The Wolf is at the Door
When judged against the harsh background of adversarial politics, only two prime ministers of Barbados (who led the country for 7 years or more) can lay claim to being able to escape the clutches of the IMF for the entire period of their rule – Errol Barrow and Owen Arthur.
Say whatever you will, it is an undeniable fact that Barrow and Arthur were able to utilize whatever resources they had available at their disposal without plunging the Barbadian economy into disequilibrium. This achievement in itself represents a public demonstration of their political and economic skills. One was from the DLP, and the other is from the BLP, but we must commend and applaud both of them equally for distinguishing themselves in this regard.
Borrowing, taxation, and easily accessible NIS funds were the main resources available to Barrow, Arthur, and all Ministers of Finance. Naturally these resources varied in amount as administrations came and went.
By the time the David Thompson administration assumed office in early 2008, the world had changed drastically. Volatility and uncertainty had become so widespread that the Governor of the Central Bank informed and warned all Barbadians that the macroeconomic models used to analyze and predict outcomes under the “old” economic order, were no longer applicable.
The quality of hundreds of thousands of Barbadian lives depended heavily on Thompson’s ability to successfully confront the challenges brought on by weakened world economies. Recessionary conditions in Britain and the USA especially, two of our major tourist markets, had the potential to adversely impact our foreign exchange earnings and cripple our economy.
Unfortunately, the Thompson administration decided to spend its way out of the problems created by the global crisis. Rather than tackle economic difficulties head on, the government offered Barbadians a placebo of propaganda and encouraged them to seek solace out of the fact that, whereas the global meltdown had wreaked havoc on nations worldwide, our tiny country was still holding its own.
Nevertheless, when all of the political spin has been cast aside, an impartial analysis of the economic performance of the brief Thompson administration paints a picture of woe.
The administration had come to power promising to control and reduce consumer prices, but prices surged instead.
By the time of Thompson’s death, the public debt had soared from about 7.3 billion when he assumed office to 9.5 billion. Unemployment moved from 6.7% to 12.1% in 2011, an increase of just over 80 ½%.
By late 2010, when Freundel Stuart emerged as PM of Barbados, the deteriorating state of the Barbadian economy ought to have been weighing heavily on his mind. To compound his problems, a multiplicity of issues related to CLICO, Al Barrack, better governance, transparency, integrity legislation, white-collar crime, and political corruption were crying out for attention.
Philosophically, as Prime Minister of Barbados in the twenty-first century, Mr. Stuart would have been well advised to reflect on the following definitions, listed in declining order of national pedigree:
Bajan – A person born in Barbados
Barbadian – A citizen or Permanent resident of Barbados
West Indian – A person born in a CARICOM country
Alien – A person not born in a CARICOM country
Philosophy and economic considerations converged in the form of the St. John by-election in January 2011. Given the perilous state of the economy, the by-election presented Stuart with an excellent opportunity to broaden the knowledge base in his cabinet by searching for someone with a business, economics or finance background.
By selecting David Thompson’s wife, Stuart eloquently told his subjects that he could not find a Bajan amongst them who was qualified for the job, and furthermore, he demonstrated that strengthening the cabinet to tackle economic issues was not one of his objectives.
Not surprisingly, the economic morass left by Thompson worsened under Stuart. In its 2011 consultation with the Government of Barbados, The IMF emphasized that the government should concentrate on reducing its expenditure, cutting its wage bill, lowering its transfer payments to statutory corporations, and minimizing tax exemptions.
The Government of Barbados opted to disregard the IMF’s advice.
However, despite the untouched worsening fiscal deficits, the unchecked declining receipts in tourism and exports, and the galloping public debt, private capital inflows and increased government borrowing were enough to absorb the pressure that was brought to bear on the balance of payments situation. At September 2011, international reserves were respectable enough to provide 4.5 months of imports cover. Yet, cognizant of the government’s unwillingness or inability to effectively tackle economic problems, the IMF cautioned that the international reserves could reasonably be expected to come under pressure in the short term.
The IMF did not have to wait very long before its expectations materialized. Downgrades and an unstable outlook by the international rating agencies sent a signal of alarm to investors and eventually made it increasingly difficult and expensive for our government to borrow. By 2012, private capital inflows had begun to dry up. Paltry private capital inflows, reduced tourism earnings, and the severely limited borrowing capacity of the government all conspired to produce the ingredients needed to create a balance of payments crisis.
Therefore, at the end of 2012, despite public and political declarations to the contrary, Prime Minister Stuart certainly knew that the economy was hemorrhaging its way into disequilibrium. Alas, with general elections just around the corner, political self-interest dominated a DLP strategy aimed at convincing the electorate that there was no need to worry about the economy. It was stable and jobs were safe. Instead, so went the propaganda, all energies ought to be directed towards building a society. Building a society? I can picture the biggest village idiot in Barbados asking “Was there a society before? If so, who destroyed it?”
By the time the 2013 general elections were over, a triumphant Prime Minister Stuart had missed two opportunities.
One, Stuart would have observed through his ‘historian’ eyes that Erskine Sandiford had used an 8% civil servants’ salary cut to get the economy off the rocks after he had crashed it in 1992. Owen Arthur, sensing an opportunity to build up political capital among civil servants, had responded by promptly amending the constitution and restoring the reduced salaries to their original level.
Knowing at the end of 2012 that the economy was headed for much more dangerous rocks than in 1992, Stuart should have attempted to regain the ability to cut civil servants’ salaries just in case the economic situation desperately required it. Put differently, it would have been worth Stuart’s political while to amend the constitution to reverse Arthur’s effect. Mind you, even with the ability to cut civil servants’ pay, given the damaged state of the economy, it would still be reasonable for anyone who is not a fool to expect significant job losses.
Politically speaking, the clean, quick across-the-board salary cut option was now out of the question. Stuart was now limited to the messier options of selected furloughs and firings.
Two, the general elections of 2013 provided another opportunity for Stuart to introduce fresh ideas and new talent into his cabinet aimed at battling the economic crisis. Again, he demonstrated that constructing a cabinet with an increased ability to understand and solve the nation’s economic problems was not one of his top priorities.
Before delivering his budget speech in February this year, the Minister of Finance alerted Barbadians to the fact that a yawning ½ billion dollar fiscal gap had opened up in the government’s finances. Remedial action needed to be taken swiftly and comprehensively, he argued. The Governor of the Central Bank, obviously sensing the stress being placed on the balance of payments, also recommended a fast acting solution.
Sir Frank Alleyne, convinced that the brittle economy could not withstand the shocks that would be generated by the effects of such a huge reverse multiplier, condemned such swift comprehensive action as madness. The Prime Minister, clearly not backing his Minister of Finance, opted for a time-consuming process of post-budget meetings and discussions with a view to minimizing or eliminating job losses.
Just a couple of days ago, the Minister of Finance announced that 3,000 civil service jobs will be eliminated by March and ministers and junior ministers of government will suffer a 10% cut in their salaries. To my mind, this action amounts to nothing more than an appetizer. The main course of pain, suffering, hurt, anguish and deprivation is yet to come.
Why do I say this?
Between 1948 and 1966, just over 130,000 babies were born in Barbados. These were the local representatives of the widespread post-world war II baby boom. The front wave of our baby boomers reached age 65 this year. From 2013 to 2031, our cohort of baby boomers will exert excruciating pressure on our health care delivery, social security, and private and government pension systems.
The repeated reckless, ignorant and irresponsible raping of our NIS fund means that government will have to tax the Barbadian population to the tune of over $2 billion, again, to provide future NIS retirees with the benefits their contributions paid for over their working lives.
Increased taxation of Barbadians will most likely provoke civil unrest, so the baby boom generation is destined to receive considerably reduced NIS benefits.
Additionally, government has promised generous benefits and gratuities to retiring civil servants. These pension promises have not been funded, so taxes will have to be raised to turn the promises into monthly pension checks. That will not happen.
Clearly, the quality of retirement life for civil servants who will be depending heavily on NIS and government pensions is very, very uncertain at this stage.
The IMF has repeatedly cautioned government that it will have to seek a private sector solution to the CLICO crisis so as to minimize the use of government funds. Since 2009, it is possible that many of the younger, healthier CLICO policyholders have lapsed their policies because of the great level of uncertainty. If they did, a toxic portfolio heavily weighted with older uninsurable lives may be all that remain. With each passing day, a private sector solution to the CLICO scandal thus becomes less likely.
Conclusively, I would like to stress that in Barbados, some problems and issues emerge within government, get outsourced and solved (e.g. .The Alexandra School Affair), whilst some get outsourced and remain unsolved (e.g. The Barrack Affair and the CLICO Affair).
Serious national economic problems that emerge and remain unsolved get outsourced to the IMF. Each time, we, as a country, went to the IMF, the economy was in a worse position than the time before and the remedial medicine became more bitter and difficult to swallow. I cling tenaciously to the view that the Barbados economy in 2013 is much, much more damaged than it was in 1992. Cutting 3,000 civil servants and the salaries of ministers will not get us near to solving the problem.