After weeks of testy back and forth between the IMF's headquarters in Washington and finance officials in Belize, at 10:00 this morning, the IMF's report on Belize was issued and, as they say in the streets "it's nothing nice".
The IMF points to a loss in confidence as a result of a deficit, plummeting reserves and burgeoning debt. The report points to public finances strained by debt servicing, revenue shortfalls and, "support for a de facto insolvent DFC."
The report goes on to say that, "the large and continuing fiscal imbalance...(is) threatening the sustainability of the exchange rate peg." To correct this - the IMF analysts urge government to embark on a, "c_omprehensive and sustained fiscal correction_." To you that means getting more money from taxes, and placing a freeze on current expenditure including wages.
The always cautiously worded report carried very little good news this year and seemed in some parts to comes just short of raising a full out alarm. But there were no audible alarms ringing in the Central Bank when the press was called in for its first ever IMF briefing today. Government's top three money men, Financial Secretary Hugh McSweaney, Central Bank Governor Sydney Campbell and Deputy Governor Marion Palacio - usually very private public servants - came out smilingly to defend a report that they say was crafted in consultation with the IMF technicians. Here's how that went.
Jules Vasquez Reporting,
It was supposed to be a technical briefing - but with all of government's political sultans of spin Vaughan Gill, Daedra Isaacs and Mike Rudon keeping eagle eyes on the proceedings - it is clear that these technicians had a political directive: which seemed to be: run some interference on a rather damaging IMF report and to do that they had to say that no matter what you read in the report about instability and chronic imbalance- it's all good.
Hugh McSweaney, Financial Secretary
"First and foremost I do not think it is disfavorable because if you compare the previous years, we have improved the fiscal deficit even with declining prices in some areas to be able to report an economic growth. The population is growing, jobs are being created, investment is coming in - those positives are there in the report."
The positives may be there - but they are greatly overshadowed by the negatives and most worrying for the IMF is a deficit which is said to be hovering at 9% of GDP - 7% points more than what the Minister of Finance has previously admitted to. But there's no running away from the IMF's number and government's top finance man Hugh Mcsweaney didn't, instead he did the next best thing: he blamed it on DFC.
Hugh McSweaney,
"In the final analysis as it relates to the 2002/2003 situation or report, we had like 4% that was contributed by DFC."
"DFC contributed most to our deficit this year than any other public sector entity because DFC extended its portfolio by between 16 and 30 million dollars."
And nowhere is DFC's burden on public finances more apparent than in the IMF report, which calls it "de-facto insolvent."
Jules Vasquez,
"Do you agree with the assessment that DFC is defacto insolvent?"
Hugh McSweaney,
"No. An emphatic no and that is because DFC fits a particular economic strategy for the government of Belize. DFC ran into trouble by stretching its resources but DFC contributed immensely to jobs in the local economy. If we had to choose between tightening DFC's resources and building this economy - I'd build the economy any day. So DFC is not a de facto insolvent. DFC played a major economic role and the government program is now to restructure DFC. To bring it back to its original mandate and to take off the stressful loans that were created."
And the stressfulness of DFC that McSweaney refers to is the loan portfolio with a default ratio which the IMF had reported at 66% and that includes the 30 million dollar loan to the Novelo Bus Line.
Jules Vasquez,
"Would you say DFC takes high risk investment which commercial sector would be reluctant to take? Would you consider Novelo's to be a high risk investment? How would you classify Novelo's visa vie the commercial sector?"
Hugh McSweaney,
"High risk investments by definition are when you lend to the poor who don't have collateral and those kinds of things."
Jules Vasquez,
"But Novelo's are not the poor."
Hugh McSweaney,
"That is why I said the Novelo's are not high risk."
Jules Vasquez,
"So Novelo's was not in line with the policy of the DFC to lend to the poor for housing etc.?"
Hugh McSweaney,
"We really didn't want to go there in terms of the IMF..."
Jules Vasquez,
"But you are speaking on policy, what is the DFC policy. You spoke on the DFC policy and if you would presume to speak on the policy..."
Hugh McSweaney,
"...And if you allowed me I would have."
Jules Vasquez,
"You just tried to avert from the subject..."
Hugh McSweaney,
"So if you have a repeat question you should have asked. But the point is the exercise we are doing to establishing DFC's risk has to be at the front end of the loan process - not at this point in time. It is the beginning of the application; during the analysis of the project you determine risk. You don't lend money and then realize it's risky. You determine risk then you lend. So in other words I cannot tell you now whether or not it was a risky thing back then."
Jules Vasquez,
"But how do you reconcile the DFC, which I believe is your imagination, with the DFC that is the reality we see before us which now eviscerated as it is, shows that it was not working in the policy areas in which you believed or you imagined that it was working? Or you imagined and the IMF believed it was working?"
Hugh McSweaney,
"Using the same information you gave me, if 10% of your portfolio is in trouble, is DFC in trouble at 10%?"
No trouble at all except that the Novelo's loan was bundled off in a sovereign guaranteed bond, which the public's money has to pay. But in the Central Bank this afternoon that wasn't the worry - getting over the IMF's gloomy prognostication is - and that means putting a happy spin on even the most alarming predictions.
Jules Vasquez,
"Finally Mr. McSweaney would you explain the large and continuing fiscal imbalance and the accommodating monetary policy which are threatening sustainability of the exchange rate peg. Hearing that what's your response?"
Hugh McSweaney,
"I will refer you to the answer before, we are improving the fiscal deficit. That is the basic imbalance that they are talking about. We have done better 2001 versus 2002 and we can do better 2004 versus 2003."
Jules Vasquez,
"Is the exchange rate peg threatened?"
Hugh McSweaney,
"Once we correct it then it takes all the pressure off the exchange rate?"
Jules Vasquez,
"So it's being corrected, it is threatened?"
Hugh McSweaney,
"It's all being corrected right now."
Easy to say, but tough to do and in the next year government will have to work hard to shave 6% points off that deficit if it is to appease the IMF bosses.
According to our sources, the wording of the final report was the subject of heated meetings between the IMF and the Minister of Finance two weeks ago in South America.
The full report including the 65-page director's reports, the public information notice and the 55 page statistical volume are available on the IMF web site. You can read it yourself at IMF Belize Report.