Economist: Take a look at Iceland
If Government seeks the International Monetary Fund’s (IMF) help, Barbadians should prepare to face more austerity.
But international economist professor Andrew Rose insisted whether or not the rescue effort was home-grown or foreign, Barbados should focus on “enhancing productivity”.
He said Iceland, which did not seek the IMF’s help, was the “most obvious example” for Barbados to examine if it wanted to emerge from current economic challenges.
Not giving advice
Rose, the Central Bank of Barbados’ 5th Distinguished Visiting Fellow, is the B.T. Rocca professor of economic analysis and policy at the Haas School of Business, University of California, Berkeley. He was speaking at the Caribbean Economic Forum held Tuesday night at the Courtney Blackman Grande Salle.
The economist stressed he did not want his comments to be viewed as giving economic advice to Barbados.
However, when asked about the IMF option, Rose said: “The IMF has a pretty standard prescription and when they are called in. . . what they love to do is encourage you to raise the taxes and chop the spending, they are known for austerity.
“The IMF makes it easier because they do provide financing but they certainly want that financing paid back, which is the reason why they focus on fiscal things. But don’t forget, usually when the IMF is called in it’s because there have been domestic problems that haven’t been dealt with, and having the IMF tell you what to do is really a tremendous thing.”
This, he added, was because “it’s bitter medicine that politicians can blame the IMF [for] even though they are feeding the IMF the ideas that the IMF is forcing them to do in the first part”.
Rose said Barbados could look at Iceland for inspiration. “Iceland is a country that had probably the single most serious experience through the financial crisis; it’s an idiosyncratic relatively small country, very much involved in tourism so it’s similar in size and scope to Barbados in a number of different ways,” he noted.
“Iceland went through the wringer, they did not go to the IMF, they did what they had to do, they got help from the European Union, but they have completely restructured their economy. So if. . . you want to avoid going to the IMF and not do things in traditional ways, think of Iceland.”
Rose said he was no expert on Barbados’ economy but observed that given current monetary, fiscal and debt constraints, “the policy space has to be on the supply side”.
This involved boosting productivity “by reducing unnecessary regulations, reducing red tape, and allowing especially young people to form start-up businesses and to enter sectors that they want to, hopefully well-equipped by the educational system”. (SC)