WHAT MATTERS MOST: Confidence
The return of confidence to the Barbados economy is the primary responsibility of the Government through effective public policy. This confidence comes from the clarity, the consistency and certainty of Government policies.
If truth be told, the Government’s fiscal position is much worse than I have been reporting. In 2009, the current account deficit was $449.9 million, not $250 million, and it has worsened in 2010. This is the result of poor policy judgement.
Prior to the last general election, it was noted that the economy would experience a recession. This was a very bold step to take by the then Prime Minister. This level of honesty is not what excites the electorate and so the focus of the campaign was on corruption. It resonated and the rest is history.
The prediction of a recession soon became a reality! The response by the Government was to impose heavy taxation on an economy that was heading to recession. Apart from the economic implications of the heavy taxation, it affected the confidence of the consuming public and the investing appetite of the private sector.
A public debate ensued over the choice of a stimulus package which saw the Opposition in favour and the Government publicly dismissing it. As time elapsed, the evidence of Government spending excessively was revealed. The spending has given rise to the horrible fiscal position of Government. Instead of using capital expenditure, the Government spent heavily in the area of transfers and subsidies. This policy lacked clarity and demonstrated incompetence.
It became clear that the Government was on the wrong course but the blame was put on the international recession. The outrageous fiscal position, which is finally being acknowledged, is not the result of the international economic recession; it is the result of fiscal ignorance, for which this country will pay. It reflected a lack of consistency in public policy.
After heavy taxation was imposed in 2008, the signal was sent that the Government intended to deal with an unsustainable fiscal deficit. Yet it taxed and then spent its way to a fiscal crisis.
Let us not forget that the mission of the Government was to reduce the cost of living. Food prices have however continued their upward journey pushed by higher costs of utilities on the domestic side and rising imported costs.
The greatest indictment of all is the “wait and see” attitude proposed by the then Minister of Finance, who apportioned all of the blame to the international recession. This is not the first recession to hit Barbados and it will not be the last, but there is no excuse for not trying to implement timely and effective public policy.
The absence of such policy erodes any existing confidence, which further compromises the rate of economic recovery. Unfortunately, the bashing of the economics profession has come back to haunt the Government.
The notion that economists spend all their time trying to forecast economic outcomes is a false one. They spend a lot of time trying to understand how economies work.
The ultimate aim is to seek balance between economic outcomes and social objectives. This is the stuff that public policy is made of and it requires much more than perception. The fact that one man became a Minister of Finance with a cast of local and foreign advisors in a time of crisis may leave a perception that such a post is available for all and sundry.
It is not that simple!