Mascoll disputes bank's review

Akbert Brandford,

Added 25 July 2010

ECONOMIST Clyde Mascoll has chided Governor of the Central Bank, Dr DeLisle Worrell, for opting to report Barbados’ gross international reserves instead of the customary net international reserves (NIR) in his most recent Economic Review.Mascoll, a University of the West Indies-trained economist, said that had the Governor “done the customary thing, the reserves would have been reported as declining by almost $268 million rather than the $68 million for the first six months of 2010”.“There are instances when the gross- and the net international reserves are the same,” Mascoll told the SUNDAY SUN in an interview, “and therefore it does not matter which measure is used, but for the last 38 years the Central Bank has focused, and rightly so, on the net international reserves.”Mascoll, who also served as Minister of State in the Ministry of Finance in the Owen Arthur administration, pointed to the Central Bank publication – Economic And Financial Statistics, June 2010 – and explained that a look at columns 8 to 10 in the table provided would show the difference between the gross international reserves and the net international reserves (NIR).“Last year in August, this country, like most members of the IMF, was able to draw down on its membership fees or special drawing rights (SDRs) and hold them as reserves,” he noted. “However, these SDRs were not deducted from Barbados’ gross international reserves to arrive at the country’s net international reserves (NIR). This is because the SDRs are not classified as IMF credit.”As noted in the Central Bank publication, the definition of the NIR is the sum of the monetary authorities’ foreign assets minus credit from the International Monetary Fund. This, Mascoll said, explained the difference between the gross international reserves and the net international reserves for the period 1980-1996.The monetary authorities’ foreign assets is the sum of Central Bank foreign assets (net) plus Government’s foreign assets, he added. The Government’s foreign assets include foreign assets of the general accountant, sinking funds for domestic debt and statutory sinking funds for foreign debt.“The bone of contention with respect to the Central Bank’s reporting of the gross international reserves and not the net international reserves lies in an understanding of the Central Bank’s foreign assets (net) and other securities,” Mascoll said.“The definition of Central Bank foreign assets and other securities is the total external assets of the Central Bank less short term foreign currency borrowing  plus foreign securities of the ICF and staff pension scheme which are managed by the Central Bank.“According to the Economic Review of June 2010, a bridging loan arrangement was entered into with Deutsche Bank for an amount of BDS$200 million in June of this year. This is a short-term foreign currency borrowing that carries a current interest rate of 4.5 per cent and has to be repaid by December of this year.Has to be deducted“According to the Central Bank’s definition, this short-term foreign currency borrowing of $200 million has to be deducted from the external assets of the bank to arrive at the bank’s net foreign assets. Therefore, when the Governor opted to report the gross international reserves in the most recent Economic Review, he did not take account of the short term foreign currency borrowing entered into in June. In not reporting the net international reserves, the Governor was able to report a decline in reserves of $68 million for the first six months of 2010 rather than a decline of $268 million.“This oversight allowed the Governor to say that ‘reserves declined by $68 million, leaving reserve cover at about 19.3 weeks of imports, significantly more than at the end of June 2009’.“If the Governor had reported the customary net international reserves, the reserve cover would have remained virtually unchanged from last year.          “To arrive at the fall in reserves for the first six months of 2010, the figure at the end of June has to be compared with the figure at the end of December 2009.“When the Central Bank received the $200 million from Deutsche Bank in June and paid it to Credit Suisse in June, the gross international reserves were not affected. However, the net international reserves would have fallen by $200 million, given the definitions above.“Does the Governor wish to refute the Central Bank’s own definitions and facts? I think not. “I am growing tired of telling the truth which cannot be challenged on professional grounds, but is challenged on petty political grounds.“Furthermore, no other professional economist can be brought to balance the truth. He may offer an alternative view but not an alternative truth,” Mascoll observed.

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