In what appears to be a sharp departure from the consensus among a majority of academics and observers, a leading social scientist is urging the Government to pull out of its much-sought-after economic recovery deal with the International Monetary Fund if its homegrown economic recovery plan is to work.
The director of the Sir Arthur Lewis Institute of Social and Economic Studies (SALISES) Dr Don Marshall said the short-term arrangement with the IMF won’t solve the country’s foreign exchange earnings crisis, and that would be plunged into further recession once the IMF’s funds are used up.
Responding to the Central Bank’s third quarter economic review, Dr Marshall said it is not too late for the Government to exit the contract and seek alternative sources of funding which are more long-term and developmental.
“There is a four-year funding facility arrangement. There is nothing saying that after the first tranche of funds and the adjustment becomes self-defeatist… because the economy will slip back into a recession… My advice humbly to the Government is to find alternative sources of funding and exit the IMF programme even as it is still prepared to undertake some reforms that are also necessary,” Dr Marshall told Barbados TODAY.
He identified Chinese and Asian lending institutions as those “alternative sources” of funding, noting that more than 70 states including the G20 bloc of the world’s richest nations are borrowing from those markets instead of the Washington-based multilateral lender.
Dr Marshall is adamant that the current arrangement with the IMF is the result of bad policy advice which the Government will have to rethink.
He suggested that the external default which the administration declared on its loans has produced austerity measures, which, in the middle of a recession, is nothing more than a death sentence.
“While the Governor [of the Central Bank] did speak to the need to recover in the short term and with some immediacy, foreign exchange earnings, given the decline in the international business sector, I think he seemed to miss the fundamental contradictions that the IMF programme presents for the country,” the head of the regional think-tank told Barbados TODAY.
It is his view that the IMF is in Barbados to undertake a fiscal correction and the issue of growing the economy in the direction of earning foreign exchange, can only be sustained with new funding in new productive areas.
While suggesting that is was right for the Central Bank Governor Cleviston Haynes to speak to the country’s high deficit and indebtedness faced, particularly in relation to its local obligations, Dr Marshall said Haynes has “appallingly” missed, even at this time, the sense in which how the austerity connects to economic diverisfication the island badly needs, he said.
The social and economic academic was highly critical of the job-cuts and restructuring of the public sector in its present form. He also questioned an apparent lack of developmental focus and argued for the inclusion of new ocean economy business, new cultural industries business, deeper penetration into bio-technology, agriculture and aqua-culture.
“This idea of trimming the size of Government in order to reduce the deficit, serves the ideological purpose of just simply reducing the size of Government for its own sake. I understand all the arguments about the wage bill being extremely high, but that is to do with the lopsided structure of the economy, and that is to say, that we don’t have a dynamic and vibrant private sector to absorb the dozens of persons who leave school and university to enter the world of work,” Dr Marshall added.
He declared that the ongoing job-cuts will not address the foreign exchange earnings in the absence of a properly functioning CARICOM Single Market and Economy (CSME) which would provide an outlet for new employment.
“So outside of a buffer arrangement where we are accessing loans from those agencies which have a patient lending approach and not a short-term lending approach…until we are accessing loans from those sources to help with our development transformation, we are simply just putting people through pain and creating situations of uncertainty and high anxiety,” Dr Marshall told Barbados TODAY.
In his report, the Central Bank Governor presented a mixture of improvements in some key indicators while reporting that the economy recorded another decline during the third-quarter period and that the situation would remain the same for the rest of this year.
Haynes also noted that there would be a slight turn around next year, with the economy expected to grow by 0.5 per cent to 1.0 per cent, but that the actual outcome would be influenced by the speed with which new investments, particularly in the private sector, occur.
One of the bright spots identified by the Central Bank included a stop to the slide in the international reserves, which increased by $104 million between late March and the end of September, almost 80 per cent of which occurred from June onward.
“The gross international reserves which had been in almost continuous decline since 2012, recovered, enabling the import reserve cover to reach 7.4 weeks of import. Subsequent to quarter-end, the drawdown of the first tranche from the IMF raised the import cover to approximately 8.6 weeks,” the governor added.