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ON THE LEFT: There is life after debt restructuring


Dr Carl Ross

ON THE LEFT: There is life after debt restructuring

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Barbados and the Caribbean are not alone in facing challenges, and there is a way out of this and it’s proven. There are finite number of things that need to come together for that to happen.

I spent a lot of time over my career analysing the Caribbean. I have been responsible for global roles in the past but now I am more directly responsible for following the 75 or so countries that we are invested in and we have about $6.5 billion dollars in emerging market debt funds, so I find myself on a daily basis comparing these other countries that we are invested in to my experience in the Caribbean.

Deep fiscal adjustment is one part of it. I know that’s controversial. Some people are saying the United States (US) right now should not be doing fiscal austerity; we should be spending money like crazy.

I think it’s a little different because the US can borrow money at two per cent. I think for most normal countries fiscal austerity kind of unfortunately has to be the name of the game and what that really means is right-sizing the government.

So if your revenues are 25 per cent of GDP, a quarter of the economy, well spending can’t be 40 per cent or 50 per cent – spending also has to be a quarter.

And I think that is kind of what Barbados and the rest of the Caribbean kind of have to grapple with.

Debt restructuring: I am not necessarily saying that’s what Barbados should do. All I am saying is a lot of countries have done it and there is life after debt restructuring. It’s not necessarily the end of the world.

If you are a chronic defaulter then that’s different. Like, for example, Belize right now. Belize is trading kind of well above what its fair value would indicate it should be trading and that’s because it’s defaulted twice and investors are kind of sceptical that they needed to default at all.

When you look at many other countries there is actually life after a debt restructuring, it’s not the end of the world.

Deep structural adjustment is also a common element of all of these plans. This entails breaking taboos, like liberalising labour markets in Europe.

Their countries are doing it. It’s not the end of the world? A re-pricing of the economy, becoming more competitive again. Some countries do that with a devaluation – not an option in Barbados.

If it’s not an option in Barbados then it has to be done another way. Look at Greece. Greece had an option, it could have left the eurozone. It chose not to, and instead they had a 30 per cent reduction in public sector wages and regrettably a lot of private sector wages followed.

But guess what? All of a sudden they are competitive again and coming back in droves and they have got some growth again.

• Dr Carl Ross is senior sovereign analyst at Grantham Mayo van Otterloo.

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