Severe price we’ll pay
WHEN THE DEMOCRATIC LABOUR PARTY (DLP)?assumed office at the beginning of 2008, the unemployment rate was the lowest in the post-Independent history of Barbados.
During the general election campaign, it was made clear that 2008 would be challenging because of the difficulties being experienced in the international financial markets. There was a call to stimulate the Barbados economy, which typically means using government capital expenditure to spur economic activity.
The response of the leadership of the DLP was that the Government was not about stimulus. Instead the leadership opted to become the employer of first resort at a time when Barbados was experiencing its lowest unemployment rate.
This newfound approach of becoming the employer of first resort would carry a severe price in time to come.
The strategy was described as wrong-headed and it does not require a professional economist to understand why.
My precious mother was an outstanding economist and she was not the only mother who deserved the accolade. Her mantra was “live within your means”. The mantra does not mean not to borrow; it simply means to be able to repay when you borrow.
In the circumstances, the action of the DLP Government was reckless.
Once it was recognized in less than two years that the policy was wrong, the Government stumbled on a slogan – Barbados is a society, not an economy!
Both an economy and a society are about people and therefore the notion that a society can be separated from an economy is absolute rubbish; but it sounds good and that is what matters most in politics.
The action of Government betrayed all the principles of sound fiscal management practised by previous administrations in this country.
I have severe difficulty with some who castigated the Sandiford administration but are willing to apologize for the current administration.
The condition of Government finances is at an all-time low.
Thank God that Government was able to borrow to keep a stock of foreign reserves. In mid-October 1990, the country had no foreign reserves, which is the worst problem of all. A country simply cannot function without foreign exchange to buy goods and services from abroad and service its foreign debt.
Every economist knows that there is a direct correlation between the financing of government fiscal deficits and the foreign reserves; it is the printing of money.
In the last two years, Government borrowed heavily to support its excessive spending. Fortunately, it was able to borrow heavily from both local and foreign sources; foreign borrowing is restricted to institutions.
Local borrowing is being restricted because the National Insurance Board (NIB) is stretched and commercial banks are worried.
As a result of becoming the employer of first resort at a time when the country had its lowest unemployment rate ever, Government – which started the fire but does not want to take the responsibility to put it out – is now looking for scapegoats.
It never listened to the advice that was being proffered. It said that commentators were preaching doom and gloom and it sought, and is still seeking, to put the blame on the international economy. The truth is that my greatest fear is that the international economy truly becomes the real problem!
Commercial banks have lost their appetite to finance Government spending and the NIB is simply being forced to do too much.
As a result, the Central Bank of Barbados recently increased its printing of money by $130 million to bring the overall limit to $500 million. This was the most important thing that happened in the economy in the third quarter.
Apart from its adverse economic consequences, increasing the limit on the printing of money usually requires parliamentary approval but a way has been found to do so without having to seek that approval. In Jamaica, both ways of printing money have to go to parliament; not in Barbados.
This has to be corrected and urgently!
This process of putting unearned money in a Caribbean economy is the fastest and deadliest way to undermine its stability. This is the gospel that the highly respected late Wendall McClean preached.
What he preached is no less relevant today but some want to create alternative truths. There may be an alternative opinion but not an alternative truth!
• Clyde Mascoll is an economist and Opposition Barbados Labour Party spokesman on the economy. Email [email protected]