Submitted by Terence Blackett
On October 4th 1982, the IMF entered into standby arrangements with Barbados for the purchase of SDR’s to the tune of $31.87 million. During this 18 month structural adjustment program, Courtney Blackman (then Central Bank Governor) maintained that – “an exchange rate devaluation was discussed but not seriously contemplated.” (1989:62)
Again in 1991 a similar type IMF program was implemented which would have resulted in increased interest rates, massive layoffs in the public sectors and major cuts in public expenditure – the choice was clear that devaluation was not an option but that radical cuts were necessary to stave off a possible crisis of confidence in the public sector finances.
Just recently Christina Daseking, Deputy Division Chief for the Western Hemisphere Department of the IMF issued the following statement to Barbados officials in the Ministries of Finance and Economic Affairs, Labor, Transport, Social Care, and Foreign Trade, the Central Bank of Barbados, and representatives of the private sector and labor, and the Opposition BLP:
“With the government’s options constrained by high public debt and the exchange rate peg to the U.S. dollar, the mission recommended a coordinated policy response, involving the government, the Central Bank, and the social partners to share the burden of a necessary adjustment:
(1) fiscal policy should focus on creating space for targeted support to vulnerable groups, while bringing the public debt ratio on a firmly declining trend over the medium term;
(2) monetary policy should aim at containing future inflation expectations
(3) incomes policy should support fiscal and monetary policies by promoting wage moderation within the established tripartite framework, thereby preserving price stability and protecting employment; and
(4) financial sector policies should focus on further strengthening financial sector regulation and supervision and improving cross-border cooperation among regulators and supervisors.
The International Monetary Fund report (July 2008) anticipates that even with a deficit target of 2 ¼%, the overall public debt ratio will continue to rise over the medium-term.
So in the light of this stark evidence, it is recommended that an additional tightening of the primary fiscal balance by 4% points of GDP in the upcoming fiscal year 2010/2011 and greater fiscal prudence over the medium term to generate a public sector balance and reverse the trend in skyrocketing debt.
But how possible will this be given the culture of largesse and living above our means that is intrinsically etched into the psyche of Bajan society?
The impact that dwindling foreign reserves is having on our economy and the evaporating pool of financial resources to be borrowed by developing countries will be severest test the government will have to undergo right up to 2012 – with spiraling oil and food prices eroding consumer confidence and purchasing power.
David Thompson will be hard pressed to adjust high end wages accordingly, including the exorbitant bonuses being paid to greedy, “good-for-nothing” consultants, “fat-cats”, “banksters”, political lackeys and lobbyists who continue to pillage our public purse.
The Central Bank reports that Barbados’ point-to-point inflation rate for the period ending July 2008 was 10.2%, as compared to 3.9% recorded for the same period ending July 2007. Projections are that inflationary pressures will increase almost double to a possible 12.6% to 18% into 2010 through 2012.
At the same time, with airline cutbacks this winter into summer 2010, this dumming down in visitor numbers on the ground will precipitate a further economic slowdown in the Barbadian economy (hence further borrowing down the road) and the government ultimately going cap in hand to the IMF.
According to Caribbean Net News – “The Prime Minister of Barbados, David Thompson, has announced that he will seek a resolution in the House of Assembly to raise BDS$1 billion (US$500 million) to pay a number of the government’s outstanding bills. The money will be raised through the issuing of treasury bills, tax reserve and tax refund certificates…”
But with an increasingly weaker US dollar – what happens when those T-Bills, TRC’s and government bonds no longer have the strength of liquidity or the buyers to fund the government’s borrowing spree?
So as our economy slows even more, and the global financial outlook worsens, contrary to some popular opinions which are seeing “green shoots” and the bottoming out of the recession – the Barbados GDP is projected to slow to 1.2% in 2010/11 from 2.8% in 2008/09.
Our government’s policymakers will need to exercise cautious judgment and wisdom while giving way to “prudence” in its development objectives in the short-term, if it is to weather the global financial crisis and ensure long-term fiscal sustainability for all its people.
No one in their right mind would accept that our current levels of DEBT* is sustainable over the short, medium or long term. One further wave or rupture in the global economic market would literally send our economy reeling into a tailspin. Government must look seriously at cost-cutting and belt-tightening given the amount of wastage, misappropriation, and “squander-mania” that has gone on in the last decade.
It’s time for radical change…
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