Sunday, April 14, 2024

Devaluation not the way to go

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I AM SURPRISED and concerned by recent discussion of possible devaluation of the Barbados dollar. It only makes producers and consumers adopt defensive positions that can worsen the foreign exchange position.

Devaluation is no longer pushed by the IMF as the solution to a country’s economic problems, especially small, open, developing countries.

It has finally been recognised that any temporary benefit in making exports or tourism cheaper to our target consumers is rapidly and dramatically countered by the cost of imports, which can be so much greater than any additional foreign exchange earned.

This has been demonstrated graphically by the examples of the damage done to the economies of Guyana and Jamaica by devaluation, and to some extent even Trinidad and Tobago, where economic survival has been at least partially tempered by the rich oil industry.

The fact is that devaluation is not a solution, but signals the beginning of the end. Devaluation would be the beginning of a downward wage-price spiral, out of which there would be no hope of climbing. Barbados has nothing that could benefit from devaluation. We do not have oil, we do not have bauxite, we do not have gold (and we pay higher wages than our neighbours).

We rely on tourism, much of the earnings from which never reach Bajan pockets. Tourism also has some leakages, such as importation of food for visitors.

No one should be seriously discussing devaluation, although it was mentioned by the governor of the Central Bank. Perhaps we should have Sir Lloyd Sandiford, our economic hero of 20-odd years ago, explain about “tough decision-making, where the long-term interests of the country must be rightly regarded as the main priority.”

There are obvious ways of reducing our expenditures and increasing our productivity to rebuild our economy. Devaluation is not one of them.

– SENATOR SIR HENRY FRASER

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