What Have We Learnt So Far Regarding DEVALUATION?

The following was posted to FB Senate Page  by Economist Charles Skeete
Central Bank of Barbados

Central Bank of Barbados

  1. The monetary authorities can fix the nominal/official rate of exchange, but not the real rate (reer).
  2. When the nominal rate is fixed, over time there is a tendency for it to become over-valued. This is so especially in small open economies. There is evidence that the official rate of exchange is over-valued (is higher than the reer).
  3. A persistent bop current account deficit suggests we have a competitiveness problem and that national consumption exceeds national production.
  4. A persistent bop current account deficit can be sustained only as long as capital inflows (e.g., FDI and foreign borrowing) are at least equal to the current account deficit.
  5. High debt eventually limits the ability to borrow foreign exchange – except from the IMF.

What can we do?

Option 1: Draw on FX reserves. Unless replenished by a current account surplus, FDI, or foreign borrowing, reserves will be exhausted in short order. Sharply declining reserves will eventually make devaluation and borrowing unavoidable.

Option 2: Reduce the fiscal deficit. Alas recent experience suggests that our heart is not in it. We try to raise taxes we cannot collect and we resist cuts in spending with all our might. Reducing the fiscal deficit is necessary to restore a balance between national consumption and national production. Without credible steps to restore this balance, we will continue to be rated a poor credit risk.

Option 3: We have never been fond of high interest rates, except as a reward for saving. The fact that high interest rates are an alternative/supplement to devaluation as a way to lower consumption is conveniently overlooked.

Option 4: Adopt policies that make the relative price of imports and exports more favorable to earners of export revenues and less favorable to consumers (e.g., devaluation, tax holidays, or other subsidies). We have been willing to use tax holidays and other subsidies to encourage investment in our leading export sector (tourism). This is necessary because we are not price competitive without such subsidies and we have rejected devaluation or a cut in the nominal wage (the standard remedies). As noted above, rejection of these remedies is viable only as long as reserves last.

Concluding Remarks: Restructuring of the agriculture and manufacturing sectors sufficient to restore current account balance are necessary, but are achievable only in the medium and long term. Fiscal and bop imbalance require remedies that will show immediate results. The ability to borrow foreign exchange would give us breathing room. On the whole, I must conclude that an IMF Program is very much in the cards.

Here endeth the final lesson.

123 thoughts on “What Have We Learnt So Far Regarding DEVALUATION?

  1. Look, to engage in a discussion about Mottley’s case BEFORE it is heard in Court and a verdict rendered, would be a presumptuous determination of her guilt or innocence. However, Carrington’s case was HEARD and a VERDICT rendered.

    Whether you like it or not, the result of that case PROVED Michael Carrington is a DISHONEST LAWYER when he WILLFULLY and UNLAWFULLY WITH-HELD his former client’s funds. And this “is a FACT which you are WILLING to OVERLOOK.”

    FACT #1:
    In 2000, Michael Carrington sold John Griffiths’ late aunt’s property at Dayrells Road, Christ Church, paid Griffiths $44,950 and WITH-HELD the sum of $210,000, for which he could not gave account.

    FACT #2:
    After14 years of Carrington ignoring his pleas to pay the sums with-held, Griffiths filed a CIVIL SUIT against the dishonest lawyer. On December 9, 2014 Madame Justice Jacqueline Cornelius RULED in his (Griffiths) FAVOUR.

    FACT #3:
    Justice Jacqueline Cornelius ORDERED Carrington to give an account of monies outstanding from the sale and pay Griffiths over $208 900, the balance from the sale of a property which included a banker’s cheque with cash value of over $84 194, the remaining proceeds of an estate which was inherited by Griffiths, which he had received on Griffiths’ behalf, within 28 days, and pay all monies shown by the same account to be due, along with interest retroactive to May 13, 2014 until the entire sum is paid, and legal costs of over $7 700 incurred by Griffiths.”

    Since this was a CIVIL SUIT the Court ACTED within its JURISDICTION when Justice Cornelius, based on the evidence presented, ORDERED Carrington to PAY the sums he unlawfully with-held.

    Her verdict was tantamount to “guilty verdict” under a CRIMINAL SUIT.

    Surely if Carrington had not intentionally with-held Griffiths’ money, the Court would have RULED in HIS FAVOUR.

    You and Carrington should be THANKFUL Griffiths did not file a CRIMINAL SUIT. If he had, based on the evidence, Carrington’s dishonest ass would be in HMP Dodds all now.


  2. Not necessary to give an analyse of the court order
    However by injecting and inserting unfounded and untruths all accountable to your own words of interpretations is dishonest and tantamount to deception

  3. Mia is positioning herself to hold the highest office in the land and it should be of more concern to you that like Trump she has a bag laden with scrupulous allegations which is transparently clear makes her character fall below a passing grade of integrity
    After all for the past seven and half years you have waved the banner of corruption Transparency and integrity against govt ministers holding their feet to fire so in that vein the same principle should apply to Mia with all fairness and reasonableness
    Instead what you pursue is a path to discredit and challenge the audacity of anyone who dare point out while shoving and trying to out maneuver in order to give Mia a pass

  4. @ ac

    Yes, you are indeed correct!!! It is “Not necessary to give an analysis of the court order,” because Mottley’s case is YET to be heard by the Court.

    “However, by injecting and inserting unfounded and untruths, with “reference to (your) scrupulous allegations against Mia, all accountable to your own words of interpretations is dishonest and tantamount to deception.”

  5. https://www.barbadostoday.bb/2017/02/08/blackett-questions-need-for-town-halls/

    Everyone knows I am not a fan of Bille the goat…but the people really, really, really cannot put this fool Blackett back in parliament…has it not occurred to him that Billie in her declining years is seeing the errors both governments made in the last 50 years in not consulting with the people, their employers, BEFORE making all those stupid, visionless decisions that have destroyed even the infrastructure, the judiciary, the roads, the lives of the majority etc and any sensible governance…..on the island.

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