Barbados’ economic circumstances have reached the stage where there is no longer a need to use statistics to convince anyone that things are getting worse by the day.
The circumstances are evident as they have become the daily experience of Barbadians. What matters most is that there is a definite lack of leadership.
Sooner rather than later, the Minister of Finance or the Prime Minister may make a statement and this will be interpreted as providing leadership.
Silence will prevail for several more months, then another statement will be issued and again the interpretation will be the same.
The contents of the sporadic speeches will be totally ignored but the fact that a statement was made would suffice. Mediocrity has become the accepted standard.
Having deprived the electorate of an alternative economic strategy during the last election, the Government is proposing to implement a very big stimulus. This approach is consistent with sustained silence when some speech matters followed by a rush of thought and speech to break the silence.
After a period of prolonged drought, the topsoil is loose. If this period is followed by several inches of rainfall, then the soil is in danger of being washed away.
Therefore the distribution of the rainfall is as important as the amount in terms of its effect on the soil and its fertility.
In similar vein, a very big stimulus coming on the back of little capital spending over the last five years will have severe implications for the Government’s fiscal condition, the national debt and the foreign reserves.
Borrowing
The first two implications will excite the international credit rating agencies for sure as the authorities have promised to lower both the fiscal deficit and the debt.
The implication for the foreign reserves is the reason why the Minister of Finance and the Governor of the Central Bank were in London and New York testing the market for borrowing. There is legitimate justification to be concerned about the leakage of foreign reserves in the face of excessive domestic spending. Therefore a very big stimulus is a concern.
This brings me to a critical area. When the Opposition suggested a small stimulus, the argument with respect to the foreign reserves was raised by the Governor of the Central Bank and the Government spokesmen.
Government’s behaviour becomes even more questionable when it is recognized that a major part of the proposed stimulus by the Opposition would not affect the fiscal deficit. This is because it was argued that the excess profits of the Barbados National Oil Company would be used to give relief to Barbadians.
The Opposition was fully conscious of the implications of flooding the economic landscape with too big a stimulus. It therefore proposed a phased approach in the circumstances. Of equal importance, it proposed to switch the increase in spending from government to private individuals and the private sector.
The best way to flood an economy is through investment with an adequate amount of foreign investment in the mix. The talk of import substitution is old talk. It is old because it was being suggested since the 1960s; it did not work then and circumstances make it less likely to work now.
Buy local is not the same as import substitution. The former is an emotional request to support Barbadian products on grounds of loyalty, which is a legitimate request. The latter is based on the level of local value added where local inputs are seen as genuine substitutes in the production of local products. When the two approaches complement each other, then the products are competitive in their own right.
There is no doubt that increasing local production is the only sustainable way to bring Barbados out of its economic misery. But the notion that local production is good only if it earns foreign exchange is absolute rubbish. This was never the criterion used to judge the worth of production in the past and there is no reason why it should be now, especially when the country does not have a problem with foreign exchange.
The constant reference to the foreign reserves is a way to take the attention away from the real issues of the fiscal deficit, the national debt, the lack of economic growth, unemployment and cost of living. It has to start with increasing local production but a flood is not required.
• Clyde Mascoll is an economist and Opposition Barbados Labour Party spokesman on the economy.
