WHAT MATTERS MOST: $600m stimulus won’t work
Any hope I had for the Barbados economy to be put on the right path in the aftermath of the recent general election has vanished, having heard the Minister of Finance in this week’s Estimates debate. This observation is based on what the Government’s chief economic adviser told the country in June 2012.
He stated that to keep the economy stable, there must be; (1) minimal need to draw down the Central Bank’s foreign exchange reserves; (2) commitment to stay on track to achieve the Medium Term Fiscal Strategy (MTFS) and (3) economic growth led only by the sectors which earn or save foreign exchange.
Governor Worrell went on to say, “We are by no means out of the woods; inflation is too high, unemployment is too high and economic growth is too slow. There is nothing we can do now that will not make those indicators even worse.”
In the recent general election, the Opposition felt that something, no matter how little, had to be done to inspire economic growth through more domestic spending. A mature and experienced cadre of economists proposed a fiscal stimulus of $90 million in its first year and a group of senior economists, including the governor, rejected it publicly because of the threat to the country’s foreign exchange reserves.
A stimulus package of $600 million has now been put forward by the Ministry of Finance and the new Democratic Labour Party Government, and there is not even a murmur about the foreign exchange reserves.
It is impossible for the economic adviser who outlined how to keep Barbados stable in June 2012 to agree with the proposed stimulus. And if he does, there is only one reasonable thing to do as governor. The other senior economists may not be in a position to resign, but they can at least publicly disagree, given their previous position on the opposition’s $90 million stimulus.
The truth is that the Minister of Finance is completely out to sea on the fiscal and economic issues. This is why he always plays to the political gallery, where posturing reigns over substance.
But the other senior economists do not lack substance, so why did they take the position on stimulus prior to the election and remain silent on this announced stimulus?
The Minister of Finance must be advising himself, since it is impossible to believe that the fiscal ignorance that he laid in Parliament came from any worthwhile economic adviser. But then again, I may be very wrong.
The proposed $600 million stimulus package goes against all the tenets outlined by the Governor of the Central Bank of Barbados less than a year ago. Furthermore, it comes on top a fiscal position for the year 2012/13 that will be more than two times worse than what was projected.
Notwithstanding the worse than expected performance, the Minister of Finance has outlined a capital expenditure programme for the coming fiscal year 2013/14 that puts the country in a stranglehold and signals the start of fiscal suicide.
At the beginning of its first term in 2008, the then Thompson-led administration attacked as reckless the use of private-public partnerships (PPPs) to help finance capital projects. It is now been proposed that in addition to the almost $300 million capital works programme outlined in the Estimates that PPPs would finance a further $300 million in capital projects in the coming year.
The projects in the latter have not been identified or accounted for in the recent Estimates. This is both reckless and irresponsible. The recklessness comes from the rejection of the Government’s own Medium Term Fiscal strategy, which was said to be the basis of its decision-making over the last four years and into the next three.
The irresponsibility comes from the willingness to compromise the country’s foreign reserves with a $600 million stimulus package, after arguing against the Opposition’s $90 million dollar stimulus on the grounds of its implications for the same foreign reserves. While this kind of deceit is apparently admired in the political arena, there is a limit to intellectual deceit.
When a society reaches the stage where the authors, and not the substance and content of their message, are attacked, it signals a reversal of progress, since the intellect is the only genuinely tangible attribute of man that is without colour, class or creed.
• Clyde Mascoll is an economist and Opposition Barbados Labour Party spokesman on the economy.