In the wake of Tuesday’s admission by Minister of Agriculture and Water Resource Management Dr David Estwick that his own Government’s economic policies had failed, the Freundel Stuart administration is being advised again to take the “bitter medicine” and “painful measures” needed to breathe life into the struggling economy.
Business leaders and economists spent time Wednesday examining the state of the economy and the yet unsuccessful measures taken to try to correct it; and they came up with previously recommended solutions: take the tough decisions, including a cut in Government spending.
Among those contributing to the discussion during the annual Ernst & Young/Barbados Chamber of Commerce and Industry breakfast business forum at the Lloyd Erskine Sandiford Centre was David Small, the director of alternative channels at CIBC FirstCaribbean.
Like many of the contributors, Small said he was worried about the continued printing of money by the Central Bank of Barbados (CBB) to finance Government expenditure, including the payment of salaries to public servants.
He said the retrenchment of approximately 3,000 Government workers in 2014 was not enough to breathe life back into the economy, and that more needed to be done to cut expenditure.
“There is a solution but it is not an easy solution. It requires pain and it requires Government to cut its expenses . . . that is the bottom line,” Small said.
This could mean a further reduction of the workforce – hence the many reference to painful measures – and it could pit Government against a labour movement that has been complaining that public workers have been sacrificing for much too long without a pay rise.
It would also mean placing the civil service “in a bind”, according to former Central Bank employee and fledgling politician Ryan Straughn.
The Opposition Barbados Labour Party (BLP) candidate said it was his former employer that placed the peg of US$1 to BDS$2 in jeopardy, contributing to the current economic challenges by satisfying the Stuart administration’s desire for the printing of money.
In fact, Straughn said the monetary authority had failed in its duty to the country.
“Whilst I hear everybody talk about pain and cutting the public service or salaries or whatever we may wish to perceive it as, the reality is that the Government has put the public service in a bind. How do you choose reasonably between maintaining the currency peg and receiving a salary [at the end of the month]? That is an impossible decision to ask Barbadians, who over the last nine years have been under [wage restrain],” Straughn told the gathering.
In a live television broadcast of the Central Bank’s economic forum, It Matters Fiscally, earlier this month, Governor Dr DeLisle Worrell left little doubt that he would rather see an end to the printing of money.
It was the first time that the Governor had publicly expressed his reservations about the practice, which Estwick admitted had been happening since 2010.
What Worrell had been warning against more regularly, though, was the need to shore up the foreign reserves in order to avoid devaluation of the Barbados dollar.
However, Straughn Wednesday argued that the bank’s primary job was to protect the currency peg at all cost, but it had been failing.
“The Central Bank has to do its job. Its first job is to maintain the stability of the peg, nothing more, nothing less. The fact that we have got ourselves to a situation where we are talking about stop printing money, means it is has not been doing its job. So as Barbadians, as business people, as politicians we have to make sure that the institutions that we have to safeguard our interests that they do their job,” he insisted.
The economist charged that the Stuart administration was “bankrupt of ideas” and should seek assistance, although he questioned Government’s ability to negotiate a favourable deal, “given what has happened in the past”.
“I suspect that we would likely try to go and borrow some strange loan just like we did with Credit Suisse to avoid going to the IMF. I think the prudent thing to do in this scenario would be to seek assistance but I think that politically they wouldn’t,” Straughn said in making reference to Government’s efforts to borrow up to US$225 million from the Swiss bank, Credit Suisse in 2013 to cover budgetary needs, including infrastructure projects and the bolstering of foreign reserves.
He warned that unless Government got a firm grip on its fiscal position confidence in the private sector would continue to wane.
Meanwhile, Strategy and Economic Analyst at CIBC FirstCaribbean Shane Lowe told this morning’s forum it was time for Government to find ways to not only access international markets for funding, but also to accelerate the promised projects.
“Government’s credit rating has declined to such a level that it cannot access international capital markets to fund the gap,” Lowe said.
In addition, he said Government must look beyond its foreign exchange reserves to fund its debt, and should adopt the solutions contained in the International Monetary Fund Article IV report, which include public sector reform, divestment of state assets, tax reform, and the elimination of arrears.
“Government debt position is simply unsustainable and something needs to be done and quickly, and the foreign exchange situation is even more urgent simply because we rely on foreign exchange to consume, to produce and to invest and it underpins the stability of our dollar. Let’s face it,” Lowe stressed.