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Faulty economic thinking

Clyde Mascoll

Faulty economic thinking

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The most compelling indicator of the Government’s mismanagement is the fact that the Barbados economy is smaller now than it was in 2007. Barbadians had more disposable income in 2007 than in any of the following years, with $8.1 billion in 2007, which was $500 million more than in 2008 and 2011; $300 million more than in 2009, and $600 million more than in 2010. In short, Barbadians had more money in their pockets.
Over the last month, a silly argument has emerged from the Minister of Finance that if Barbadians were given more spending power, it would have damaged the foreign reserves. To support such an argument, he suggested that 80 cents out of every dollar spent in Barbados leaks out through payments for imports. I have never heard such a high figure for such leakage, and the usual 60 cents used was not truly scientifically determined.
However, the issue is not only about the accuracy of the figure, but more so the thinking that undergirds the Government’s economic strategy or lack thereof. Historically, the growth in the Barbados economy has come predominantly from the non-tradable sectors, in short those sectors which are supported largely by local spending. It is, however, accepted that the most secure growth is when local spending is supported by growth in the tradable sectors – that is where spending from foreign sources is more evident.
Of course, the two sectors are tightly linked, and this is why tourism is considered the largest sector because of linkages to transportation, wholesale and retail, telecommunications, financial services and construction. Therefore, it follows that when foreign spending is down and the Government imposes more taxes on local spending, overall spending would be affected, causing further decline in the country’s economic activity.
It makes no sense for the Government to try and tax its way out of the current fiscal crisis because it would further depress economic growth and compromise our standard of living. The Government will play the political card and bring on more workers in the public sector, but at the expense of private sector job creation. Such a strategy is not sustainable and, if not arrested now, will so undermine Barbados’ economic fortunes as to set us back by more than a decade.
The time has truly come for some serious thought to go into the way forward for Barbados. On its current path, it will collide with the current ignorance before 2015. Not too long ago, it was being suggested that those of us who were warning of a fiscal crisis were preaching doom and gloom. Time has shown whose gospel was one of truth and light. Time has also shown whose word can be trusted.  
Economic growth
Trust me: Barbados has lost its stellar position in the region as a leader in economic management. It has taken the longest to recover from the world economic downturn of 2009 and where growth has returned, it is anaemic at best. The Governor of the Central Bank of Barbados recently said that the economy has now grown for six consecutive quarters, but the growth cannot be seen with the naked eye.
In all of its years advising countries, the International Monetary Fund (IMF) never suggested an economic growth strategy for any one of them. It is simply not the domain of the IMF. In similar vein, it is not the domain of central banks. The latter are obsessed with their balance sheets, which ultimately means the growth of the country’s net foreign reserves.
The above observation is important because central bankers do not see fiscal policy as a way of growing the economy; they see it as a way of eroding the foreign reserves. This is the thinking that has consumed the present Government, since monetary and fiscal policies are now being baked in the same oven. The conflict comes because the ingredients of fiscal policy interfere with the balance sheet of the monetary authority known as the Central Bank.
A nascent Minister of Finance, without the requisite training to truly question the monetary authority, becomes a victim of his own rhetoric. He is then forced to argue junk to prevent any downgrade of his own credit rating, at the expense of that of the country.    
For some, rhetoric begets reality. Viva Sink-Ya!
• Clyde Mascoll is an economist and Opposition Barbados Labour Party spokesman on the economy. Email [email protected]