THERE IS AN OLD BAJAN SAYING that goes like this: “The higher the monkey climb, the more he show he tail”. Over the last week, attempts to mask the economic reality in Barbados have in fact revealed more. For example, the fact that Barbados’ debt is on par with countries like Jamaica and Belize was not known by many.
Furthermore, the difference in the national debt of the three countries is one of structure and not size. Barbados’ national debt is predominantly local, while the debt of the other two countries is mainly foreign. This distinction is critical in understanding why Jamaica and Belize are more capable of defaulting on payments than Barbados.
It takes foreign currency to pay foreign debt. The major constraint to the health of Caribbean economies is the availability of foreign exchange. This is because the country has to trade in order to survive.
Unfortunately, we buy more from abroad than we sell. And we borrow from abroad so we have to repay. In short, foreign exchange is that without which we cannot live for too long.
This is why it has been argued from 2008 that Barbados’ economic condition was manageable. There was an adequate stock of foreign reserves in the country, both at the Central Bank and in the commercial banking sector. It was further argued that the lack of adequate foreign reserves is the major reason why the economic condition of Barbados in the early 1990s was more challenging than in 2008.
However, the failure to adequately manage the predominantly fiscal challenge since 2008 has created more structural issues in Barbados. These issues are now responsible for the absence of growth. They include the persistent fiscal deficit on the current account, the absence of a capital works programme, the outrageous growth of the national debt and the virtual demise of the international business sector. In addition,the sugar industry is preparing for burial, while the manufacturing sector is comatose.
In recent weeks, an international economist observed that while tourism has contributed to growth, it does not set the strongest platform for economic development. An observation that may appear harsh, however, ongoing investment in the sector has not been stellar; the application of technology to the sector is limited because of the focus on service delivery and advancement in human capital is restricted by the nature of such focus.
According to Jay Mandle: “In assessing what has gone wrong in Barbados, nothing is more important than distinguishing between economic growth and economic development. Growth alone is not transformative and inevitably confronts limitations.
“Incomes may rise with growth, but the industrial structure of output remains the same, as do production methods. But with development, the structure of output and production methods are fundamentally altered, giving rise to the prospect of sustained expansion.”
Development is also compromised when a government focuses totally on the current with no regard for the future. This is evident when it fails to understand the role of human capital. It also fails when the income tax system is dismantled in ways that discourage savings and investment. Failure is inevitable, when the Government focuses its policies on survival rather than the development of businesses and households.
In the process of reducing hope, the Government has accumulated extraordinary debt that has not contributed to either growth or development. In essence, the standard of living of the current generation of Barbadians has been reduced without enhancing that of the next generation. This must be the single largest indictment against the current administration.
Things that were well won with hard work and clear thinking have been sacrificed by a blinkered leadership. Things that were steadfastly avoided to keep us on a safe and secure development path have been abandoned. This brings us to the issue of printing money that all three countries are able to do because of the presence of a central bank. However, they can only print money in local currency.
Since Jamaica and Belize have proportionately larger foreign debt, it stands to reason that if they were able to print foreign currency, that they would hardly default. The converse is true for Barbados; that it will hardly default because most of its debt is in a currency that it can print. The problem is that there is an ultimate price to be paid for abandoning fundamental principles, regardless of whether they are spiritual, human or simply economic in nature.
Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party advisor on the economy. Email: clyde_mascoll@hotmail.com