Are the Neolibs Determined To Get Barbados - Or Is Barbados' Own Gov't To Blame?

Professor Eudine  Barriteau of the University of the West Indies, was blunt and to the point in her recent Coppin address, summarized in the Business Report of the Barbados Advocate (May 19, p. B3) Prof. Barriteau noted that despite efforts by Bim's present administration to correct the country's economic ills the global (Neoliberal) financial institutions "will stop at nothing until Barbados fixed rate of currency exchange is adjusted."  In other words, the vultures are circling and don't believe that even higher VAT (value added taxes) and terminating the economic lives of 3,000 citizens is enough.

Prof. Barriteau recalled that following the last Article IV Consultation on Barbados by the International Monetary Fund, the Government embarked on the retrenchment of public sector employees and the introduction of other measures to demonstrate its seriousness to the IMF regarding stabilizing key economic sectors. But after all the painful measures imposed, the Neoliberal Axis - including rating agencies - still remained unimpressed.

Perhaps a better analogy is to refer to the Neoliberal wolves at the door, ready to pounce on innocent Bajans and tear them to shreds like so many docile sheep. One must probe then what's at the bottom of the yen to devalue. And perhaps, just perhaps, there is more at work here than meets the eye.

The article 'Disappointing Performance' in an earlier Barbados Business Report Section of the Advocate News perhaps gave a few clues. Evidently the island nation has been hit from multiple angles at all its most vulnerable points.

Tourism, for example,  was expected to lead the way to pre-2014 optimism but it was hit in the cruise ship as well as air travel domain. We learned, for example,  that both long stay and cruise ship passenger arrivals fell by one percent. What was to blame? According to Central Bank Governor Dr. Delisle Worrell, a major contributor was the cancellation of direct flights out of New York by American Airlines and the reduction in seating capacity by Air Canada. In tandem the two moves caused arrivals from both markets to decline.  Neither of these has anything to do with Barbados itself, but shows the island at the mercy of the airlines.

What about the layoffs of thousands of public sector workers which was expected to free up money? Actually, according to Finance Minister Chris Sinckler, it was essentially a wash given "separation benefits",  He did say some savings would be seen in the "medium term". Well, one hopes some national benefit would accrue with so many sent packing- but not to the IMF, World Bank, and rating agency 'wolves'.


Then there is the sugar cane sector, which now is geared mainly to produce the molasses used to make Barbados rum. The problem? The cane crop was to have begun February 24 and surpassed last year's by 2,000 tons. The facts? The start of the crop was not only delayed until March but there was a crippling strike that resulted in several acres of canes being left in the fields and at transfer stations - contributing to financial losses the industry can ill afford - and a rebuke from a major Rum manufacturer for wasting time and resources for a critical industry.  This one was definitely in Barbados' court but ought not to have been any deciding factor on pushing for a devaluation.

Now add to that the ongoing recessionary trend which saw a 0.6 percent contraction in the island's economy between January and March this year - following on from a 0.6 percent contraction between January and September last year and a 0.2 contraction between October and December last year.

Despite all this the outlook is for a 0.5 percent growth this year - not too shabby if it comes to pass. Will the Neoliberal finance monster be kept at bay? I doubt it., According to Prof. Barriteau:

"It seems the international financial institutions and other financial structures such as the rating agencies will only be satisfied when they force Barbados to abandon a fixed rate of exchange rate - and after it has been forced to dismantle the key components of its economic model of development."

Let's note that this model of development has been the ideal for the rest of the Caribbean as it has promoted social justice as well as less inequality than manifested in any of the industrial (OECD) nations.  Prof. Barriteau's most stinging observation was that "none of the international policies that regulates financial and economic activities are designed to enable the private sector in the Caribbean to flourish."

She attributed this to aggressive trade protectionism and subsidies (such as in the U.S. for its own rum) that make it extremely difficult for Caribbean exports to compete. This means that NO amount of devaluation - even 50% or more - making Barbados' exports cheap (say its rum relative to U.S. rum) will incept more export sales.

Meanwhile the Barbadian people will suffer because a devaluation will reduce the value of their money but not the value of imported goods, including food, or the fuel that keeps vehicles running. Indeed, a 50 percent devaluation would likely be followed by a 100 percent increase in all food prices and likely more for fuel. People already struggling will be hurled into poverty and destitution because even the most draconian effort of gov't could not appease the vultures (or wolves) of the Neoliberal Reich.  Why not?

Prof. Barriteau believes it mainly is from a jaundiced view that presumes money laundering and tax evasion, though "the Caribbean people don't want the Caribbean to be the epicenter of either."

She emphatically stated (ibid.):

"We never have and we never will be because it existed in other places. The Caribbean is not the epicenter of money laundering or tax evasion."


Is There Another Side to the Story?


But what if the Neoliberal predators are merely lying in wait for an already savaged-ravaged nation?  This is the other side of the story, which is now making the rounds on the island and in its news media, especially the Barbados NATION. According to former Sen. Frances Chandler, writing in the Nation ('Sinckler's Leaking Glass') the current government - run by the DLP - and with Chris Sinckler at the helm, is raiding the National Insurance scheme (analogous to our Social Security) to the tune of $40m a month and replacing it with commercial paper (call it fiat money) at high interest. As she asks:

"What is the point, minister, when we sacrifice to help fill up the glass, but your administration seems bent on boring holes in bottom of said glass and emptying it?"

Sen. Chandler also referenced Central Bank governor De Lisle Worrell's comment that the recent Credit Suisse loan (at an exorbitant interest rate which saw B'dos bonds degraded) "wasn't needed and wasn't being used- it was only borrowed because people were panicking."

HUH?

Worrell himself has said the Central Bank will stop printing money (read: finance some of government's operations) once the deficit reduces to 6 percent of GDP from its current 11.3 percent. Meanwhile, another letter writer (John M. Robb, 'Destroying Barbados' Model', The Nation, 21 May, p. 10A) has basically accused the gov't of "destroying Barbados' economy" and putting it on a path to certain devaluation. In his words:

"Due to government's expenditure exceeding revenues there has been a sustained deficit the past six years - which some experts believe is too large and cannot be substantively reduced that easily.

In an effort to finance this deficit, which was the result of government's poor policies, government has encouraged the Central Bank of Barbados to print money to meet its obligations. This is a very treacherous practice which will put downward pressure on the Barbados dollar and if prolonged, could lead to a devaluation."

The sad fact is we may be even closer to seeing a devaluation than most believe. And if it occurs, the Barbados currency will never be revalued again higher. It will be forever in the maw of the Neoliberal jackals and vultures - picking over its bones endlessly.

That any government of the island nation could have been responsible for this sorry end is more than most of us can even contemplate. But we have to recall the same gov't was at the forefront when the last crisis hit - in 1991- in the wake of trying Reaganomics in 1986.

Is Barbados Soon To Go the Way of Greece?

Tourists and Bajans flock to a vendor's stall to buy fresh grilled deep sea fish and "fixins" at the Oistins Fish Market. Will they still be able to enjoy this simple pleasure in the near future?


The recent news that Barbados bonds were downgraded to junk by Moody's - this six odd months after Standard and Poor's did the same -was disturbing in the extreme. It elicits the question of where the island nation is headed, and indeed if its future is one of profound austerity like that of Greece.

The downgrade lowered the country’s foreign and local currency bond ratings to Ba1 from Baa3. (note: a junk bond, is defined as one that is “below investment grade” due to a heightened risk of default, is any bond with a rating of Ba1/BB+ or lower, according to the system used by Moody’s.)

Standard and Poor’s lowered Barbados’ rating to junk in July. (The country’s S&P rating is BB+).

Moody’s  accompanying statement held that Barbados’ outlook remained negative, and cited two factors in the downgrade: Barbados’ “continuing lackluster economic performance,” and “ongoing deterioration in the government’s debt metrics.”

Barbados’ economy grew by 0.6 percent in 2011 and 0.2 percent through September of 2012, well below expectations, according to the New York-based ratings firm. (The United Nations Economic Commission for Latin America recently projected  the country’s GDP to improve in 2013 with a rate of 1 percent . Much of this obviously can be traced to the U.S. recession which hit the islands with the force of a hurricane). The Moody's statement went on:

“Moody’s believes that the country’s growth prospects remain very limited due to its deteriorating competitiveness and declining productivity coupled with heavy dependence on tourism, particularly from the United Kingdom and the United States. Given the prospects for continued low economic growth in those countries, discretionary spending on travel is likely to remain subdued.”

Over the last 10 years, according to Moody’s, Barbados has grown at a compound average annual rate of just 1.2 percent, among the slowest for countries rated by the firm.

The firm also said that Barbados’ offshore business sector, the country’s second-most important industry, “also faces greater competition and is coming under increasing pressure from changes in tax laws in the US, Canada and the UK.” Adding:  Barbados’ negative outlook considered that economic performance is likely to remain weak.".

This ought to be obvious to anyone who knows the island and its employment situation, lack of resources and depending largely on the one trick pony of tourism. Also that although offshore banking had helped with diversification, attacks by minions of the OECD nations (i.e. on any offshore banking as somehow disreputable and 'unlawful')  caused harm to Barbados' economic health.  Few of these attacking nitwits learned or knew that many of us had lived in Bim over decades, and hence had set up and kept banking accounts there- even after we departed. Not to get secretly rich, but to use the $$$ whenever we visited - for beach house or hotel accommodation, car rentals...and just to purchase freaking expensive groceries at the food marts! Anyway, Moody's goes on:

“While the worst appears to be behind Barbados both in terms of fiscal deficits and economic deterioration, Moody’s anticipates that the government’s deficits will remain large for the next few years and its debt levels will continue to rise, albeit at a slowing pace. Even if the country is able to consolidate its finances and stabilize its debt metrics, they are unlikely to improve meaningfully for the foreseeable future given its poor economic prospects.”

The credit rating agency said that Barbados’ government faces “difficult choices” in its stewardship of the economy. Well, uh yes! Choices much like Greece's: to make serious cuts on top of existing high VAT (value added taxes) and send the populace into a furore, or try to keep a slow steady but small growth pace and offend the high and mighty rating kings. (The same lot that awarded AAA ratings to bonds laden with credit default swaps back in 2007-08)

Anyway, we who once lived there and continue to visit also  hope that doesn't mean a currency devaluation or worse! We hope Bim doesn't go the way of Jamaica and Trinidad!(One TT$ is now worth 1/6 of a U.S. $)

Moody's statement ominously goes on:

“In the absence of significant corrective measures, debt metrics will continue to rise, and if the government does take such measures, it risks putting the economy back into recession, On the other hand, many of the proposals to boost economic growth carry the risk of continued deterioration of the government’s financial position, at least in the near term.”

More distressing, in terms of currency issues,  Moody’s announced that it had additionally revised Barbados’ local currency bond and deposit ceilings to Baa1, its long-term foreign currency bond and deposit ceilings to Baa2 and Ba2 respectively, and its short-term foreign currency deposit ceiling to NP.

A Moody's threat perhaps?

“The rating will face further downward pressure unless the government is able to successfully navigate the current situation such that a clearly visible and easily achievable path to stabilizing debt metrics is established within the next 12-18 months, in which case the outlook could be revised to stable. The rating could also be downgraded if pressures on the currency peg mount significantly.”


The Central Bank of Barbados itself added, however, that Barbados' economic strategy "remains unaffected by the downgrade," and continues to focus on conserving foreign-exchange reserves and growing the foreign exchange-earning sectors.

"Thanks to a sufficiently tight fiscal stance, foreign-exchange reserves of BDS$1.4 billion on December 19, 2012, have been maintained at about the same level as at end-December last year."

See e.g. http://www.youtube.com/watch?v=A9g1DOm6By8


Meanwhile the claim that Bajans are “heading back into poverty” (Barbados Sunday Advocate, p. 3, yesterday) , is disconcerting to say the least. This is especially pertaining to the statement (by one political rep, Trevor Prescod) that people are “begging in the street for bare necessities.” One hopes not!!

My personal barometer, meanwhile, remains the status of de-mutualized Barbados insurance shares. Their value has plummeted more than 50% in the past five years and this brings the whole “junk” meme into a whole new immediate realm! To clarify, de-mutualization of an insurance company, in this case the Barbados Mutual Life Assurance Association (after being taken over by Sagicor Financial Company), meant a component of life insurance policy value was transferred into stock shares (in this case of Sagicor). The process itself is termed “de-mutualization” and there is no choice by any insurance holder to accept them or not. (Though a 'policy holder's meeting' usually determines the decision.)

These aren’t like normal stocks because: 1) The total amount of shares distributed doesn’t vary. Thus, there is no ‘buying on the dips’ to increase the number of shares owned nor can one 'buy' more shares in any case. One is issued a fixed allotment based on the value of the original policy. All that happens is your total stock value on paper continually goes down if the share value goes down. 2) The losses are REAL, i.e. as per a (2008) federal claims court ruling, there does exist an original cost basis (not 'zero' as the IRS once claimed) , and if one sells at a value below that cost basis a real capital gains LOSS is realized.

Basically, in the past five years I have watched as the total value of those demutualized shares  has‘melted down’ to appallingly low levels, vaporizing - at least on paper - what might have helped for a rainy day. But perhaps I ought to have seen this coming. Back in 2010, I sounded an alarm on Barbados’ growing debt (see e.g. http://brane-space.blogspot.com/2010/05/will-barbados-fall-to-sovereign-debt.html

Noting that at the time that while Greece had a debt of roughly 10% of GDP, Barbados’ debt was 53% of its GDP. At such a significant debt ratio it has become obvious in hindsight that the country has had to borrow to sustain itself, eventually reaching the point that both S&P and Moody’s downgraded its bond status.

In a followup blog: http://brane-space.blogspot.com/2010/05/will-barbados-fall-to-sovereign-debt_27.html

I warned that Barbados had to strive to keep the quality of its tourism product high,  given the recession had caused potential tourists from the U.S. especially to be much more selective. Barbados wasn’t the only great beach destination in the Caribbean after all! In that blog I pointed out a number of customer ‘breakdowns’ that didn’t help advance Bim’s rep, or its tourist capital. For example, one service worker quarreling when I asked for an ice cold Diet Coke plus a cup of water with ice. Then at a TGIFridays, a waitress sending assorted platters spinning off her hand nearly toppling over the drinks of my guests, after having been asked why – after 35 minutes- our ice cream sundaes had not been delivered.

Beyond that, in the two plus years since, I’ve been distressed to read in online papers of Barbados continued noise problems, as voiced by numerous tourists. They complain of everything from loud music going way past midnight, to dogs endlessly barking. Make no mistake that NO tourist has to travel so far to tolerate such ‘botheration’ when they can find a relatively quiet beach hotel near St. Lucia’s Pitons and at lower rates.

Hence, in some ways it’s been no surprise that Barbados’ economy has grown so meagerly the past two years, given tourism remains the central foreign exchange earner. (Offshore banking also has been, but has suffered somewhat by being tarred by assorted Neoliberal Loons, like former French Premier Sarkozy, imputing nefarious “tax dodging”  at OECD conferences and Banking confabs.)

Will the outlook improve? One can only wait and hope! The island is holding its general elections this year and perhaps the outcome will spur change in the right direction. This although ominous warnings have circulated regarding impending privatization, including of the water authority, pensions etc. Let us hope that's not the case!

When I next visit the island I certainly don't want to behold a Caribbean version of Greece!