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WHAT MATTERS MOST: Lessons from past ignored

DR CLYDE MASCOLL, [email protected]

WHAT MATTERS MOST: Lessons from past ignored

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ALMOST EVERY TIME there is a serious discussion on economic matters, Minister of Commerce Donville Inniss is given an opportunity to have the last word. Even when the minister is not on the panel, he is still somehow able to do his thing, that is, try to leave the last impression.

As noted below, genuine economists have been offering solutions from proper analysis of the problems. However, some subtle, and not so subtle, political overriding is encouraged. Government economic spokesmen are allowed to defend their actions rather than provide workable solutions.

As far back as 2004, the then Opposition Leader’s reply to the budget included a comprehensive analysis of some of the statutory boards in the country. He cited the need for greater efficiency, among other things, at these entities. At the time, the Government’s finances were in superior shape to what obtains now, yet the analysis was done.

Twelve years later and after a thick layer of mess added to the inefficiency, the aim is still to mask proper analysis of issues in the name of balance.

The most recent unnecessary entry by Minister Inniss was a discussion on the 2015 Auditor General’s Report. The panellists included two accountants, one of whom was arguably the most respected and knowledgeable permanent secretaries of his time. The other is a highly regarded professional. An experienced, once political, operative provided an unbiased historical perspective.

The discussion was indeed robust and frank. It educated the listener on the role and scope of the Auditor General’s authority. It identified the need to give him greater resources to execute his mandate. It touched on the role of the Public Accounts Committee.

It was suggested that the composition of the committee should reflect some competent private citizens rather than just politicians. In short, the discussion quite rightly revealed the need to change some of the governance structures in the country.

Until better financial rules are put in place to let politicians understand that the budgetary process ought to be taken more seriously, there will be opportunity to do nonsense. The major aim of the rules is not only to attain transparency, but to constrain the Government’s appetite to spend excessively.

It is very unfortunate that the Central Bank has been allowed to print money relentlessly in the absence of adequate financial rules. A loophole in the legislation is simply being exploited. The Government’s overdraft at the bank has a limit that is legislated. However, there is no limit to how much of the Government’s debt the bank can purchase. The governor now admits that the latter is also printing money.

Barbados’ biggest financial test came in the early 1990s when the Central Bank had no foreign exchange at one stage. This danger was not present in the post-2008 period. A re-reading of the economic reports for the period will confirm the truth.

The greatest financial requirement in Barbados is to have foreign exchange, without which the country cannot trade with the rest of the world or make payments on debt. This is why the early 1990s is still the worst financial crisis experienced in modern-day Barbados.

The second greatest financial requirement is for the Government to have money to pay its recurring expenses. This has been fully ignored.

Unfortunately, the Central Bank has become the main financier of the Government. The essence of the policies in the early 1990s was to prevent this from happening. Contrary to preventing this happening, the Central Bank has found ways to encourage the banks to help it mask the problem.

What is happening is unbelievable because several lessons were learnt from Barbados’ experience with the International Monetary Fund in the early 1990s. These lessons are well documented in a seminal policy paper written by the Central Bank’s current Deputy Governor Cleviston Haynes.

He identified ten lessons that included: (1) the Central Bank is an inappropriate source of deficit financing; (2) borrowing is no substitute for sound macroeconomic policies – it tends to leave the underlying problems unsolved; and (3) macroeconomic adjustment should take place early.

The Government has been pursuing macroeconomic adjustment since 2008. Borrowing, especially from the Central Bank, is the main source of deficit financing. The borrowing has been facilitated at the expense of commercial bank depositors who are receiving 0.25 per cent on deposits. The banks are now buying money at much less and purchasing Government debt at much more, therefore making greater profit.

The lessons from the past have been totally ignored. Politics is now truly paramount.

• Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party advisor on the economy. Email: [email protected]