Howard: Swift cuts only way
AMIDST CALLS for Government to phase in the needed $400 million in spending cuts, Governor of the Central Bank Dr DeLisle Worrell seemed to be the only one prescribing a swift and sharp dose of adjustments.
However, he has another economist in his corner – Professor Michael Howard.
With the main foreign exchange earning sectors – tourism and international business and financial services – contracting in the first half of the year and contributing to a 0.6 per cent decline in the economy, Worrell suggested at a news conference last week that in order to “get things back into balance”, it was better to take the pain of expenditure cuts now rather than spreading them over an extended period.
The Opposition Barbados Labour Party (BLP); chairman of Government’s Council of Economic Advisers Sir Frank Alleyne; and the country’s largest trade union, the Barbados Workers’ Union (BWU), had responded that cutting too fast and deep would do more harm than good, with the union suggesting the adjustments be made over a three to four-year period.
He might not have much company – at least so far and publicly – but Professor Howard shares Worrell’s view.
“There is no other viable option,” he told the SUNDAY SUN. “Reduction of an annual current account deficit should not be drawn out over years because the nature of the annual current account is that recurrent expenditure tends to become internalized in the budget from year to year, as a result of price inflation and other unforeseen circumstances.
“Further, there is no guarantee that there will be any massive or reliable inflows of foreign exchange to commence projects. This is why the attempt to reduce the current account deficit drastically has to be swift rather than drawn out, in order to minimize further net drains in foreign exchange due to interest payments and imports.”
However, president of the Barbados International Business Association (BIBA)
Ryle Weekes believes that “a cautious and surgical approach” is needed to get the economy out of the decline and back to a healthy state.
“It is easy for some people to think you can just go and drastically cut Government expenditure and increase revenue through taxation and other means, but we would caution the Government to be very careful where they achieve cuts,” he told the SUNDAY SUN.
“For example, we wouldn’t think that it would be very prudent to retard the efforts of an institution such as Invest Barbados, which has the very significant task of going out there and promoting our business to the world to get international clients coming to the country. Also, certainly with the other sectors such as tourism, agriculture and energy, to ensure that while we reduce expenditures that we don’t really retard the efforts that various institutions need to perform to get the economy back to a growth state.”
Regardless of how slow or fast the cuts come, the president of Cidel Bank & Trust said, “we need to be respectful to our medium to long-term strategy”.
Turning attention to his sector, Weekes said growth was not what it should be, with the international business sector “having anaemic growth”.
“We don’t see a crisis, certainly right now, but what we see are investors out there who are very cautious, and you’re not seeing a lot of growth in terms of foundations of IBCs (international business companies) and of captives and certainly not of international financial services firms or banks,” Weekes said.
The Central Bank report showed that the number of new licences issued to international business and financial services (IBFS) entities increased by eight per cent up to May. Renewals, however, fell by 14 per cent.
The minister responsible for international business, Donville Inniss, believes those figure don’t tell the whole story because entities other than those licensed under the existing regulations are involved in international business.
Weekes agrees, even though he says that it’s still not clear exactly how much those other entities contribute to the sector.
He wants Barbados to respond to the challenges facing the international business sector in a very strategic and decisive way, saying that otherwise “it would be that much more difficult to promote Barbados as an international financial services centre”.