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Notes on Jamaica and IMF.docx

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Health Sciences
Health Sciences 1002A/B
Jessica Polzer

Notes for Class 22 – Case Study: The Jamaican experience of structural adjustment - J. Polzer Why did Jamaica have to seek loans from the IMF?:  Up to WWII, the Jamaican economy was based primarily on agriculture oriented to the production of food for the domestic market, and sugar and bananas were export to the UK. Export-oriented agriculture was organized around large British-owned plantations that specialized in sugar exports to the United Kingdom. From the 1950s bauxite and alumina had become the principal exports. However, in the 1980s, the rapid growth of tourism established the sector as the leading foreign exchange earner (in gross terms). (Witter). Up to the Second World War, its main exports – sugar and bananas – were marketed under preferential agreements with the United Kingdom (under the Lome Agreement).  Between 1950 and 1962, Jamaica had become an example of rapid economic development, and achieved standards of social wellbeing that were extremely high (“virtually unmatched”) in the developing world (George, 1988, p. 172)  Since the 1970s, Jamaica has experienced “unremitting economic problems” o 1973 – oil crisis leads to international economic recession (The context of this is that oil prices quadrupled after the countries belonging to the Organization of Arab Petroleum Exporting Countries (OAPEC) proclaimed an oil embargo (i.e. restricted the shipping of oil) in response to the U.S. decision to supply weapons and supplies to Israel during the Yom Kippur war. The embargo went in effect in October 1973 and oil prices immediately jumped from $3 per barrel to $12.) o Declining foreign investments “in a climate of international recession” (p. 173)  The People’s National Party (PNP), headed by Michael Manley implemented reforms in 1972, including: o Rent control o Minimum wage o Improved health services o Equal pay for women o Free secondary school education  The PNP also sought to gain more control over its bauxite production and to tax bauxite industry in order to finance the above investments and in the context of the rising price of oil. In response to this political move, foreign investors pulled out of Jamaica and invested in Australia and Africa. This meant less economic production in Jamaica.  Jamaica was unable to keep up with debt payments: foreign debt rose from $150 million to $813 million between 1971 and 1976  Jamaica was forced to approach the IMF for loans when private banks would not lend to them (“foreign commercial banks did not exactly trip over each other in the rush to refinance old loans or grant new ones to the Manley government” (George, p. 174)). Between 1977 and the 1990s, Jamaica has lived “under surveillance” of the IMF. Between 1977 and 1990, Jamaica signed eight agreements with the IMF and six with the World Bank. In the 1980s, the United States Agency for International Development (USAID) provided loans to Jamaica as well and played a supporting role to the IMF and the World Bank. 1 IMF demands for structural adjustment:  In 1980, under the Manley government, the IMF demanded the following “adjustments”: o $300 million government expenditure cut (26% of previous year’s budget) which led to the lay off of 11,000 public-sector workers o Fund required the Manley government to reverse its position on wealth redistribution which meant that the Manley government lost popular support (p. 174)  Manley’s PNP gov’t lost the 1980 election to the rightist Jamaica Labour Party led by Edward Seaga whose policies were aligned with IMF requirements  In 1984, Further adjustments were made under the Seaga government under the rules set by the IMF. Meeting these rules required the following measures made by the Seaga gov’t: o 6,200 jobs cut from public sector (including 1,500 from Ministry of Health) o Removal of food subsidies o Freezing of minimum wage at US $ 8.95/week o Costs of basic services like water, telephone and electricity and staple foods rise (due to currency devaluation) o 1985 - 20% increase in cost of gasoline, diesel fuel, kerosene and cooking gas; this resulted in rising prices for public and private transportation  Despite the fact that real incomes were cut by 48% between 1983 and 1985, 1984 was deemed to be a “successful year for Jamaica” according to the World Bank because its balance of payments shifted from being in the red (negative) to in the black (positive); However, debt doubled under the Seaga government to 3.3 billion.  Under these conditions, the Jamaican state became less accountable to domestic interests (e.g. local farmers and local food p
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