#BTColumn – Central Bank governors

Disclaimer: The views and opinions expressed by the author(s) do not represent the official position of Barbados TODAY.

By Ralph Jemmott

Dr. Kevin Greenidge has been appointed as Governor of the Central Bank of Barbados. This makes him the eighth holder of that post since the Bank’s foundation in May 1972. Dr. Greenidge’s six-year contract begins on March 1, 2023 as he succeeds Mr. Cleviston Haynes who demitted the office after his six years in that job. Let me first congratulate Governor Haynes on a quite successful term in which he acquitted himself with a demeanour and intellectual integrity that lent dignity to the position of Barbados’ Central Bank Governor.

No one can consider the headship of Barbados’ Central Bank without remembering the assertion of its first Governor, Sir Courtney Blackman, that he was “a creature of the Minister of Finance”. One is not sure whether Sir Courtney ever elaborated on that statement, but it is generally accepted that he meant that within reason, his position was in the gift of the Minister who could, as they say, ‘appoint’ and ‘disappoint’.

I think it is fair to say that Governors of Central Banks, including the United States Federal Reserve in Washington D.C. may advise and report on the economy. They do not ultimately decide on or dictate policy. That responsibility rests with the various political directorates. 

Political directorates may have a different point of view from Central Bank Governors. The former, depending on the narrowness of their vision, invariably keep their eyes on the political prize, the electoral outcomes that may derive from policy initiatives. A Governor should bring a different perspective. His prime obligation is to maintain the financial and macroeconomic stability of the country. A Governor may answer to the Finance Minister, but his higher moral duty is to say and do what is in the best interests of the people of the country. In this respect, he may have to decide how much he is prepared to compromise his own judgment on a particular matter or on economic and financial policy. It may work best for all concerned if the two are in agreement, but this could depend on the perceived soundness of the policy objectives and the intellectual integrity of the parties concerned. 

The independence of a Central Bank may well depend on the moral integrity of any given polity, on what the late Simeon McIntosh called “the virtue of politics and the politics of virtue”.

I read somewhere that every politician promises the people “the good life” and few are ever able to deliver it, but that doesn’t stop the promises from coming every four or five years. The political class promises a rose garden and many people actually expect it. Sometimes the promises and the promisers crash and burn on entering the realities of earth’s orbit. But the promisers and promises keep coming.  

Political economy as an academic discipline is not an exact science. Certitude is not assured. Economists often disagree and may do so vehemently, not because one is demonstrably ‘wrong’ and the other demonstrably ‘right,’ but because they may start off from contrastingly different first principles. They may have what the African American conservative thinker Thomas Sowell terms “a conflict of vision”.

Governors of Central Banks, including the Federal Reserve, have been known to get it wrong. Alan Greenspan himself admitted he did not foresee the Financial Crisis of 2007-2008. He is on record as saying that he thought that the market would somehow correct itself. He could not have been more wrong. Looking back, his perception seems awfully naïve, and the consequences were dire. More recently, the United States Secretary of the Treasury Janet Yellen herself admitted she underestimated the length of time that the current inflationary trend in the American economy would continue. Although US inflation is said to be ‘cooling,’ former Treasury Secretary, Larry Summers, speaking to Fareed Zakaria on February 4, noted that the inflation rate was still too high. He was recently quoted in the New York Post as warning that the American economy is “not yet out of the woods”.

Dr. Greenidge’s appointment to the Governorship of the Barbados Central Bank is perhaps not surprising. He was one of the prime architects of the Barbados Economic Recovery and Transformation (BERT) programmes, and he has defended them to the height in the face of their most vehement critics. As Central Bank governor, he will no doubt be expected to push the policy initiative to its presumably successful conclusion. What may concern his detractors is the possibility that he may be so politically committed to the Government’s economic policy that he may be reluctant to critique it if perchance, for one reason or another, it should begin to unravel.  

One area in which Barbadian Central Bank Governors and Barbadian governments have from time to time shown differences in policy is on the question of wage increases, particularly within the public sector. Generally speaking, Governors have raised concerns about the inflationary effects of raising wages when productivity did not appear to be keeping pace with wage demands. The tendency has been for the Barbados Central Bank to ‘discreetly’ raise the caution flag and leave it to the governments to make a decision appropriate to themselves. 

Invariably, governments of both stripes have tended to ignore pleas to ‘hold strain’ and conceded to wage increases, no matter how minimal. They benefit politically from having appeared to have assisted the working people and, at times, raise taxes soon after to recoup the revenue loss. In many cases, inflation may continue to rise and in terms of real income, the worker may find himself or herself only marginally better off. 

Most Barbadians want to see the new governor succeed in restoring the sustainability of our economy. In a real sense, we may ALL be in this together, though some may have more to lose than others. There are no quick fixes to Barbados’ problems, whether social or economic. As a small vulnerable open economy, we will continue to be subject to exogenous shocks arising out of issues in global capitalism. One suspects that no matter who the Governor of Barbados’ Central Bank is, 2023 will be a difficult year. The struggle continues.   

Ralph Jemmott is a respected retired educator and commentator on social issues.