BARBADOS’ POLICY of holding on to its longstanding fixed exchange rate is crucial if Government wants to stabilise and grow the economy.
Speaking yesterday on the eve of a ministerial statement by Minister of Finance Chris Sinckler, Guyanese economist Professor Tarron Khemraj warned that a “volatile and unstable” exchange rate would cause investors to leave with their funds.
Khemraj, who is the William G. and Marie Selby Associate Professor of Economics at New College of Florida, also said small very open economies like Barbados would be faced with “major credibility issues” if there were insufficient foreign reserves.
The economist, who recently published a book titled Money, Banking And the Foreign Exchange Market In Emerging Economies, gave his advice during the opening session of a three-day seminar for economists and central bankers on the topic Monetary Policy In Small Very Open Economies. It is taking place at the Grand Salle of the Tom Adams Financial Centre.
Khemraj said while there were those who thought stabilisation and economic growth were different, he cautioned that there were key aspects that should not be separated, including the importance of the exchange rate.
“Stabilisation will have important implications for growth because if your exchange rate is volatile and unstable it is highly unlikely that the private sector will have certainty to invest. As a matter of fact, private capital will leave your economy and will just worsen the situation,” he said. (SC)
