Tuesday, April 16, 2024

The Hoyos File – Dr Worrell follows the law of diminishing returns


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THERE IS A REASON why we have a Minister of Finance in this country as well as a Central Bank Governor.
The former, presumably, is there to come up with financial policies to take the country forward based on the advice of many other financial professionals, including, but not limited to, the latter.
Unfortunately, for some time – oh, let’s see – since around October 24, 2010, it seems as if the tables have been turned.
Fiscal policy now appears to emanate from Church Village instead of Bay Street.
Reminds me of the joke about whom you might find in the cabin of a modern jetliner, with all of its computer-flying capability.
Apparently one fellow was able to get a glimpse through the door and all he saw was a man and a dog.
“What’s the dog for?” he asked.
“The dog is there to bite the man if he touches anything,” came the reply.
Bean counters have their job to do and Dr DeLisle Delisle Worrell is doing his – warning of the dangers of taking on policies that, were they to fail, would end up costing us some of our precious foreign exchange reserves.
He must therefore be privately unhappy with the largesse in terms of tax concessions, reportedly more generous than other investors have received to date, which have been given to the company responsible for launching Cost-U-Less in Barbados.
If you say that is not a form of direct stimulus – to one business entity – in order to make the grass formerly covering its greenfield enterprise greener still, then I ask you to give me your definition of the term “stimulus package”. (This offer does not extend to Lowdown.)
Is it only the Government spending money on infrastructure which would consume foreign exchange but earn no foreign revenue directly?
Or would it apply to providing increased incentives for manufacturing exporters and investors in hotels to get them to refurbish our very tired export thrust and tourism plant, respectively?
I would say yes to that.
But what foreign exchange will Cost-U-Less bring in that other retailers – which are not getting the perks and tax breaks it has apparently negotiated for – cannot also provide?
I respectfully say: none. Cost-U-Less might, if it does indeed cost-us-less to shop there, help to make the local retail sector more competitive.
But from a foreign exchange point of view, that might not be so good because we might end up buying a whole lot of stuff from it in local currency, thus increasing the island’s import bill, which is paid in foreign currency.
If the sweetness bestowed on the Arctic traders, not to mention all the canoe-dling that must have gone into enticing them to come here, had also been given to our other retailers, we might be in a position to market Barbados as a true shopping mecca to our CARICOM brothers and sisters and thus get them to spend their foreign currency here in greater amounts than they already do, but this has not been done.
One wonders if the Fair Trading Commission will also find that the rest of the retail sector has been “unfaired” by the largesse given to Cost-U-Less.
If it were only about foreign exchange, why did the Government enter into those BOLTs with the developers of the proposed marina and the cruise ship company building the new terminal outside the Bridgetown Port?
Not a stimulus, you say? Instead of our Government borrowing the money from a bank and hiring somebody to build those projects, it instead has contracted with the developers to finance the projects for us.
We the taxpayers get to repay the debt at much higher interest rates to the investing entity over five and 20 years. Like that prison the present Government used to complain about, until they did exactly the same thing.
It is stimulus because the marina and the port are both infrastructural projects which will employ lots of people in construction and then go on to hopefully be steady producers of foreign exchange.
Dr Worrell does not seem to oppose these. But the Central Bank is not in favour of Government doing stimulus.
“We can grow the economy in the next six months but it will not be sustainable,” he told the nation (Government Stimulus Not The Way – DAILY NATION, Thursday, January 17, Page 5).
“It will use up the foreign exchange and we will be back where we started, with no growth, less foreign exchange and low prospects,” the story continued.
Excuse me, that is where we are right now. We are already starving the economy into a state of malnutrition. Somebody has to send out an expedition to find food, even if it fails.
On top of that, the reason why VAT returns have fallen along with personal tax revenue is that they are following the law of diminishing returns.
If you don’t jump-start the local economy for a period as a way to get the full engine ticking over again and thus recharging the stimulus “battery” by bringing in more taxes, you will have a contracting economy employing fewer people (except for the Chosen Ones working for the Government) and turning over less, hence lower VAT revenues. Thus you have to increase VAT, but still find it is bringing in less revenue [than in] the previous year.
All of this is why the bean counters do not usually run the company, or the economy, whose beans they count. They are not the risk takers.
That job is left for the elected politician who has to mix the grim facts of what the country is facing with his or her own vision of where it could go, and then try to forge policies that will capture the imagination of the local population, the investment community, and then the wider financial markets overseas as the word spreads. (Note: the Minister of Finance cannot come out of the Senate, so why is our de facto Minister of Finance coming out of Church Village?)
Yes, these policies can fail – the only difference is that we would have tried, and if you try hard enough, you will eventually succeed.
And if you stay in one place you may very well just succumb to your economic ailments, unless you get very “lucky” and explorers with pockets full of money “happen” to find you and pick up the pieces of your broken companies.
Luckily for us, there are daily flights into Barbados from Port of Spain, so all is not lost.


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