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EDITORIAL: Stimulus or not?


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ONE OF THE current concerns about the Barbadian economy is whether a stimulus is needed to help get us moving again and out of the economic malaise into which we appear to have fallen. The policy makers in the larger metropolitan countries appear to accept that some sort of stimulus is still needed to help invigorate and eventually stabilise their economies, but we have heard otherwise in these parts from some of our own policy makers.  In November of last year, Prime Minister David Thompson told the House of Assembly that a stimulus programme would have a negative impact on imports, since as he saw it some 76 cents of every dollar of the stimulus would be spent on such imports, and as every thinking Barbadian knows, increased imports have to be supported by foreign currency, usually in the currency of the United States, to pay for such goods.
He described the impact of a stimulus as having dangerous side effects. This approach seemed to indicate that the medicine was needed, but the side effects would outweigh any benefits. Some two months later, the Governor of the Central Bank, Dr DeLisle Worrell, said almost the same thing. He declared that Government risked wiping out its $1.5 billion in foreign reserves if it tried to put more money into stimulus packages for the private sector.  Clearly the need to watch and preserve the foreign reserves is a matter of the highest importance, for as some would say, our standard of living and our very existence as a stable developing country depend on our ability to earn and retain adequate foreign reserves, especially when crises descend upon us.
Sir Courtney Blackman, the first governor of our Central Bank and someone who has had first-hand knowledge of some of our earlier crises, underlines the critical importance of adequate foreign reserves. He says that the “first defence when a crisis occurs is that you have to have foreign exchange reserves which are your major buffer”.  Whatever remedies may be prescribed for our ailing economy, the prescription writers must therefore have regard to the dangerous downside which might mean a wiping out of our foreign reserves with inevitable resort to the Iternational Monetary Fund.
Essentially, the Government has resorted to a “wait-and-see” approach, while arguing at the same time that they have sought to protect jobs by easing employers, and they point to the social benefits of no bus fares for schoolchildren and increasing the reverse tax credit as part of an enhanced social package aimed at vulnerable groups in our society The question which now arises is whether the Government’s actions were enough, and if a stimulus of a different nature is now required, and if so, how may it be done in the very tight fiscal circumstances. There is current talk of a further stimulus in Washington; and in London, the governor of the Bank of England told a Parliamentary Committee two weeks ago there was still a need to stimulate the economy which should take precedence over concerns about inflation.
Against this background, public debate on the state of our economy must continue. We are all in this together, and the diverse views must contend for the better enlightenment of all Barbadians who will have to “carry the can” when and if belt tightening measures become the order of the day.  This recession is the most challenging we have ever faced, and it is always easy to be right after the event, but in January of 2009 Professor Michael Howard was of the view that a fiscal stimulus of about $150 million to $200 million was right for the island, even though he was conscious of its impact on the foreign reserves.  Anticipated foreign direct investment in 2011 will stimulate the economy, but the urgent question is whether the economy needs a shot in the arm now.