Editorial

And you too Barbados? Goodness gracious!

Wednesday, December 18, 2013    

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AT the start of the week, Barbados was shaken by two earthquakes within a 24-hour period. But there is also the economic earthquake which has rattled the Caribbean's best managed economy.

Barbados' economic difficulties are due partly to adverse external factors emanating from the prolonged global economic crisis. However, the reluctance to take politically painful remedial action has also compounded the extent of the adjustment which can no longer be postponed. The unwillingness to execute any changes to the exchange rate, which is fixed at US$1= B$2, has put all the adjustment on fiscal contraction and wage and price restraints.

While exchange rate depreciation or outright devaluation is of limited efficacy, it could help the all-important tourism industry to be more competitive. In the absence of some adjustment of the exchange rate, the fiscal contraction is more severe. This started with the announcement of the layoff of 3,000 state workers, which is not surprising, given the very large public sector wage bill.

On Monday also, one of the world's most influential newspapers described our region as sinking in a sea of debt, pointing to defaults by St Kitts, Belize and Grenada. Jamaica, it said, was teetering on the edge of a financial precipice, and cited speculation that the country would have to restructure its debt.

The paper pointed to Trinidad, which is blessed with oil, noting local reports that the entire fleet of Caribbean Airlines came close to being grounded and was only saved by a last-minute emergency loan.

The Caribbean is mired in this crisis because the governments in the region have not responded adequately and quickly enough to the recession. Economic adjustment, like most things in life, become more difficult when postponed, and the longer the postponement the more difficult it becomes. The region dawdled by borrowing and borrowing until member countries fell among the most indebted developing countries.

It's now time for action, but the options are few. We think, however, that the approach being taken by Jamaica and Barbados, though forced upon them by desperate circumstances, is worthy of consideration.

They are showing "true grit" political determination by implementing the tough economic measures which will put them in a position to say 'we are helping ourselves and we are deserving of financial support, as this will make success more likely'.

Jamaica was prodded by the International Monetary Fund (IMF) while Barbados is taking action before it is forced to do so by the fund.

We have some doubt about the "revolutionary" strategy formulated by Grenada of limiting borrowing, raising revenue and rescheduling the debt, because it does not mean a cessation of borrowing, just reduced borrowing while imploring the international community to reduce or, better still, cancel the debt.

Neither do we have much faith in the medium-term strategy of seeking reparations, with the possibility of garnering some short-term sympathy for the debt-reduction strategy. This will arouse global moral indignation but we suspect little if any cash.

We must implement the pragmatic strategy as proof that we are helping ourselves, then seek international support, not the other way around.

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