Assurances by Prime Minister Freundel Stuart and Minister of Finance Chris Sinckler that there will be no devaluation of the Barbados currency under their watch, have seemingly failed to calm nerves, as concerns continue to be raised about the possibility.
With the country’s dwindling foreign reserves at their lowest levels in 14 years, Governor of the Central Bank of Barbados Dr DeLisle Worrell has warned unless corrective action is taken the dollar will not be safe.
In this context, a visiting economist has warned the authorities that it was not possible to “devalue your way to prosperity”.
John Tammy, a fellow in economics at the American libertarian think tank, the Reason Foundation – a public policy group promoting choice, competition and a dynamic market economy y- said any devaluation would have catastrophic consequences for the country, and would result in higher prices, demands for greater salary increases and social disorder.
“If you devalue you injure your citizenry, you injure your producers who need to import goods to export; you increase the cost of transportation, and you also reduce investments in the productivity enhancements that make you more competitive in the first place. Devaluation never works,” Tammy last night told the annual forecast dinner of the Chartered Financial Analyst Society of Barbados at the Hilton Barbados Resort, even as he suggested that Barbadians would not sit idly by and accept reduced spending power.
“Are they just going to sit back and say, ‘well we’ll just accept without protest the fact that our Barbadian dollar buys less?’ No, they are going to demand higher wages to reflect the decline in the currency.”
It was only last month that Stuart made it clear his administration would not be “pushing any panic buttons” over the decline in foreign reserves, which stood at just 10.3 weeks of import, or $681 million at the end December 2016.
This notwithstanding, Stuart had told the Barbados Chamber of Commerce and Industry luncheon that there were sufficient reserves to meet current daily requirements and defend the currency peg to the US dollar and that “suggestions to the contrary are unnecessary speculation” which ignored Barbados’ economic history.
“It cannot be that every time there is an adverse movement in our foreign exchange or foreign reserves situation, whatever the reason, the only solution to put forward is that we should devalue the currency of Barbados,” he had said.
Sinckler had earlier told Parliament he would rather resign than oversee the devaluation of the Barbados dollar.
Tammy’s comment would have strengthened the resolve to keep the current exchange rate of Bds$2 to the US dollar.
The political economy editor at Forbes magazine reasoned that devaluation would limit the country’s ability to purchase goods, thereby hindering its ability to export.
“So the very notion of devaluation falls on its face,” he said.
“You think you can decrease the Barbadian dollar without it greatly increasing the cost of global transport of the goods you produce? Oil is priced in [US] dollars. You have a peg to the dollar. If you devalue the cost of transport is going to grow.”
“Does anyone in this room think that if you devalue the currency the price of those imports will stay the same? You quite simply cannot devalue your way to prosperity,” Tammy added.
He said instead of considering devaluation, Government should seek to increase investments to help the economy rebound.