LAST WEEK, I wrote that the ultimate task of the leadership of any country is to find solutions to existing problems and anticipate some that are coming. It must be obvious that a serious opposition party would also be engaged in a similar process, especially when it is clear that the Government has failed.
Nobody ever asked the previous Opposition to present solutions to solve the country’s economic problems in 2008. Truth be told, the problems were very manageable. The Government changed and the problems escalated. The political leadership argued that external events were responsible at the time.
It is now 2017 and the Prime Minister is still arguing that external shocks are responsible for the failure of the economy to recover. An external economic shock is an event that produces a significant change within an economy, despite occurring outside of it. Such a shock is unpredictable.
The biggest external shock affecting the Barbados economy is Prime Minister Freundel Stuart, in the form of ineffective leadership. Since leadership is not determined by the system that explains the forces of demand and supply in the economy, it is exogenous to the system. It is therefore external, but should it be arbitrary?
The way that the Stuart administration has gone about the management of the Barbados economy may be described as arbitrary; that is, based on random choice or personal whim, rather than any known economic reason or system.
The tax policy of the Government is a perfect example of arbitrariness. The Government started by taxing the incomes of Barbadians. It then switched to taxing their expenditure. Eventually, it taxed the assets of Barbadians. Finally, it took away all the allowances and deductions for income tax purposes. The Government therefore went full circle in its arbitrary tax policy.
The monetary policy was also arbitrary. It printed money, which increased the monetary base and by extension the money supply. In 2015 alone, the latter increased by 21 per cent. Given that inflation increased by only 1.1 per cent, it is evident that the money-printing affected, as expected, the foreign reserves with a much longer lag than usual.
The longer lag came from the contribution of the commercial banks’ money used to buy Government securities in a rather arbitrary way. Typically, in the presence of excess liquidity, the monetary policy would be to increase the required reserves ratio of the banks. Another arbitrary approach was followed, which permitted the banks to set their deposit rate.
While the approach delayed the erosion of the foreign reserves, the erosion that started in 2013 was inevitable. The erosion might have also been compounded by the very unattractive interest rates in the commercial banking system.
In an environment in which the trade unions acted very maturely in freezing wages for almost a decade, the two major policy instruments were indeed arbitrary. The Government therefore squandered a prime opportunity to grow the Barbados economy with well-reasoned economic policies and programmes.
It is inconceivable that any government, anywhere in this world, could double the country’s national debt over the same period that the economy got smaller. This is the most definitive indicator of the Stuart administration’s arbitrary public policy.
There are some public commentators, who have become so accustomed to arbitrary public policy, that they are pressuring the Opposition to put their policies and programmes on the table now. Perhaps, this is a result of the nervous tension in the country, which is understandable but not necessary.
The Barbados brand is definitely in need of an upgrade. However, upgrading Barbados calls for a very serious analysis of its anatomy. There is obviously excess swelling in some parts of the body that needs proper diagnosis. This is not the time to take the advice of a general practitioner alone. The risks are too high.
The rush to provide internal medicine alone must be cognisant of the malalignment. Having just passed 50, one expects some physical wear and tear of the body. But this is a time when the head makes good use of the past experiences and navigates based on the accumulated wisdom.
The task of correcting the imbalance becomes much more difficult when the head isolates itself from the body.
• Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy. Email: clyde_mascoll@hotmail.com