Greenspan Book Criticizes Bush And Republicans
By GREG IP and EMILY STEEL
September 15, 2007
In a withering critique of his fellow Republicans, former Federal Reserve Chairman Alan Greenspan says in his memoir that the party to which he has belonged all his life deserved to lose power last year for forsaking its small-government principles. In “The Age of Turbulence: Adventures in a New World,” published by Penguin Press, Mr. Greenspan criticizes both congressional Republicans and President George W. Bush for abandoning fiscal discipline.
The book is scheduled for public release Monday. The Wall Street Journal bought a copy at a bookstore in the New York area.
Source:Wall Street Journal
Alan Greenspan the all powerful Chairman of the Federal Reserve is about to state publicly in his book that he is mad at President George Bush for “abandoning fiscal discipline” against his advice. The statement when contrasted with the mendicancy of our own regulatory body, the Central Bank, caused us to reflect on how well Barbados is positioned to manage our affairs and compete in the emerging sophisticated global economy. Our view was reinforced after reading the article in the business section of the Nation newspaper which summarized the recent International Monetary Fund (IMF) Article IV Report – (seems that as a member of the IMF we have to be subjected to these periodic examinations). It is not surprising that the media continues to treat with such serious issues in a superficial manner. The Nation should really have a consultant Economist on board to provide careful analysis on the pertinent issues, a summary is not acceptable!
To be quite honest, BU have concerns but because we lack the training of Minister Clyde Mascoll and Professor Michael Howard, we have remained hesitant to share our views with the BU family on economic matters. We would still welcome Professor Howard to our online community to inject his wisdom on a technical area of study which we know him to be very proficient. He remains the only Economist in Barbados we trust to speak with a balanced view on the issues. We read the IMF jargon found on their website and frankly we came away with the feeling that it was a politically padded document no doubt prepared with the full collaboration of the Central Bankers and the people over at the Ministry of Finance.
The high level concerns which we have about the financial state of the Barbados economy is concentrated around the ballooning national debt, specifically the foreign part of the debt. We have read the prognostication by politicians and Economists who give the ratios say that that our debt as a % of Gross Domestic Product (GDP) is well within acceptable standards. The % of foreign debt if we recall correctly is that it stands around 6% or 7% of GDP i.e. $6-$7 out of every dollar earned must be used to make debt repayments. The good thing from what we see about our foreign borrowings is that the bulk of it is in US dollars, it avoids the problem which the country faced when we had to repay the the Central Bank loan which was in Japanese Yen. To the lay people in the BU household, this does not seem out of control at all. However, it is a foolish man who will not try to plan for the future and this is where BU have some concerns:
We alluded to what happened to a former government when they borrowed a loan in Yen currency at a low rate but when the loan matured the rate had risen and Barbados had to repay almost three times the amount it had borrowed. We can thank Denis Kellman of the Democratic Labour Party (DLP) for keeping this matter in the public light for all these years! Our immediate concern is what the Economists refer to as “the maturity profile” of our debt. Despite BU best effort we were unable to find information on the maturity dates of our foreign loans. Maybe we need to hire a geek to do the research! Can someone give us some feedback “on the maturity profile” of our foreign debt? We all remember what happened to Argentina in the 80’s when the repayments on foreign loans catapulted the economy into a tail spin, we think that they have not yet fully recovered from it.
Another concern according to the IMF report (p.5), 80% of our GDP is derived from tourism. Simple logic says that the sustainability and growth of the Barbados economy is linked to how well the tourism product goes. This should concern Barbadians because tourism is heavily vulnerable to what happens in the outside world. We all remember 9/11, the IMF report explained that the government in order to offset the decline in tourism post 9/11 engaged in “expansionary fiscal measures” which led to an increase in public debt. An additional concern is the increasing competition from non traditional tourist markets and the cruise ships industry which continue to lure tourists from Barbados. We have used this point as a forerunner to explain that the government of Barbados has committed to liberalizing foreign exchange in the near term. The point we are making here is the possibility exists that there is heavy risk associated with liberalizing the capital account. The Jamaica and Trinidad experiences provide some insight that foreign exchange outflows could outstrip inflows given the dependence of Barbados on tourism – to quote the IMF report:
Directors generally regarded the announced liberalization of the capital account as a milestone in the government’s strategy of regional and global integration. They noted that, while the removal of remaining controls is not expected to trigger large immediate market reactions, liberalization does entail medium-term risks. In particular, sizable current account deficits financed by short-term capital inflows could heighten the risk of sudden capital account reversals and challenge the credibility of the peg or force sharp and disruptive policy adjustments.
The final concern which we have is related to #2. The level of foreign reserves of Barbados as at Mar 2007 stood at 2,116.1 million compared to Mar 2006 when the figure stood at 1,910.0 million. Are we as a nation comfortable that we have enough of a buffer to withstand the shock which the IMF identifies is possible when we liberalize the Capital Account? The government’s committed fiscal policy is to stop any foreign borrowing to ensure that the uncomfortable debt level currently being experienced is reduced.
The stakes are very high if we get it wrong with the International Monetary Fund waiting in the wings to assist if we stumble. We need our people to talk some more about the current economic policy of our government.