BY CLYDE MASCOLL

THE RECENT DOWNGRADING of Barbados' credit rating outlook came as no surprise, given the inactivity of the Government with respect to the economy. Immediately on assuming office, the Democratic Labour Party administration was warned of the threatening clouds on the horizon and chose to regard the warnings as noises coming from the voices of preachers of "doom and gloom". Almost two years later, no serious attempt has been made to address the threats to the Barbados economy.

Instead, a spokesman for Standard and Poor's (S&P) accuses the Government of not being "more proactive in grappling with the economic situation in the country, especially the fiscal deficit, and it was the delay in outlining its counter-cyclical policies that was causing the most problems".

To say that the Thompson administration is confused with respect to the management of the Barbados economy at this time is to put it mildly.

It gets even more confusing when the S&P analyst said: "We do understand that the Government is working on a medium-term programme."

The issues confronting Barbados are immediate and require leadership now, not in the distant future, when it is too late. Of course, Barbados has structural issues that have to be addressed in a medium-term programme, but they are short-term issues which can compromise the stability of the economy that should have been addressed last year.

Yes, the economy is in recession; yes, unemployment is rising and yes, the fiscal deficit is widening. But the current recession is in no way close to what was experienced in 1991/1992. Unemployment then reached 23.4 per cent; it is now almost in double digits.

The fiscal deficit was unsustainable; it is still flexible but only for the right reasons. Its flexibility comes from the manageable state of the country's foreign reserves at 20 weeks of import coverage, which is favourable when compared to the almost non-existence of foreign reserves at some points between the end of 1990 and 1991.

It is not politically astute to put the responsibility for economic recovery on the fortunes of changes in the international economy alone.

It must not be forgotten that the current administration has inflicted its own damage by excessive taxation and the sending of improper signals to the private sector. Ignorance has now replaced planning!

In the United States, bank failures were experienced and large corporations suffered. In Barbados, there has been one failed non-bank institution which had nothing to do with the world recession. In fact, commercial banks have continued to earn healthy profits and insurance companies have not folded; rather, they have adjusted.

In spite of the evidence, it is conveniently being suggested that the current recession is worse than the recession of 1991/1992.

This may be true for the big countries with sophisticated financial markets but it is not true for Barbados. It has the potential to be worse only because of the failure of the Government to act decisively thus far.

It has the potential to be worse because of the current administration's lack of appreciation of the role played by foreign investment in the upkeep of the Barbados economy in the aftermath of the 1991/92 crisis.

It has the potential to be worse if the Government continues to believe that the way out is through more taxation rather than tax relief.

If the focus is not shifted from the frivolous political issues soon, the outlook for 2010 and beyond will be worse.