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“Why IMF and not other advisers?” (ed. in FT 2/3/2019)

02/03/2019

Why IMF and not other Advisers? (ed. in FT 2/03/2019)

The intelligent Fiji Times reader must be puzzled to read that soon after the SODELPA Leader of the Opposition (Rabuka) advised the Bainimarama Government to heed the recent IMF Article 4 advice (FT 25/2/2019), the Bainimarama Government announced that they welcomed the same IMF advice.

Recollect that just two weeks previously, the Catholic Archbishop of Fiji had warned the public about the negative consequences of IMF and WB policies on the poor. Who is the public to believe?

Recollect also that for five years now, all advice and recommendations to the Bainimarama Government from Opposition MPs in Parliament, some quite sensible, have not only been rejected but often ridiculed by Fiji First MPs, most of whom have few credible credentials to boast about, in comparison to some of those among the Opposition MPs, like Professor Biman Prasad.

Why is the Bainimarama Government claiming to “welcome” the IMF advice, which the Fiji public should note is usually in difficult to understand “jargon” or “techno-speak” or “gobble-de-gook” and innocuous language that often disguises dangerous judgments and policy advice (see my section below on the FNPF)?

Why are Fiji people blindly heeding itinerant unaccountable outside agents like IMF and WB, who give their bland but dangerous advice, sometimes even contradicting each other?

Why are the Fiji public not looking for advice and guidance from among their own credible senior civil servants from the Reserve Bank of Fiji, Planning Office, other government ministries, academics, and responsible social leaders like the Catholic Archbishop and some experienced heads of NGOs?

The sad reality is that few of the younger generation will know that “once upon a time”, Fiji did enjoy such knowledgeable advice from senior civil servants, before they were removed by some military coup or other, and even independent academic leaders.

The public might want to ask why even powerful international organizations like the IMF decline to give the really relevant hard data on Fiji’s real economic performance, as Opposition Leader Rabuka has called for.

Instead, the IMF (like the Bainimarama Government) issues “feel good” statements based on selective sketchy data to suit the picture they are painting while ignoring “unpleasant” facts that contradict their conclusions.

IMF “Feel Good” Statements

The IMF Report is full of positive statements commending the Bainimarama Government for implementing sound economic policies (in italics):

noted prompt and effective response to Cyclone Winston with well-designed policies that supported the economy’s strong recovery; noted the ninth consecutive year of economic expansion to 2017; noted positively that the growth was underpinned by reconstruction activities, a vibrant tourism sector, and the recovery of agricultural production (REALLY?); commended the structural reforms undertaken by the authorities; welcomed the steps taken to build climate change resilience and encouraged the authorities to continue their efforts in this area.

The IMF Executive Directors however warned the Bainimarama Government that Fiji faced downside risks from natural disasters, tighter global financial conditions, and vulnerabilities in the financial sector (DON’T ALL ECONOMIES FACE THESE?).

The IMF advised the Fiji Government to

* pursue fiscal consolidation over the medium term to reduce procyclicality and maintain fiscal sustainability (READ: CUT GOVERNMENT EXPENDITURE).

* rebuild fiscal buffers, including pension savings, to help Fiji remain resilient to adverse shocks and to place debt on a downward path (how exactly is not pointed out).

* rationalize price controls to improve the allocation of resources (READ: REMOVE PRICE CONTROLS)

* further relax exchange restrictions

* press ahead with structural reforms to foster private sector development (what exactly is not specified, but you can be sure privatization will be one of them, as is often praised by IMF)

* implement measures to boost private investment (usually lower corporate taxes and other tax incentives to private investors).

* re-establishing a credit bureau with an adequate regulatory framework,

* upgrading leasing mechanisms to use land more efficiently, and

* strengthen macroprudential policies (what exactly?)

* intensify financial supervision, including on non-bank institutions

* contain financial stability risks given the rapid credit growth in recent years.

* improve data quality and its timely dissemination to better guide policy making

* increasing the reporting frequency of fiscal out-turns.

While some economists with Fiji’s well-being at heart would welcome such statements, few understand really what the IMF would like the Fiji Government to do, in detail, all hidden behind the technospeak and jargon.

IMF contradicting WB

But first, how many Fiji people remember that just over a year ago the World Bank Resident Representative to the South Pacific (Lasse Melgaard) had pronounced that Fiji’s debt level was “manageable and reasonable” compared with other developed nations and that the WB would “raise the alarm” if it was not (read my FT article of 27 May 2017).

How extraordinary that just a year later the IMF recommends that the Government should stop their fiscal “expansionary” policies as the government’s deficits and borrowings was increasing the future risks for the Fiji economy, and bring down the Debt:GDP ratios to some “norm” of “comparable” countries.

I put “norm” and “comparable countries” in quotes, because there is no norm or “comparable countries” for Fiji when it comes to Debt:GDP ratios.

There are well-performing countries with even higher Debt:GDP ratios, but where the debt has been sensibly built up through investment in sound projects, as Fiji also did, once upon a time.

But the IMF refuses to point out how the Fiji Government had irresponsibly and unaccountably built up Fiji’s Public Debt since the military coup of 2006.

 What IMF refuses to see

Sadly, the current IMF Article IV advice refuses to see or raise many of the issues that I raised in my 2017 article about the WB’s selective blindness:

* the need to differentiate “good” public debt from “bad” public debt

* the creation of bad public debt to pay for man-made disasters like the NBF collapse twenty years ago instigated by the Rabuka SVT Government.

* the creation of bad public debt because of the failure to do rigorous assessment of the massively expensive road projects which were engaged in willy-nilly without proper cost:benefit analysis (as ADB would have done )

* resulting in excessive expenditure (more than $500 million annually) on poorly constructed roads or unnecessary roads (for instance for a totally unnecessary road project converting a 2 lane highway to Denerau to a 4 lane highway)) all beyond the capacity of local construction companies to absorb

* the government unable to stop foreign companies ripping off the Fiji taxpayers;

* the Government not borrowing from the cheapest sources (like the IMF itself at 2% interest) but unwisely issuing international bonds at 9% (with the assistance of ANZ Bank);

* the massive over-expenditure on the military over the last thirty years amounting to $3.6 billion (or two thirds of Fiji’s public debt);

* the militarization of the public service with incompetent staff; etc. etc.

* the Bainimarama Government refusing to be accountable to the tax payers and the parliament through the Auditor General and the Public Accounts Committee”, despite the many call by Opposition political parties and civil society organizations.

These are way beyond the bland assessments given by the IMF of the fiscal performance of the Governments, or the advice that the IMF gives for “fiscal consolidation” which typically results in reduction of expenditures on education, health and social welfare, and further harming the poor, as the Archbishop, a non-economist, has already pointed out.

Some innocuous IMF advice (for instance fostering of private investment) often results in reduced taxes on the rich, increased taxes on the middle classes and the poor, all worsening income distribution.

IMF and FNPF

One interesting perspective on the ideological biases in the IMF may be had from their frequent praise of the Bainimarama Government’s “reform” of the FNPF and its board.

How many Fiji people now remember that this “reform” was based on the Bainimarma Government unilaterally breaking the legal contracts the FNPF had with the pensioners, forcibly reducing their pensions by more than 40%, and stopping the judiciary from hearing their case that was already before the courts.

In many countries, the IMF condemns the nationalization of private companies (which is the forced illegal takeover of private property by the state), while in Fiji they refuse to condemn the same kind of action by the Fiji state where the private property of pensioners was forcibly taken by the Bainimarama Government.

While the IMF praises the government-appointed board of the FNPF, it refuses to criticize that not a single board member is elected by the pensioners themselves, and that the chair of the board is not even a citizen.

Issues of democratic control of people’s savings by their own representatives is not even on the radar of an organization like the IMF.

The IMF does not criticize the government from holding the FNPF captive in order to borrow as much as it wants from these people’s savings while limiting the amount it can invest overseas.

The IMF even recommends that the FNPF should build up its balances (“buffers”) how exactly is not specified) that had been reduced by FNPF holders withdrawing their own funds to rebuild after the cyclones.

The IMF refuses to even document that while the FNPF is supposed to be a “pension fund” fewer and fewer proportions (currently less than 6%) of the holders of funds have been taking the pension option, after the Bainimarama Government forcibly reduced the pension rate.

Readers might note that neither do the FNPF Annual Reports  now report exactly what percentage of the retirees are taking the pension option, because it has now dropped to historically low and embarrassing levels, giving the lie to the claim that the FNPF is a “pension” fund. It is in fact a cash cow, whose board and Chairman (an expatriate) is totally appointed by the Government, and whose massive accumulation of funds are available for Government borrowing, when and whatever amounts they choose.

The facts that IMF ignores

It is extraordinary that both the IMF and the Bainimarama Government ignore all facts that run counter to their picture they wish to paint which is that all is hunky dory.

Even though Rabuka is not an economist, he noted correctly “Economic growth for a layman like me and ordinary Fijians is not measured by the increase of GDP growth, but by indicators such as the availability of meaningful employment opportunities, a decent wage rate, low cost of living, improved service delivery by government agencies on access to reliable health services, a quality education system that is responsive to the labour market and good infrastructure”.

Rabuka ought to have asked the Bainimarama Government to produce the hard evidence to show all the good things that were happening to the economy. Indeed, there is hard evidence from the FBS and RBF that suggests that all is not hunky dory.

For instance, I have pointed out previously that despite there supposedly being healthy economic growth for eight years, the evidence from the FBS Employment and Unemployment Surveys indicate that formal sector employment has not been growing with the supposed economic growth, but even shrinking. How strange.

The FBS GDP components data indicate that contrary to Dr. Mahendra Reddy’s outrageous recent claims that agriculture has not been declining, the real contribution of agriculture has been declining or at best stagnating, as would be expected given that the sugar industry has been in terribly decline compared to before the 2006 coup.

While tourism has been indeed buoyant, that has had little to do with government efforts but all private sector driven.

Indeed, the most positive factor that has saved the Fiji economy for the last ten years (and given very little emphasis by the IMF) is foreign remittances which are more than $500 million annually (or more than twice the value of the sugar industry) giving rise to whatever positive indicators there are in the economy (such as the booming services sector).  Again, the remittances have little to do with the government’s efforts although there is no shortage of government ministers trying to take credit for some sources, such as seasonal workers going abroad.

Even the IMF claims of lessening income inequality in Fiji is extremely dubious given that the FBS no longer releases the substantial reports and survey statistics they once used to release, before they came under the tight control of the Minister for Economy.

How extraordinary that the IMF Report uses the ratio of the “top 10%” to the “bottom 90%” as an indicator of inequality, while ignoring Gini Coefficients which ought to have been estimated by the FBS (there are many other indicators also ignored).

FBS data and HIES and EUS survey reports now come out in dribs and drabs (if at all), all selectively released by the Bainimarama Government and only if they throw positive light on their performance, while negative results (for instance on worsening in poverty in most parts of Fiji) are simply ignored.

Unemployment rates of 5% (ridiculously estimated) are highlighted, but not the horrendous rates of under-employment in Fiji which effectively translate to real unemployment rates of around 30%.

Interestingly, not publicized at all these days, is what proportion of investment:GDP ratios in Fiji are due to private sector investment and what to public sector (government and public enterprises). This ratio once used to be calculated and publicized. Why not now?

Where are our local advisers?

Recollect that once upon a time, there were senior civil servants who performed their jobs professionally and independently but were removed or retired by new power brokers.

Who in Fiji remembers that a good local Director of Ventral Planning Office, John Samy, was removed by Rabuka after his 1987 military coup?

Who in Fiji today remembers that the independent Government Statistician Tim Bainimarama and Chief Planning Officer Peter Wise, were “retired” after the Bainimarama coups for unknown reasons?

Who worries that our Planning Office has virtually disappeared from the public eye and there is little to no discussion of the many public policy issues that the IMF secretly canvasses with the Bainimarama Government?

Who worries about the many other independent senior civil servants or CEOs of public enterprises who have recently been replaced by vulnerable “foreigners” even though Prime Minister Bainimarama recently alleged that one of his grounds for rejecting the Yash Ghai Draft Constitution was because Yash Ghai “talked to foreigners”.

Fiji Times readers might like to ask themselves, which of the recent bits of IMF advice could not or has not been forthcoming from the Reserve Bank of Fiji?

Who remembers that once upon a time, a Vice Chancellor of The University of the South Pacific (the late Savenaca Siwatibau) used to give stern advice to the Fiji Government, as he had also done when he was the Governor of the Reserve Bank of Fiji?

Indeed, who worries that in the last ten years, largely because of censorship by USP management, there has been virtually no public policy debates and discussions at this so-called premier university, except from one economist (who has now also gone into hiding), while a few others issue innocuous statements that any Tom, Dick and Harry from the public could also have issued.

Strangely enough, neither are there any critical debates and discussions at the Fiji National University or University of Fiji or critical public commentaries.

Neither are there any critical debates or analyses of national economic, financial, constitutional and social issues at any of the talk-fests of Fiji’s accountants, lawyers, doctors, or teachers, as there once used to be. This death of intellectual activity is not due to the lack of issues.

Strangely enough, there is also a deathly quiet from NGOs like the CCF which used to, once upon a time, thunder forth about constitutional weaknesses in Fiji.

Not any more, even though a  popularly discussed draft constitution (the Yash Ghai Draft) was summarily rejected by those who had themselves set the Commission up, while another “constitution”, derived from God knows where, has been forcibly imposed on Fiji, without any popular approval.

The same imposed constitution is internationally boasted about by the Bainimarma Government, using the usual Qorvis spin, even though a few lawyers (but apparently not the Fiji Law Society) know that it also legitimates the gross abuse of human rights by granting immunity to perpetrators of unnamed crimes.

How extraordinary that in the last twelve years, the Fiji public is not exposed to any local, accountable, independent advice of the kind that Archbishop Chong has called for.

Is it any wonder that innocuous advice from totally outside unaccountable institutions like IMF and WB are treated like gospel, and selectively quoted and used (and abused) by those in power?

You can be sure that the IMF Teams will be back next year again, to issue their unaccountable advice again, and again, and again. There are worse places in the world for IMF Teams to go to than a tourists’ paradise like Fiji.

Economics students might wish to do a study of all the IMF Article 4 Reports on Fiji for the last twenty years, and perhaps a selection of other “comparable” countries like Mauritius or Malaysia.

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