Barbados' financial system, long buttressed
by a fixed exchange

rate, is now in danger
of being abandoned.

This is the view of Opposition spokesman on financial matters, Dr David Estwick, who told the House yesterday that the exchange rate would be a casualty once Barbados allowed its capital account to be liberalised under the Central Bank of Barbados (Amendment) Bill 2007.

The bill was passed later in the day.

"The more liberalised the capital account becomes, the greater
is your flexibility needed on the exchange rate,"
he warned, noting that when studies were done
by Mona Campus' Professor Wint they showed that the regional economies with liberalised capital accounts had
done worse than those without such liberalisation.

"All had higher external and internal debt, as well as a higher fiscal deficit and low economic growth. Is that what they want Barbados to go to?,"
he asked.

He accused Government of buying into the economic orthodox theory that once capital is flowing, countries should open their markets and get some of that capital so as to push one's national growth and development.

However, he added that when capital account liberalisation was tied to trade liberalisation, most small developing countries suffered.

Furthermore, Estwick said, because of economies of scale, countries like Barbados could not compete where trade and export were concerned, and therefore found themselves being net importers. Hence the reason for Barbados'
ever-rising import bill going from $1.2 billion
to nearly $4 billion
in 12 years, he added.

The St Philip West MP added that when a country opened its capital account, the inflowing money would merely be used to finance imports, thereby causing the same money to go back out of the economy.

Estwick added that there were built-in risks
to these structures, and Government was "going down the path lock, stock and barrel". He advised that to make capital account liberalisation work in Barbados, Government must correct its problems in the non-banking sector and allow for less collusion and restriction in the stock market. (RJ)