THE ROOM WAS JAMMED. To get all the expected guests into the Hilton’s large main ballroom, the seats were packed so tightly together I thought for a minute that I was on a plane to Miami.
As a result, I couldn’t move my elbows around enough to operate my iPad, and, of course, I had forgotten to buy the old, but often infinitely more useful, paper notebook and ballpoint pen (total cost: about $3).
A very nice person on my right, who for some reason reads this column, piped up: “Would you like some paper?” A pen was found somewhere and with all the tech still in my tote bag, I took notes the old fashioned way.
It was probably fitting, because the main speaker, David McWilliams, is kind of an old-fashioned presenter. In fact, he appears to have missed his real vocation to be a stand-up comedian.
And while I found his jokes and cultural references a little passé (I know, I always get in trouble, but I shall speak my mind), and his incessant reminders that he was from a small country that had to find its niche in the world, he was able to hold his audience. Which is the main thing.
After a whirlwind tour of global econ 101 delivered in punchlines and filled with Irish versus Cockney versus Italian versus French references, the speaker finally got around to the economic problems of this little rock.
His main thesis seemed to be that low inflation around the world is driving up the value of the United States dollar and with it, the Barbados dollar, causing it to lose competitiveness. As a result, the Central Bank has been printing more money to maintain the status quo.
At least, that was my takeaway from the presentation made by McWilliams, an Irish economist who spoke at the economic outlook seminar sponsored by Royal Fidelity and the Royal Bank of Canada. It was held at the Hilton on Thursday, March 9.
McWilliams, who is said to be one of the top economists in the United Kingdom, is a professor of economics in the School of Business at Trinity College, Dublin, but he is also an author and broadcaster.
He writes a daily newsletter on global financial markets, called GlobalMacro360.com and has produced a series of animated videos called Punk Economics.
When interest rates are low, said McWilliams, the value of assets rise. Another result is that rich people keep getting richer. This has led to anger and frustration in developed countries around the world and is one of the factors fuelling the rise of nationalism in politics, such as the rise of Donald Trump and support for Britain to leave the European Union.
McWilliams said he understood clearly that Barbadians don’t want to devalue the dollar, and this position has become a central issue to the Barbadian psyche. The result is that the country has to issue more and more debt. But eventually, he said, Barbados will also have its day of economic reckoning.
Noting that our gross national debt had been put at 132 per cent by the International Monetary Fund, McWilliams said: “You don’t want to be there”, and we eventually will have to do a major restructuring, in order to lower our debt. “The stronger Barbados dollar will eventually need to be rebalanced because if your balance sheet has too much debt, it will have to be reduced.”
Recalling the days when it all went bust in his own country, McWilliams said that Ireland was deemed a basket case, the country said it could repay its creditors in fish. Instead, Ireland was able to negotiate a deal with its creditors where they all took a haircut, that is, agreed to take less on each dollar owed to them. It worked, he said, because “the financial system has no memory – it’s all about the future.”
McWilliams’ view on the Barbados economy was supported by RBC group economist Marla Dukharan, who went even further. She said that the time for that restructuring of the national debt was now. While lauding the Government’s efforts to reduce its fiscal deficit, she said a fiscal deficit of even four per cent, which would be a great achievement in the present financial circumstances, would still add millions of dollars more per year to the national debt.
And while policymakers often turned to John Maynard Keynes for justification of their continuing to borrow money even when the economy was down and GDP was shrinking, Dukharan said that once the debt of a country like Barbados, which imports the majority of its goods and services, passed 60 per cent of GDP, more spending made the situation worse.
Dukharan cited the Central Bank data which showed that Barbados’ foreign reserves had fallen by 15 per cent at the end of January this year compared with a year earlier. In summary, she said, even as Barbados emerges from its recession, GDP growth will be slow and it will need to continue borrowing large sums.
This high debt, slow growth model may be a solution but it will take very long for the fiscal situation not to be a drag on growth. That’s why, she said, Barbados needed to restructure its debt as a matter of urgency.
After all that, an Extra Old and Diet Coke was sorely needed. Pleasantries were exchanged and I headed out into the night, wondering when our day would come. No time like the present to get a haircut, because it just keeps getting longer.
