With a team from the Washington-based International Monetary Fund (IMF) currently on island for talks with the Freundel Stuart-led administration, two retired permanent secretaries are calling on Government to bite the bullet and enter into a funding arrangement with the IMF.
However, William Layne and Frederick Forde are both cautioning that any such financing plan must be on Barbados’ terms only.
The last time the economy was put into IMF hands back in the early 1990s, the bitter fiscal medicine that followed proved too strong for many Barbadians to stomach and was blamed for the eventual collapse of the then Erskine Sandiford-led administration, following crippling street protests.
Among the major expenditure cuts instituted then was an across-the-board eight per cent pay cut in the public sector, which was later restored.
However, with the economic and social fallout still fresh in its mind and a general election now looming, the ruling Democratic Labour Party (DLP), though faced with a deficit of six per cent of gross domestic product and dwindling foreign reserves which stood below the desired 12 weeks of import cover at just 8.6 weeks or $549.7 million at the end of September, is very reluctant to seek financial help from the Fund, even though the IMF publicly indicated at the end of its last Article 1V Consultation back in June that it “stands ready to assist the Government of Barbados, including through continued policy dialogue and technical assistance”.
But with the populace already reeling from a $542 million austerity package announced by Minister of Finance Chris Sinckler back in May with a view to closing the $537.5 million deficit, there are legitimate concerns that Barbadians simply cannot take any more austerity at this time, even if they may not have a choice in the matter.
Ahead of next year’s electoral deadline, the Opposition Barbados Labour Party has also been reluctant to commit Barbados to any IMF programme, especially since analysts suggest that it could fly in the face of the BLP’s immediate plans to reinstitute free tertiary education, to offer higher wage increases to public servants and to repeal the dreaded National Social Responsibility Levy, which was hiked from two to ten per cent back in July.
However, participating in an Institute of Chartered Accountants of Barbados-sponsored panel discussion here on Tuesday night, Layne, who is the former permanent secretary in the Ministry of Finance, suggested that an IMF programme would redound to greater fiscal discipline on the part of Government, since it would be required to follow the agreement to the letter.
In fact, Layne argued that “Governments in the region only take action under an IMF programme.
“We just do not make difficult decisions in the Caribbean.
“So it is best if you have your own programme and you go to the IMF, then you have to pass tests,” he told the gathering at the Savannah Beach Resort, adding that “the type of decisions that have to be made will not be made by the Government of Barbados outside of an IMF programme”.
Layne cited Jamaica, Grenada and St Kitts and Nevis as regional territories that went to the IMF with their own terms and successfully ran economic recovery programmes.
“They did an IMF programme which was home-grown. They went to the Fund and said this is what we are supposed to do, could you give us funding, and they kept to it.”
He pointed out that St Kitts repaid the Fund “at least six months ahead of time because they were so successful in the programme.
“That’s the only way because you have to then meet the requirements of the Fund and the discipline,” the former top finance official said.
Forde, a former permanent secretary in the Ministry of Agriculture, while making it clear that he does not favour the IMF, expressed a belief that it was necessary for Barbados to go to the Fund now.
However, he warned that devaluation of the Barbados dollar must not be an option.
“I am not a big fan of IMF, but if you develop your own programme and you’re going to discuss with them your programme and get funding, there is no problem,” said Forde, who is also a former deputy auditor general.
“But don’t let them give us a programme,” he stressed. “We collaborated with them before in 1991 and basically we had a good collaboration.
“And you remember what the prime minister said [then], ‘no devaluation’.”
While acknowledging that he was not an economist, Forde said his position in support of maintaining the island’s 2-1 currency peg with the United States dollar, was for reasons of trade.
Suggesting that export oriented economies were the ones to benefit from devaluation, he suggested there was need for Barbados to protect its currency position.
“If you’re manufacturing and selling and getting foreign exchange from selling, then devalue,”
Forde said, while suggesting that it was not beyond Barbados to compile an economic recovery plan that is acceptable to the IMF.
“We sell ourselves short. We have sufficient capacity here in Barbados, by Barbadians that we can develop a proper programme for us and stick to it.”
“We have the capacity in Barbados if we are really serious to develop the type of programmes that we have to develop to get ourselves out of this rut.”
Forde said that another reason Barbados should develop its own plan was because when given the opportunity to devise a programme, IMF officials usually seek to impose plans which are likely not relevant to Barbadian needs.
“They come with a little plan, then milk you. They come with a template, and they want to stay here as long as possible because they love this place,” he added.
During this week’s visit, the IMF team, led by Judith Gold, is also expected to meet with Opposition and private sector stakeholders as part of its 2017 Article IV consultations.