The current global financial crisis has brought into focus the importance of Barbados’ foreign reserves, their uses and management.
This administration from the inception has outlined to the people of Barbados the strategy best suited for the local economy, in an environment where the international financial sector is volatile and speculative, creating unprecedented challenges for Government.
The main strategies outlined were:
• protecting the foreign reserves
• reducing Government expenditure
• protecting jobs in the public and private sectors with the help of the social partners
• reducing the current account deficit and Government’s overall debt to gross domestic product
• stabilizing the economy through short-, medium- and long-term objectives
• continuing to provide goods and services to the most vulnerable, among others.
Government’s efforts to maintain adequate levels of foreign reserves above the international benchmark of 12 weeks must be highly commended against the background of a global recession that has undermined and dislocated the economic and social fabric of many countries.
Foreign reserves are best described as assets in different currencies held by the Central Bank or any other monetary agency. The assets are mostly held in United States dollars, Japanese yen, pound sterling, and Canadian dollars and to a lesser extent the euro.
In simple terms, foreign reserves represent a savings account used by Government but held by the Central Bank or monetary agency to conduct the business of international trade or related activities.
The Barbados dollar is pegged to the United States dollar; if it was of significant value and universally accepted, there would be no need for a foreign reserve account.
Therefore, Government’s focus on protecting the foreign reserves is justified and its efforts at maintaining levels above the required benchmark can only be classified as prudent management and rational thinking.
In addition, adequate levels are of utmost importance because they enhance investor and consumer confidence in the monetary policies of Government.
The Central Bank of the country can intervene in the foreign exchange market and seek to minimize or control adverse conditions in an effort to stabilize the exchange rate, thereby providing an economic environment that is conducive to further development of the country.
In addition, the reserves are a country’s domestic assets that are adequately backed by external assets. They provide an avenue for foreign investors to move capital in the country, providing a conduit for economic growth.
This administration has been heavily criticized by the Opposition for not using “excess reserves” to stimulate economic activity.
I am still at a loss by the use of the term “excess reserves”.
In light of the challenges before us, are foreign reserves for the sole purpose of spending and satisfying the political egos of a selected few?
If the Democratic Labour Party undertakes what I term, “the idiotic trip” of spending our foreign reserves as prescribed by the Opposition Leader, if the price of energy, wheat, barley and other critical commodities increase significantly over the short term, and foreign reserves are not held as normal or spent as suggested by Mr Arthur, his predictions of economic chaos and mismanagement will surely come to pass.
He consistently refers to the high level of foreign reserves ($2.8 billion) under his stewardship, but he never used the so-called excess to reduce international debt, assist the Barbados Water Authority or Transport Board from the debt traps or assist small businesses with adequate levels of capitalization as now being suggested.
Government will continue to manage the country’s affairs effectively and efficiently in the interest of all Barbadians. Happy Independence, Barbados.
