Submitted by Looking Glass
That the economy is in a precarious position and that it will continue is old news. The IMF in 2006 projected debt at 75% of GDP by 2011, and likened the situation to a “breeding ground” for social unrest and disorder. The 2008 report is anything but an improvement. According to the report “total debt rose to 95% of GDP or a stall high of 87% if earmarked sinking funds are netted out….A 75% likelihood that medium term debt ratio will exceed current levels…and predicts an average debt ratio of 106% by 2013.” Another report duly noted the “weakness” of our statistics. This suggests that 1) despite the privatization and sale of profitable assets in the last decade, the national debt is one hell of a lot more than was ever openly acknowledged 2) fiscal deficits are inevitable 3) we were in crisis before the global meltdown.
One would expect an economic analysis to address the root cause(s) of the economic problem. However, this appears not to be the case. The statistics offered are at best questionable. The ‘solutions’ offered suggest little understanding of the dilemma at hand and less about how the external world turns. Assumptions are made as to how a certain class of persons, corporations and organizations are likely to behave. Certain policies and practices successfully implemented elsewhere are deemed applicable to Barbados. In fact the world economy is not a rational system, nor does it operate according to theoretical models. In some ways it reminds one of a bad lecture to second year economics students.
We have no powerful additions to fuel development or growth, no defining force, culture or industries that would enable us to compete or even catch up. We need sustained expansion to take care of unemployment, generate jobs and generate revenue for government to reduce deficits and indebtedness. Rather than repeat myself I suggest the doctor have a look at least the following: On The Road To Perdition; Bajan Economy Not Doing Well; Indebtedness No End In Sight; A Blurred Image Of Reality
Government expenditure we are told “jumped by 25% in a couple of years, and public debt rose by a “massive $1500 million in a couple of years over and beyond the expenditure relating to the last government’s PPP projects…” As I understand it the Total National Debt (TND) which includes “off-budget” loan guarantees and contingencies, rose from around $56bn in 2007 to $61bn in 2010. The foreign and local components of the 2010 TND are around $41bn and $20bn respectively; the BLP’s share $28bn and $18bn, that of the DLP $3bn and $2bn. The $5bn increase represents the government contribution to the TND.
The 25% increase in spending is difficult to ascertain, invites misguided policies and needs to be reviewed. Does it mean that the present government spending by itself rose by 25% in the last three years? If so given what the government inherited and the state of the economy it should be applauded.
According to Dr Persaud the “rise in debt over the past two years is almost three times the cost of the prison, ABC highway, the new Justice building and the new Coast guard.” Now these projects cost around $800m, $1.2bn, $1.2bn and $300m respectively. Now the rise in debt the national debt (2007-2010) amounts to $5m. Perhaps the goodly doctor should explain 1) how a $5bn increase in debt becomes three times greater than the cost of the above projects b) the 25% increase in government expenditure in the last couple of years.
Contrary to popular belief Barbados is not classified as a developing country. The grants and concessionary loans are usually for infrastructural development and come with plenty conditionalities which include privatization. Foreign money wields significant power over recipient countries. For example: one IMF Report noted the need to liberalise both tourism and real estate. So far we have liberalized telecommunications. The “exchange” of Gems for a number of busses is in the works.
Those indebted to Multilateral Agencies (IMF, World Bank, IADB) are not permitted to finance from other sources because the Multilaterals are said to enjoy “preferred Creditor” status. For us infrastructural development covers the wound and puts us deeper in debt.
I do not know what he means by “revive inward foreign investment and democratizing capitalism.” How can we revive and democratize that over which we have neither access nor control? Intel and Donnelly came and left to set up shop elsewhere. That was in our good times. The former reasons for leaving will blow your mind.
There is more than a modicum of truth in Plastic Bag’s observation that we belong to Trinidad. That country took over the National Bank and BS&T among other things, none of which are job generating. That apart foreign investment has been devoted to hotels, golf courses, and homes for sale to foreign. This activity generates some high level employment for foreigners, little sustainable employment for locals, and the assumed benefits are grossly overstated. As stated elsewhere, the West coast and the Old North represent “harbingers of things to come…a restructured society with no place at the table for locals.”
Micro things like internationalizing the legal system (our system is British to the core), recognizing equivalent qualifications, on line government licensing, and a Financial Services Authority are unlikely to generate much by way of revenue and jobs. How many jobs the private medical schools in Antigua and Grenada produced for locals? For sure the student fees do not go to the government. We already have what is now a private medical facility, a hospital apparently fully “staffed” by foreigners. Check how many locals are treated there. Barbados does not need second or third class institutions. Codrington College is destined to become part of Cambridge University.
Repositioning Barbados to benefit from the global turnaround assumes trickle-down. In fact the trickle-down will likely be directed to Europe and Asia. In my humble opinion Dr. Persaud’s solutions/suggestions will not boost spending without increasing deficits. There is little we can do to provide more “bang for our buck” and stimulate the economy without increasing both debt and deficits. The hole gets deeper, the climb more difficult.
Apologies for not responding to the many emails queries about Pickering. I was away gathering information and will write part 2 of 3 shortly
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