Barbados' Debt Reaches 170 Percent of GDP? Say It Ain't So!

The youtube video sent to Janice's cell by a friend in Barbados alarmed us as the commentator spoke of Barbados'  National Insurance system having been plundered by the previous (DLP) administration and raiding other govt' coffers. This included spending 20 percent more than they were taking in and running up the island nation's debt to 170 percent of GDP.

Alas, this was only learned after the May 24 general election when the new BLP government  (and Mia Mottley as the new P.M.)  won in a  30- 0 blowout, i.e. taking all 30 House of Assembly seats. For perspective, this would be roughly equivalent to a 538- 0 electoral win victory in the U.S.

What precipitated this huge win? Well, most likely Bajan citizens saw how their nation was being slowly unravelled by increasing debt and ever lower bond ratings. See e.g.

http://brane-space.blogspot.com/2017/03/barbados-bond-downgrade-reignites-talk.html.

Soon after the election win, the new BLP - with access to all financial records - truly grasped the parlous state of the nation's finances. Prime Minister Mia Mottley indeed delivered a "mini-budget"  speech outlining the belt tightening ahead.   She also telegraphed a warning message over the opposition party's bow in her first post-election presser, averring:

"It is a woeful state of affairs, and anybody who presided over this really needs to answer to the country for what in my view is a dereliction of duty that is unparalleled since independen­ce.

This country is in need of serious, urgent action with respect to its economy and its government. Our foreign reserves are at a tenuous stage … We have a state of affairs where our deficit is unacceptably high. Indeed our debt represents the third highest in the world after Japan and Greece”.

Mottley in her post -election media briefing went on to note that the island's statutory corporations owed tens of millions as of September, 2017 when the books were updated.  Specifically, the Barbados Water authority was $70m in debt, and the Caribbean Broadcasting Corporation (the state-owned service) was $125 m debt. Mottley also referenced $621.4 million in wire transfer outflows, which clearly led to the island's coming within 6 weeks of exhausting its funds (e.g. to pay wages, pensions) by the end of June.

Within a week of PM Mottley's budget speech we realized how serious the situation in Bim had become when Janice called our bank (Scotia) in Barbados and asked why her  pension money had not been sent to the U.S. We were informed that new foreign exchange rules prohibited any further wire transfers  of National Insurance pensions (equivalent to Social Security in the U.S.) and the beneficiary would have to show up in Barbados each month to claim that month's pension. Of course this was totally unrealistic and impossible for a number of reasons, not the least of which is that the airplane fare alone would cost more than the monthly pension!  Janice fumed for a bit, but understood this was for the country's welfare and if we had to cut back a tad - like on charitable donations or eating out - so be it.

But this clearly showed us that Barbados' debt problems were as real and serious as a freaking heart attack.  Not long after this we read in the UK Daily Telegraph:

"The Caribbean island’s debt-ridden Government is introducing the new surcharge this weekend to raise money in reducing its deficit worth 170 percent of GDP.

Hotels were only given less than a week’s notice of the new tax, with additional fees ranging from £1.90 to £7.60 per room per night, depending on their accommodation class.

This follows a £53 “airline travel and development fee” that will be imposed on travellers leaving the country from October 1, while VAT in the tourism sector will double to 15 percent in 2020.

Tourism is vitally important to Barbados as it contributes up to 40 percent of its GDP - the 14th highest percentage in the world. The new taxes will hit the 200,000 Britons that visit the Caribbean island each year but are seen as essential by Prime Minister Mia Mottley who is trying to overturn its huge deficit.

Amanda Matthews, Managing Director of Designer Travel, which runs luxury holidays to Barbados, slammed the introduction of the new taxes.

Speaking to Travel Weekly, she said: “It’s an outrage.

“I could understand if it was on new bookings but we have clients who booked up a year ago. 
“We now have to tell them there is a tax. They are not happy.

“This is already a premium-priced island and this will make it so expensive.”

But Sandals said its two resorts on Barbados would absorb the new costs and wants to contribute to the island’s economy, adding they will have no impact on its future plans.

Fellow luxury operator Kuoni vowed to cover the cost for those currently in its resort but has told customers booked to travel in the near future that they will have to pay the new tax in the resort.

A spokesperson told the Daily Telegraph: “In a price-sensitive market, anything that adds cost is a risk but we need to work together so communications are clear and there are no surprises for customers when they check out of their hotel.

"Barbados is our most popular Caribbean island - it's well loved and has a loyal customer base - but it's a competitive landscape so Barbados needs to do what it feels is right to develop its tourism infrastructure and industry."

What a difference from May, 2010 when the island still seemed to be more or less on an even financial keel though there were warning signs. For example, in a May, 2010 post I noted foreign exchange problems then were  largely exacerbated by increasing petroleum use and auto purchases. These were significant problems. but could be dealt with. Meanwhile, we detected  robust tourist influx especially gauged by the numbers who flocked to the Oistins fish market for fresh roasted fish, fixins' and beer.  

                                             But let's get real here. Ominous  warnings were sounding that the then government (DLP) was spending too recklessly and "printing money".  This was after displacing the BLP in 2008.  Sure enough within several more years after our visit bond downgrades began, reaching a low on May 3, 2016 when Moody's downgraded Barbados government bonds to below junk level or Caa1+.  and talk of currency devaluation began in earnest. See e.g.    the earlier link.

This accompanied assorted leaks the DLP gov't was raiding the National Insurance program to the tune of $60m and using printed money to replace it. No surprise all during the 2018 campaign Barbados Labor Party leader Mia Mottley had been talking about financial mismanagement in public office.  But even she couldn't have imagined the horrors she beheld on becoming the island's first female Prime Minister.   The major discovery being that the national debt stood at $1.7 billion as of Sept. 30, 2017 -  a figure never before disclosed in any DLP budget speeches. 

Mia at times must have wondered whether what she inherited was worth the trouble in terms of  now having to deal with the monstrous debt. Starting with a repayment of $100 m for a 2013 Credit Suisse loan for U.S. $225 m with a higher than normal interest rate. This because the lenders has no confidence in Barbados' credit rating.   

 The top priority now, of course, is to repay the $459m the government owes to the National Insurance Scheme which the DLP gov't used as its personal piggy bank. Unlike in the U.S. of A. where the Reeptards and their libertarian allies regard the monies borrowed from Social Security as fake loans (from the Social Security Trust fund), Barbados regards its borrowed funds from its National Insurance as real.   The other job for the new government is to reclaim  financial respect and honor on the global stage.

Right now, no one can tell which of those objectives will be the most difficult to achieve. But we are hoping that on our next visit we will see Bajans walking proudly once more, with heads held high, no longer regarded as indentured peons and peasants in the realm of global finance.

Investors Hope For 'Correction' Cure - But It Won't Prevent the Ultimate Debt Crash

The Wall Street Journal yesterday featured a front page article, 'Stock Retreat Has Its Fans', which piqued the interest of many.  Quoting from the first two paragraphs:

"Many investors and analysts fear a postelection rally that has driven the S&P 500 up roughly 10 percent has cleaved share prices from the underlying fundamentals that tend to drive gains over time, such as interest rates and corporate earnings.

What's due now, some investors say, is a correction: a 10 % pullback from the indexes' March 1 high. They contend such a retreat would tamp down speculation, defray pockets of froth in popular investments and provide buying opportunities for those still on the sidelines."

The article goes on to state that such declines serve an important function in a market economy basically letting some of the excess 'gas' out of the balloon - which might otherwise blow up, i.e. resulting in a major crash. In this regard, the stock market is already well into bubble territory. Thus, long periods without the healthy corrections lead to market pathology and "unruly trading" - inflating the bubble further until it bursts.

Some may console themselves that a 10 percent correction or maybe even 12 percent, will ease their insecurities but alas, the crash is still on its way. What I would call a "sovereign debt crash" because it will ultimately be the recognition that most national debts can't be repaid that will be the tipping point to one of the largest crashes on record.

First, let's understand the nature of a sovereign debt crisis.,  Sovereign debt is not the same as the mortgage crisis which nearly brought down the global finance system in 2008. The latter was predicated upon the unwise purchase (mainly by banks but also by some insurers like AIG) of esoteric derivatives called “credit default swaps”. These basically represented bets on packaged mortgage securities called collateralized debt obligations.

In the case of the sovereign debt crisis, nations – not banks- are on the verge of default and are seeing their national bond ratings plummet because their debts are too high in relation to their gross domestic product (GDP).  In my March 22 post, I already noted Barbados as being deep in the maw of a sovereign debt crisis.  This followed yet another Moody's bond downgrade, down to Caaa3+, and Barbados now being on the verge of currency devaluation.

The Moody's report on the reasons for the downgrade included:

The government debt burden reached 111% of GDP at end-2016, and the authorities have accumulated a large stock of arrears to the private sector and the National Insurance Scheme,, estimated at a further 11% of GDP at end-FY2015/16. 

The National Insurance scheme is similar to Social Security in the U.S. and what the Moody's report indicates is that this program is over extended with the gov't already in arrears in what it owes (fro borrowing from the NIS) by 11 percent of GDP. In other words, the Barbados government is printing millions of dollars a month to try to keep seniors receiving their pensions.

Some may believe Barbados is an exception, but it isn't. Around the world governments are buried in debt - sovereign debt. It is this debt bomb - building up - that will ultimately roil the markets, along with serious missteps by the Trumpites in handling any future financial crises.  

But back to the sovereign debt crisis, not only is the U.S. in up to its eyeballs, with the Trumpites set to blow the debt wide open, i.e.


That is, the federal debt as a percentage of GDP would explode through the roof - exceeding the size of the entire U.S. economy within ten years. of Trump and the GOP get their tax policy plans rammed through.

Meanwhile, Europe is printing euros like there's no tomorrow, and debt - especially in nations like Spain, Portugal and Greece, piling up to unprecedented levels.  Then there is the Bank of Japan which has printed over 13.3  trillion yen   The Fed in the U.S. has done its own form of printing money by way of "quantitative easing", purchasing over $4 trillion in the bond market.

All of these signals in tandem show the instability of the global debt crisis and no one who looks into these can remain complacent. Barbados, of course, is near and dear to my heart  - so I pay special attention to what goes on there, like I do here in the U.S. But other nations' debt issues can't be overlooked because they also impact our own financial-economic conditions. As their own sovereign debt crises have manifested the oncoming 'train wreck'  is difficult to avoid. Expect to see default after default.

What's my main worry looking at Barbados and other nations? Well, that none of their debts will ever be repaid. Those debts, including unfunded liabilities into the future (e.g. pensions to be paid) are simply too huge for repayment even in instalment. The credit agencies Standard and Poor's and Moody''s already seem to recognize the writing is on the wall in the case of Barbados, which is why the loan conditions now are so draconian there's no way the debt will be covered.

It is no 'biggie' then to foresee that the debt collapse now drowning Barbados will very soon hit Europe, then spread to Japan - and the U.S. by the end of the year.   That end point will be accompanied by falling oil prices, failure to raise the debt ceiling after a brutal partisan showdown (and Trump -GOP bravado), and then cratering bond prices.

Obviously, borrowing more money for any sovereign debt nation isn't the answer. It hasn't been for Barbados, and has only pushed it into a debt hole. The same is true for Greece, Spain, Portugal, Japan and others.  Borrowing is especially useless as the loan terms are degraded - less money on offer, accompanied by more demanding loan condition. Ask Barbados' Central Bank.

Yes, a correction will likely help in the immediate future to stabilize stocks, but not in the longer term, and Trump's own actions may precipitate whatever crash is in the works to happen much sooner.

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.

Currency Devaluation Would Be A Disaster for Barbados

 Currency devaluation would turn Barbados from a still desirable tourist destination replete with sun and sand, into a crime-ridden gang fiefdom - similar to what Jamaica has become.

In Guyana, South America, in August, 1978, to deliver a 3 day astronomy workshop to teachers, I saw first hand the havoc wrought by currency devaluation. While staying at the Park Hotel in the center of Georgetown -- the capital- I was told to never venture onto the streets after dark, and certainly not while wearing my (gold) wedding ring. Roaming thieves would hack my ring finger off with a machete to get the gold. At that time, the Guyana dollar was worth maybe 10 cents on the U.S dollar. Today, looking at the exchange rates from the Republic Bank of Guyana, it would require 207 G$ to make one U.S. buck. (Can  you process a half-U.S. cent equal to another nation's whole dollar? Imagine how many Ipads you can buy with that?)

This is the way devaluation of currency rolls: downward! Look at all the nations of the Caribbean that have devalued since the 1960s: Guyana, Trinidad and Tobago, Jamaica   - all have been on a downward slide, their populations growing ever more poverty stricken and restive as their respective dollars have continued sliding downward relative to currencies to which they originally had been pegged.

This is why the recent remarks of Jamaica's Opposition leader Andrew Holness (to The Jamaica Gleaner)for an editorial confab, bear attention. His attention was riveted to his birthplace’s prolonged economic troubles which the current government there is hoping would end with an International Monetary Fund (IMF) package that includes tax reform and continued gradual devaluation.

“Tax reform is bitter medicine. [But] devaluation is poison,” was the way Holness put it.

“We were clear in saying that tax reform should have been implemented immediately as opposed to a policy of devaluing the currency. Like it or not, the [Jamaica] government has tacitly agreed to the IMF’s policy of devaluation,” he added.

Barbados hitherto has avoided devaluation (though not austerity measures, as in 1991 after the island had tried "Reaganomics" and tax cuts), usually sought by the Neoliberal institution known as the International Monetary Fund or IMF - because it "makes a nation's goods more affordable for trade partners". But the dirty little secret is that it impoverishes the people! (In 1991 the IMF demanded and got an eight percent cut in all civil servants' wages.)

Now, however, Bajans are worried. Recently, earlier than Holness' comments, Barbados' Prime Minister Freundel Stuart obliquely warned Barbadians by invoking the dreaded  "D-word". His message was tied up with a broader one, that "tough measures" may be needed for the country if it is to reverse its declining economic fortunes. I had blogged on a number of these earlier: E.g.  http://brane-space.blogspot.com/2013/02/is-barbados-soon-to-go-way-of-greece.html

Therein I noted that Barbados bonds were downgraded to junk by Moody's - this six odd months after Standard and Poor's did the same - which was disturbing in the extreme.  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, 2012. 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.

But the news from the Barbados' Central Bank that likely prompted PM Stuart's ominous warnings was the  $200m loss in foreign reserves over the past year and resulting increased deficits. This and continued very low growth bodes ill for the island and all of us with connections there, including financial. For example, a 50% devaluation of the BDS$ - while it wouldn't wreck our retirement finances - would inflict a grievous hit. Probably very few vacations, maybe only to Vegas or Yellowstone, if that. And then only every few years.

We have seen how difficult it is, for example, when Krimhilde (my sister-in-law and an Eckanckar adept)  comes up for  Eckanckar  conferences in Minneapolis or  to AZ and CO for vacations from Trinidad, whose dollar is worth about one sixth the U.S. $. She has to save for many months and then every bundle of U.S. dollars she spends (i.e. for her portion of hotel accommodations when going with Janice to Aspen, or Pagosa Springs)  has to be re-computed in TT $.

Former Governor of the Central Bank, Dr. Courtney Blackman, agrees with Holness that devaluation marks the beginning of a trip to economic hell.  As Sir Courtney recently put it in an interview with a Barbados Business Journal:

"All devaluation has done in Jamaica and Guyana is to make things worse, you just go down. You wouldn’t gain any advantage in Barbados from a devaluation because we are pegged to the United States dollar. Pegging is our best option because we can’t float the currency.

Our economy is too small to float. What the economic situation requires is fiscal discipline which we had for many of our years. We had it under Errol Barrow and Tom Adams. We didn’t have it under [Sir Lloyd] Sandiford and we got into trouble. We had it under [Owen] Arthur during his first two terms and we did very well.

If you are in a situation in which you are short of foreign exchange, meaning you are in a foreign exchange hole, devaluation is not going to get you out. Every time you devalue, you worsen the situation and that’s what has happened in Jamaica and Guyana"


I totally agree with this, having seen first hand the wreckage from devaluation. Let's hope it isn't done in Barbados and that Freundel Stuart finds alternatives to what may be demanded by the IMF and its Neoliberal junkies who don't really care if people are eventually reduced to eating "dirt pies" as in Haiti.

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!