There is no doubt that the governor of the Central Bank of Barbados is absolutely wrong in both writing the letter to the publisher of the Nation and in not inviting the NATION/SUN staff to any future Press conference or media event hosted by him.
The NATION actually quoted the lower end of the range of the number to be retrenched; the upper end is 80. The reporter does not have to know the exact figure. The fact is that the governor suggested that a decision was taken to “shrink our operation”.
The interest in this article is what has caused the Central Bank to be in its current state.
In relation to reducing operational costs, Governor Dr DeLisle Worrell revealed: “I have shared this with the staff. You know, as we said in March, in our Press release on the performance last year, we made a loss last year, and you know, we are projected to make another loss this year.”
These losses have to be put in context. The Central Bank of Barbados was established in 1972. Between 1973 and 2008, the bank made a loss once and that was in 1989. Between 2009 and 2013, the bank has made losses each year, except for 2010. The governor is forecasting a loss for 2014.
In the two previous major recession periods for Barbados of 1981-83 and 1991-93, the Central Bank realised cumulative profits of $29.9 million and $55.7 million. Typically, the bank has made profits during recessionary times in Barbados.
The recent period of losses started in 2009, with a loss of $9.4 million. This is the same year in which the bank justified sinking $10 million into the CLICO fiasco. Strangely enough, the income of the bank fell by some $16 million in this year.
In the absence of another giveaway, the bank made its one and only post-2008 profit in 2010, as income was restored by almost $10 million and operating expenses fell marginally. The decline in income resumed in 2011 and beyond, while expenses appeared to have stabilised.
It is known that international interest rates fell in the recent world recession and in its aftermath. Therefore the bank’s income earned on foreign investments would have fallen off but this does not explain the losses.
The Central Bank, in its efforts to help finance the excessive spending of the Government in the last six years, sought to suppress local interest rates, while at the same time it significantly increased its buying of Government treasury bills.
It is difficult to determine from the limited information published in its annual reports, whether or not the Central Bank has been receiving the total income earned from its investment in local Government securities. Time alone will tell.
The Central Bank is now a victim of the Government and its advisers’ policy initiatives. This is a sad day in the economic management of the country.
Notwithstanding all of the numbers above, the governor went on to say: “So it’s clear that we have the same problem that the rest of the Government has, that we have to shrink our operation in order to get back to a structural situation where we are making a surplus because of our diminished revenues.”
The Government has an expenditure problem, that is, it is spending much more than it is collecting in revenues. On the other hand, the governor is suggesting that the bank has a revenue problem. So how could the problems be the same?
The similarity comes in the fact that the two problems lead to the same outcome – the absence of enough resource to cover their recurring expenditure. Readers of this column would be accustomed to the concept of a current account surplus and its importance.
The absence of a surplus or the presence of a loss creates the same problem of sustaining employment in both institutions. This was always known and that is why the realisation of current account surpluses was the target of every government prior to 2008. There is no excuse for the fiscal ignorance since then and certainly none for what has transpired at the Central Bank of Barbados.
Less than two years ago, the same governor advised the Government that it could run higher fiscal deficits because of the foreign reserves position of the Central Bank. This was as unforgivable as the current action of the governor in retrenching staff and chastising the NATION for his errors.
• Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy.
