privatizer led The Enterprise, voice of the Private Sector of Jamaica association, to gloat: "Schools can't find teachers. The entire system seems to be on the verge of collapse. Nurses are fleeing....Everyone knows about the pressure on the dollar and the foreign exchange shortage. But underneath the bad news there is some movement like a tide beneath the waves that should give us some hope. The government has quietly dropped the nonsensical rhetoric of the recent past and is divesting state enterprises even faster than its predecessor....The old gospel that government should be operated in the interests of the poor is being modified, even if not expressly rejected, by the dawning realization that the only way to help the poor is to operate the government in the interest of the productive!" There is scant evidence that the private sector is either efficient or inclined to invest substantially in productive activity in Jamaica. But as long as the government seeks accommodation with the IMF, it has little choice but to shift resources toward business and away from social needs. T HE FUND'S RULES ARE SO STRINGENTLY dogmatic that they require even profitable public enterprises to be sold and efficient services cut back. In determining the credit-worthiness of a government, the IMF lumps together the net surplus or deficit of all public and "parastatal" (state-owned company) budgets. This includes not only the nation's operating budget, but also its capital budget, which under structural adjustment is virtually dictated by the World Bank in order to ensure that expenditures support the priorities of the private sector. In Jamaica's case, after major spending cuts, the central government was running no deficit at the time of the IMF negotiations in September. Some state-owned companies, such as Air Jamaica, were in the red, but the country's total recurrent budget showed a surplus. However, because that surplus was not sufficient to cover the total capital budget as well, the IMF insisted that further cuts be made in expenditures of both the central government and prospering parastatals, making inevitable even more reductions in basic social programs, already cut to the marrow. The government was forced to swallow other onerous, even absurd conditions in order to obtain new foreign loans from other sources. In November, the government concluded a $62 million agreement with the World Bank for "Agricultural Sector Adjustment."' The most bizarre aspect of the "agriculture" loan agreement is that not one penny will go to aid Jamaica's farmers. Instead, the funds will go directly into Bank of Jamaica certificates of deposit, to shore up the government's credit reserves and satisfy the IMF. "The Bank is fully aware that Jamaica will have to use the money for other foreign exchange needs and not to add anything to its agriculture budget," said an official close to the negotiations. "But down the road, when more farmers go out of business, they'll tell the world that it's because the country didn't use its loan money wisely." Moreover, he said, "The conditionalities of the loan are terrible, but there's no way Jamaica can afford to turn down $90 million." Among the required conditionalities are the nearelimination of tariffs and quantitative restrictions on livestock imports, a move certain, said the official, to destroy local industries. U.S. producers were already in the country proffering U.S. beef to hotel managers before the ink on the agreement was dry. Another condition of the World Bank loan is the further reduction of government participation in commodity marketing boards. "The Bank believes the government should have no say at all in what is bought and sold to whom and for how much," said a Jamaican economist, "but the alternative of total privatization means one or a few big producers will monopolize every sector and manipulate it for their own benefit; this has already happened to our coffee [most of which now goes to Japan]." The Bank is also calling for the disbanding of the Jamaica Commodity Trading Corporation, a step not even Seaga was willing to take because of its importance in stabilizing food prices and capturing some revenue from the sale of foreien-donated sumllius food. In addition, the Bank wants the Jamaica Agricultural Credit Bank to charge interest rates close to or at market levels, even though the World Bank is not the source of the Credit Bank's funds. "We told the World Bank team that farmers can hardly afford credit now, and that higher rates would put them out of business,"explained a government official concerned with agriculture. "The Bank told us 'The market is telling you that agriculture is not the way to go for Jamaica." Similar criteria are likely to be applied when the Bank and Jamaica negotiate a "trade and finance sector adjustment" loan in the spring. In negotiations for a housing project loan, the Bank is insisting on further increases in mortgage interest rates, even though the rates are already so far out of the range of most Jamaicans that the National Housing Trust paid for mainly by a tax on all Jamaican wage-earners, and responsible for 80% of the country's housing financing is banking its money instead of building homes. Higher interest rates, the World Bank reportedly acknowledged, might mean even less housing will be built. More important in the Bank's view is the fact that the Trust's operations "would become more profitable," a party to the negotiations reported. "The Bank's logic is that the less that goes into government, the more there will be for the private sector, and that the private sector, not government, should determine how resources are used," the official said. "They tell us we should let the market determine the exchange rate, even if it means the Jamaica dollar falls to 15 to I. If that happens, they say, wages will drop further and we'll be flooded with free-zone-type manufacturing. We'll reach the limit of our ability to import, so that way, our foreign exchange 'problem' will be 'solved!' (Only 13 years ago, the Jamaica dollar was worth more than the U.S. dollar.'
