In a little noticed news item from The Associated Press early last week, the president of Cyprus was reported as having “chided” the central bank chief to “not act in ways that catch the government by surprise”.
It noted that president Nicos Anastasiades didn’t say what central bank governor Panicos Demetriades did to raise his ire, but he suggested Demetriades’ actions led to the resignation the previous Friday of three central bank board members.
“Demetriades, an appointee of the previous left-wing administration, told the Sunday edition of Philelefteros that his cooperation with the government and parliament is a given in order to deal with the country’s severe financial crisis, but that the central bank’s independence must be respected.”
You will no doubt recall a debate that raged throughout the 1990s, if memory serves, about the issue of central bank independence, perhaps, it was suggested in some quarters, along the lines of the Federal Reserve in the United States.
Indeed, the current Governor of the Central Bank of Barbados, Dr DeLisle Worrell, was in the forefront of the local debate co-authoring a 1997 paper (with Anton Belgrave) entitled: The Treasury And The Central Bank: Independence Or Consensus.
Worrell appeared to move away from a position adopted in another paper in 1994 – which did not hide its admiration for the “considerable operational independence” enjoyed by the central bank of the Organization of Eastern Caribbean States (OECS).
It was suggested that a regional central bank for the English-speaking Caribbean, “set up under institutional arrangements which afford it independence of action, may be a source of policy credibility for the region as a whole . . .”.
While there was no clear definition of “independence” in the literature cited, the role and function of the Central Bank of Barbados is clear: “to formulate, in association with Government, monetary and fiscal policies to assist with the country’s economic development programme”.
The 1997 Worrell paper argued that a focus on public economic information and analysis was “the most effective way for Caribbean central banks (and others in similar circumstances) to influence economic policy.
“Rather than distance itself from other official policy,” it said, “the central bank should actively embrace and inform the national economic debate. It is not (my emphasis) the bank’s business to determine national economic objectives, or decide on the trade-off between conflicting objectives. Its responsibility is to ensure that the public choices are fully informed. The more effectively this is done, the greater the prospect that a national consensus on economic strategy will emerge. As such, a consensus is the sine qua non of effective economic policy.
“Without it, even an independent central bank is unable to reach its objectives. Consensus does not imply an absence of dissension, but agreement on core elements of policy (such as an exchange rate anchor) which supports the overall economic strategy with effective social sanctions to ensure its success.”
It has not gone unnoticed that in recent times, Worrell, rather than the Minister of Finance, has been the leading spokesman on Government’s economic policy. And in these particularly dire times, even the Prime Minister has taken a back seat to him rather than step forward and reassure Barbadians, without getting into the mechanics of economic strategy, about which he appears to have little interest.
More recently, eyebrows were raised when it was again Worrell who broke the disconcerting news that the Government’s much vaunted Medium Term Fiscal Strategy (MTFS) had, in a word, failed.
Remember that the governor of the Central Bank is only the Government’s chief economic adviser, so why would Worrell be the one to announce a change in direction away from the MTFS instead of Minister of Finance Chris Sinckler or even the Prime Minister?
It did not help any with the “optics” that Sinckler came after Worrell, not to add any further insight into Government’s predicament, how it got there and how it planned to get out, but merely to state that the governor was only echoing his thoughts as expressed during the Estimates debate.
The confusion deepened the next day when Worrell seemed to back away from his original statement about a new MTFS to speak now about an “adjustment” of the existing plan.
And as is his wont, Prime Minister Freundel Stuart is once more silent on this most fundamental of issues facing Barbadians. We may have to wait for his contribution in the Budget debate if it comes in August.
In these circumstances, Worrell may have seized the opportunity not only to influence but to set and announce Government’s economic policy without having what he called “instrument independence”.
• Albert Brandford is an independent political correspondent.
