Stimulus and the foreign exchange
IS GOVERNMENT’S $600 MILLION STIMULUS PROGRAMME good or bad for Barbados? Will it jump-start the Barbados economy, or will it worsen this country’s debt situation by increasing the fiscal deficit and depleting our foreign exchange reserves?
These are some of the questions being asked since Minister of Finance Chris Sinckler announced the initiative last Monday in debate on the 2013-2014 Estimates Of Revenue And Expenditure in the House of Assembly.
At the same time, Governor of the Central Bank Dr DeLisle Worrell and Government’s advisor on economic matters, Sir Frank Alleyne, both of whom publicly rejected the idea of a Government stimulus as recently as January, have been conspicuously silent.
Does their silence mean they disagree with the minister? Or, is it a case that like Sinckler, they too have had a change of heart on the issue?
As it stands now, Barbadians are in a quandary and want answers. They need to understand why a Government that dismissed as disastrous for the country’s foreign reserves a $90 million stimulus package proposed by the Opposition just a few weeks ago during an election campaign now plans to implement a programme that cost six times more than the one they condemned?
Has the measure been misunderstood, as Leader of Government Business in the Senate Maxine McClean, posited on Monday as debate started there on the Appropriations Bill? And if it has been, what could be the cause for such doubts?
As a layman in economics, like most Barbadians, I am concerned about the gulf between those knowledgeable people who support it and those against it, and the consistency of individuals who have commented on this issue.
Economics professor at the University of the West Indies (UWI), Michael Howard, likened the $600 million stimulus to economic madness. He said it would have “an even more disastrous effect” on foreign reserves than the Opposition Barbados Labour Party’s $90 million stimulus proposal, which he also condemned. He has been consistent.
President of the Barbados Chamber of Commerce & Industry (BCCI), Lalu Vaswani, deemed the stimulus a capital works initiative. He feels, too, there should have been some component within the programme to include the lowering of energy costs as this would benefit a large cross section of the population.
“This [energy component] would consequently result in increased disposable income across all sectors which will then serve as a catalyst for increased economic activity,” Vaswani asserted.
As the BCCI was in the forefront of asking Government for a stimulus programme, now that one has been delivered but targeted for capital works projects, Vaswani insisted that “a judiciously crafted stimulus that would have made its impact felt in a broader based manner, so that multiple sectors of the economy would benefit” would have been better. He has also been consistent.
The two missing voices are Worrell and Sir Frank. The former said on January 16 that the stimulus “quick fix” the private sector, Opposition and others have been prescribing is the wrong medicine for the Barbados economy and would cause a relapse.
“The Government of Barbados cannot do stimulus because the Government does not generate foreign exchange,” Worrell said.
He noted it was possible to take measures to spur more than marginal economic growth in the next six months, but cautioned that “we would use up the foreign exchange and we would be back where we started with no growth, less foreign exchange”.
A week later while delivering the Errol Barrow Memorial Lecture at the Frank Collymore Hall, Sir Frank said that it would be inappropriate to increase domestic spending and that those making the suggestion “need to have their heads examined”.
The retired UWI lecturer said big countries could pursue stimulus plans but “we have no such luxury in Barbados, so when you hear people saying these things, do not waste time listening to them . . . . If we attempt it we are stimulating other people’s economy and setting up ourselves to risk . . . . People will spend and the foreign reserves import cover is going to be challenged. These are not things we should be playing political games with.”
Could the doubts on the benefits of this stimulus be due to these two key individuals’ previous strong denunciation of such a move? And if this is the case, should they not be encouraged by Sinckler to speak on the Government’s behalf to bolster confidence in the measure?
As I said last week, I think the stimulus is a move in the right direction, but Government needs to explain how this stimulus will impact the foreign exchange reserves as most of the components used in the construction sector have to be imported.
• Sanka Price is an editor at The NATION. Email him at [email protected]