THE LITTLE BIT OF ECONOMICS to which I was exposed does not allow me to sit in the same classroom as Dr Clyde Mascoll or Professor Michael Howard. I doff my hat to each of them.
However, bankers are exposed to a tiny bit of economics in their training so that people are not able to pull wool over their eyes. The Wild Coot is fortunate to have been a participant in a number of exposures mainly equipping him to distinguish the wheat from the “shaft”.
Professor Howard, in last Thursday’s DAILY NATION, called for a reduction in value added tax (VAT) as against making a tax adjustment. That makes sense because the VAT, as it stands, is an onerous regime impacting everything, and tax is already reaping negative results. What he advocates may be an answer but that strategy does not match the Government’s agenda.
He blames the Government for the high public sector wage bill. This is something that I have been agitating against since 2010 in several articles. Many times I argued that the wage bill of $40 million per month, mainly borrowed from the National Insurance Scheme (NIS), would be difficult to readjust. But it was a political expedient until after the elections in 2013 when, having won the election, over 3 000 public sector workers were sent home.
Perhaps we shall see Bajans experiencing the same thing after the 2018 election.
Dr Mascoll is on the same track in the same edition of the DAILY NATION. According to him: “The public sector must be seen as a consequence, not the cause of economic growth.” He also agreed that the reluctance of the Government to reduce public sector borrowing from the NIS in order to retain the large public sector – a political decision dating back to the late Prime Minister David Thompson – has got the Government in its present dilemma.
But both of these gentlemen do not seem to realise the vital part played by the governor of the Central Bank. His main concern is the foreign exchange holding of Barbados and the possible consequences of the lack of it.
First he reduced the bank minimum interest rate (and opened the floodgate to spurious bank charges, thus ensuring bank profitability). He makes allowances for some of the elderly by offering 7.5 per cent quarterly interest on some of the funds now captured by the Central Bank and used by Government to pay wages.
He achieves another thing this way; he hopes to reduce spending and the drag on foreign exchange. But he leaves the way open for everyone to go to San Juan with a credit card and impact on the foreign exchange, as every cent spent there is redeemable from the country’s pool of foreign exchange. So are these measures a way of protecting the foreign exchange? My argument in my last article is relevant when I contended that the foreign exchange income is not returning.
Have we seen the last of the use of the country’s main asset, its savings? Cyprus shows how savings can be used.
The more the Central Bank pulls the savings out of the banks, the more it provides for the Government to retain its public sector (probably until 2018). Then the private sector has less chance of impacting positively on the foreign exchange. It keeps citizens on the back foot; there is no money to spend and thus the foreign exchange pressure is reduced. There is the hope that tourism will save us. There are tourists; are they spending here?
How long will the Central Bank hold us in this vice?
It will take a change of Government and changes in the thinking of the Central Bank to understand what Dr Mascoll, Professor Howard . . . and the lowly Wild Coot have been saying. The Wild Coot saw it in Jamaica, he saw it in Venezuela, he saw it in Guyana and he is seeing it in Barbados. The Government has locked itself into a stranna.
When the Wild Coot was a boy at school, he had a fellow in a stranna and the fellow nearly died. In those days, teachers did not get involved in fights. There were no knives or guns used. As a matter of fact, one master found a pair of boxing gloves. There was a “lex non scripta” (unwritten law). We fought one day and made up on the next day over marbles. We had none of the screaming that goes on today – copied I believe.
Unless the private sector grows, we are spinning top in mud.
Harry Russell is a banker. Email quijote70@gmail.com
