Latest Barbados Bond Downgrade Re- ignites Talk Of Devaluation

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

In a post from May 3rd last year, after returning from Barbados, I wrote:

"This year's headaches commenced with the Moody's downgrade of Barbados' government bonds to Caa1+, or even worse junk than the previous (BB) level. It means higher interest due on any new gov't loans taken out, Currency devaluation would turn Barbados from a still desirable tourist destination replete with sun and sand, into a crime-ridden gang fiefdom and let me point out the island's debt is already estimated to be nearly 55% of GDP "

Adding:

"The word also circulating around the island is that ever more money is being printed."

Now, there's been yet another Moody's bond downgrade, down to Caaa3+, and Barbados is once again being swept by rumors of currency devaluation.  As the latest Moody's report puts the matter:

Moody's decision to downgrade Barbados' issuer and bond ratings to Caa3 was driven by the following factors:

1. The continued increase in government debt and very limited prospects of fiscal reform
2. In consequence, rising domestic and external financing pressures that are very likely to impair the government's ability to service its debt


Despite the government's efforts to contain the fiscal deficit and alleviate pressures on foreign exchange reserves, the fiscal deficit remains large and credit risks have increased in Barbados. The debt burden has risen in recent years and will continue to do so for the next few. Domestic and external liquidity pressures on the sovereign have increased. We assess the likelihood of a credit event in the near-term as very high, given lack of fiscal adjustment and increasingly limited financing options.


First Driver: The continued increase in government debt and very limited prospects of fiscal reform

Although macroeconomic conditions in Barbados have stabilized with a pick-up in growth, driven by rebound in tourism and investment in the sector, the fiscal deficit remains high.


The economy grew by 1.6% in 2016 after reporting anemic growth of less than 1.0% since 2010. The drop in oil prices and an increase in tourist arrivals temporarily alleviated some of the mounting pressures on foreign exchange reserves. However, reform efforts to address persistently large fiscal deficits since 2014 have not achieved a meaningful turnaround in fiscal performance, leading to what we consider to be an unsustainable increase in the government's debt burden.


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. Large refinancing requirements and the high interest burden, which consumes around 27% of government revenues, pose increasingly severe credit risks.

Second Driver: In consequence, rising domestic and external financing pressures that are very likely to impair the government's ability to service short-term debt


With commercial banks having reduced their exposure to the sovereign, the government has become increasingly reliant on short-term debt issuance, financed by the Central Bank of Barbados, to meet the rising refinancing and interest costs. The rapid increase in short-term debt since 2013, allied with the large financing gap, imply mounting concerns about rollover risk. In 2016, the central bank was the only source of new financing for the government. As of end-2016, the central bank's holdings amounted to 34% of outstanding short-term T-bills, equivalent to 13.2% of GDP. The central bank's unwillingness to increase its exposure to the government would trigger a credit event.

The stable outlook on the Caa3 rating reflects the high probability of a credit event in the next 2-3 years, and reflects a balance of risks between lower and higher levels of loss given default.
----------------------

According to former IADB (Inter-American Development Bank) senior economic advisor Charles Skeete "Devaluation must be on the table".  This was after both Moody's and S&P complained about Barbados' declining credit rating and raised the specter of the factors that might bring forth the need to devalue.  But former Governor of the Central Bank Winston Cox rejects devaluation as any practical solution, asserting it will merely address the symptoms not the causes. As Cox put it in a recent issue of the NATION (Mar. 19):

"Devaluation would not reduce government spending. Also, it doesn't address the possible credit default mentioned by Moody's. It will also lead to inflation which in turn will lead to higher government spending."

Skeete, on the other hand, is convinced no tool can be taken off the table, especially when the ratings agencies are pretty well 'screaming' that it ought to be seriously considered given the island nation's balance of payments situation and a debt 111% of GDP.

How did things get this bad? Well, a nation living beyond its means, and unwise government fiscal policy, namely using the Central Bank as the lender of first and  last resort which ultimately means printing tons of new Bajan dollar bills.  Minister of Finance Chris Sinckler has evidently embraced this policy and when DeLisle Worrell (former Central Bank Governor) took exception, he was shown the door, replaced,

Here is where Skeete may be very perceptive, as he told the Barbados Business Authority in the wake of the credit downgrade:

"You cannot have a fiscal deficit that is a multiple of the rate of economic growth and then not face the prospect of devaluation. In addition, you cannot print money at the pace at which we were printing it. I believe, I don’t know this for sure, that when DeLisle couldn’t get the Minister of Finance to understand that he was staring a devaluation in the face, he had no choice” but to state his disagreement with the policy."

My own first hand experience of a place in the maw of currency devaluation was in August, 1978 while on a brief visit to Guyana, South America, to deliver a 3 -day astronomy workshop. 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. Since then the value has plummeted to hundredths of U.S. dollar value and Guyanese are hard pressed to survive.

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.

THREE DEVALUATION OPTIONS have been presented to Barbados by the Inter-American Development Bank, since 2013.  These include:  external, internal and fiscal devaluation,  as the main choices in the face of reduced competitiveness and a sustained current account deficit. The internal one was last applied, at the behest of the IMF, in 1991 and entailed an eight percent cut across the board in civil servants' wages. That was also the one that drove wifey and myself back to the States.

The one being pressed now is the fiscal or full currency devaluation. However, the betting by most of those in the know is that the DLP government wouldn't dare implement it before the next general election- likely within 2 years.   That doesn't mean such devaluation couldn't happen if fiscal pressures continue to increase and getting more loan money demands it.

We will be looking at the situation critically, also talking to family and friends, when we make our next trip back to Bim.

Barbados Confronts Strikes, Another Bond Downgrade & Climate Change

Bajans and visitors try to forget troubles at Digicel Beach fete 2 weeks ago.

Our 3-week visit to Barbados the past month found the island grappling with numerous problems, and dark clouds gathering with more issues on the horizon. This didn't detract much from our holiday but it did serve as a reminder that the island nation doesn't exist in some special paradise-style bubble immune from the rest of the world. (Recall two years ago - on our last visit- I posted on the discovery that mercenaries were being funded through Barbados to fight in the Ukraine.  See e.g.

http://brane-space.blogspot.com/2014/05/a-barbados-link-to-mercenaries-in.html )

This year's headaches commenced with the Moody's downgrade of Barbados' government bonds to Caa1+, or even worse junk than the previous (BB) level. It means higher interest due on any new gov't loans taken out, and let me point out the island's debt is already estimated to be nearly 55% of GDP by those I've spoken to including a previous finance minister.  The word also circulating around the island is that ever more money is being printed - but evidently not fast enough to pay workers at the Barbados Water Authority. The BWA instigated an island-wide industrial action (including from allied unions at the Port and Airport) mere days before we arrived.

Strike themes and threats ramped up even further within a week of our arrival as the Barbados Secondary Teachers' Union (BSTU) and Barbados Union of Teachers (BUT) called for the expulsion of a 14 year -old student who kicked a female secondary school teacher in the groin and spit at her. Make no mistake that in most of the southern U.S. this girl's fate might be not only a severe paddling, but expulsion. But in Bim, the politicos know how to play on false public sympathy (to corner more votes) and even child "advocates" like Shelley Ross scream the "child deserves her own say".

Really? I don't think so. As many teachers quoted in the island's media noted (and at least one school psychologist visitor from NY I spoke with) there are certain actions that are indefensible "no matter what the provocation". In this case, that "provocation" might have been sternly telling the girl to take her seat, or even cease talking back.

BSTU President Mary Redman, quoted in a piece in The Barbados NATION (April 25, p. 7) didn't mince words. After one politico (Dontrelle Inniss) bloviated about the teachers unions not showing enough deference to their ruling higher ups (in demanding to speak directly to the Minister of Education), Ms. Redman flatly noted he was off base and stated the "Ministry of Education's code of discipline has to be applied to the incident"

Speaking to a general teachers' union meeting at Solidarity House, she said that when judged against the code and the Education Act, the student clearly committed "two Level 3 infractions". (Spitting at the teacher and using physical violence against her).  Redman also flatly denied claims by the mother and student that the pair had filed earlier complaints and that the teacher was the aggressor. Ms. Redman pointedly noted that "the teacher had 16 years' experience and won the 'Teacher of the Year Award' in 2013." In a subsequent NATION article Redman insisted that "deviant students" who act out and whose parents are impotent to exert discipline (meaning teachers aren't able either) ought to be placed into a special school setting. A lot of Bajans - again mainly in the middle and upper classes- concur with this take.

But thanks to exploitative politicians ( known as "yardfowls" in local parlance) rumors began spreading especially amongst the lower classes that the student (attending a comprehensive, or non-elite school) was violated by the teacher. The claims included that the teacher "was a lesbian" and "made a lesbian advance" toward the girl. (Both of which would be firing offenses if true.)

Media polls taken with selected published comments disclosed that most of those who believed this BS were lower working class Bajans. Most of those who adhered to strict punishment were from the upper classes - business, academic strata. This shows again that the Barbadian divisions are extremely class-based.

This incident might not normally have developed to this point, except that the two teachers' unions have threatened industrial actions, and if the BWA strike was any indicator - the action could spread. This is the last thing the island needs, apart from the terrible publicity.

Most of those witnessing events from outside  have expressed the opinion that it reflects the island nation's increasing disrespect for authority and the growing prevalence of an "anything goes" culture. One NATION columnist and UWI Political Science Professor argued that the incident created great turmoil among the masses because "it meant their charges would no longer have the benefit of glorified nannies" and the schools "would be without glorified security guards and custodians".  He specifically called out the low esteem with which teachers were held. That struck home with many teachers.

Other issues confronting the island:

-The continued calls for closure of "tax havens" in the Caribbean, and how the local business people and industries are reacting. (More about this in a future post).

- Continuing impacts from climate change now felt at many levels, from the bleached coral reefs that are slowly dying (from the much warmer sea temperatures), to the ever encroaching seas and reclamation of beaches (to the detriment of tourism) and the ever increasing high temperatures. On the Sunday before we left the Meteorological Office recorded one of the highest ever April temperatures at Grantley Adams Airport: 32 C or nearly 90 F.

- Mounting worries about the actual financial condition of the island and the real level of debt. Most citizens paying attention believe the country is living on borrowed time and needs to address pressing issues such as the growing ratio of debt to GDP. The unemployment among the young is also a formidable problem, and not addressed enough in the local media.

- Lack of adequate economic growth, related to the parlous financial situation and the debt attendant upon it, has been a grave concern the past 6 years since I first wrote about it in May of 2010, e.g.


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

What is new has been the frequency of calls in the local press (often by businessmen) for either privatization of the National Insurance system, or more worrisome, allowing a devaluation of the Barbados dollar (now pegged at $1 BDS = $0.50 U.S.) . The main reason given, as in the Business section of the Barbados Advocate, is that Bajan goods and services are too costly for the island's Caricom neighbors. Thus, Bim is running up large trade deficits (as with Trinidad) because while it needs to import Trinidad oil to run tens of thousands of autos, Trinidad isn't purchasing Barbadian clothes, food or services - because of the cost compared to Trinidad's.

Every sane and sober person acknowledges the island state's trade imblance problem but we believe that devaluing the currency isn't the solution, as it has not really improved conditions where it has been tried (Guyana, Jamaica and even Trinidad- only spared the worst because of its oil reserves.)

Tourism meanwhile remains the one bright spot and arrivals have been reported up 5 percent over last year and even more this year. People choose to come here because well, the beaches are still delightful despite the erosion, and rising sea levels.

The economic costs of importing too much food are still high, and one still sees repeated calls for the island to grow more of its own. Our initial shock transpired the evening we arrived when we went to buy some basic provisions such as eggs, bacon, Almond milk, cereal, bread, turkey hot dogs etc. The total came to $125 U.S. with the greatest shock a box of cereal (Alpen) at $9, and bacon at $11. (We have an apt. with kitchen and cook a lot of our own food to save $$$ at the expesive restaurants).

One huge recurring problem is the widespread praedial larceny: the theft of food crops just before they are ready to harvest, including cucumbers, tomatoes, lettuce, cabbage, pumpkin etc. At the supermarkets, for instance, we seldom beheld any cucumbers at all. This alone is harming the island's balance of payments standing given the vast amounts spent on food importation - mostly from the U.S. and Canada. Fortunately, the government finally is increasing penalties for any crop thieves caught. The problem is that they seldom are given most are doing the thievery late at night or in the early morning hours.

Barbados today can best be described as "getting by" but many want it to do much better, starting with getting its financial house in order.

See also:

http://www.barbadostoday.bb/2016/04/14/ellerslie-teacher-suffers-low-blow-from-student/

And:
https://www.moodys.com/research/Moodys-downgraded-Barbados-government-bond-rating-and-issuer-rating-to--PR_345755

Barbados' Bond Position worsens...What's Next?

One year ago (Feb. 18 post, 'Is Barbados Soon to go the way of Greece') I noted that Barbados bonds were downgraded to junk by Moody's six odd months after Standard and Poor's did the same. I added that these events were disturbing in the extreme, given the island nation had been on a downward trend since I last visited in 2010.

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.) 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.”

Adding to the concerns, was the fact that Barbados’ economy grew by 0.6 percent in 2011 and 0.2 percent through September of 2012, well below expectations. Meanwhile, The United Nations Economic Commission for Latin America  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.

SO what has transpired in the interim? Barely three months ago (Nov. 5) I cited a report in the Barbados NATION (THREE DEVALUATION OPTIONS)  that reported on three options (internal, external and fiscal) for devaluation presented by the Inter-American Development Bank (IDB). The two with the most heft were "internal" and fiscal"- meaning across the board cuts in civil servants' pay (or numbers) or actual currency devaluation.

Earlier last month we learned for the first time of hundreds having been laid off in assorted banks, among whom was my niece Trudi. This followed an earlier government announcement on Friday 13 December by the government of Barbados that it will lay-off over 3,000 public servants in January as a first step in cutting back government expenditure and reducing national demand for goods and services. The announcement rattled other Caribbean Community (CARICOM) members. Since then the Bim government has played it coy and mustered a waiting game, though all eyes remain fixed on further actions. Make no mistake that such a cut - representing more than eight percent of civil service manpower - would be catastrophic from many perspectives.

But it is clear, from an even more recent report out of the Barbados NATION  by Tony Best (Jan. 28) that something will have to be done, and if it isn't rendering civil servants redundant it likely will have to be currency devaluation. Both wifey and I dread this last step because it would mean a severe cut in our retirement income, depending on the magnitude of devaluation.  For example, a 100% devaluation would cut our income nearly one third. (100% devaluation would mean $1 BDS would be equal to $4 U.S. instead of $2 U.S. as is currently the case)

In the latest report (ibid.)  it appears the lowering of Barbados' bond quality in 2013 led the island's cognoscenti to dismiss the signs and portents  - basically resulting in ignoring  Wall Street’s call to action. Since then, Barbados’ bonds have declined to a current BB rating with a negative outlook .  This was described by Richard Francis, S&P’s lead analyst on Barbados, as three notches below investment grade, the lowest it has been in almost two decades. What’s worrisome is his warning that the country stands a one-in-three chance of seeing that rating downgraded again.

If it is, it could well be 'curtains' for those of us dreading massive layoffs in Bim (which will lower its life quality drastically, as well as probably increase crime rates) or currency devaluation which could have many of the same effects.  To underscore this Francis added that while Barbados’ credit rating “isn’t among the lowest of the low”  any further decline would make a bad situation worse and eventually hit Barbados in the pocketbook.

Best emphasized that "the reality should be clear" and added ominously:


"Chris Sinckler, Minister of Finance, went to the financial markets last year to borrow money to prop up declining foreign reserves but couldn’t get an acceptable offer and had to withdraw the bonds largely because of the credit rating.

Obviously, Wall Street’s message had reached potential bond investors and it was that the risk of Barbados’ defaulting on its bonds had increased and to get the money it needed, the island had to pay a “premium”. It’s that straightforward. There is a nexus between the rating, an indication of risk, and the interest rate a country pays".


Best went on to report that eventually Barbados obtained a Credit Suisse loan but the terms were horrendous. According to Aaron Freedman, a Moody's analyst, the "terms are of concern" - which is really an understatement.

How bad? The Moody's analyst cited "LIBOR plus 700 (basis points" - or essentially yields implying Bim's gov't is trading in the "secondary market".  LIBOR denotes the interbank interest rate - what banks allow each other- and 700 basis points is 7 percent on top of that.  The Moody's analyst was further quoted as saying:

“Obviously there is a significant premium risk that the Government is paying. That has direct fiscal implications. If your interest expense rises, it makes it that much more difficult to achieve fiscal consolidation. Interest expense already consumes a significant portion of the Budget. We were expecting it would be close to 30 per cent of Government revenues, which is one of the highest levels we have seen anywhere.”

Best observed that the analyst's point was underscored by a headline in a Bloomberg News story: Barbados Bonds At Record Yields As IMF [International Monetary Fund] Urges Restraint:

“Yields on Barbados’ 2021 dollar bonds were at a record 9.58 per cent at 12:16 p.m. New York Time [December 20[ and were up 33 basis points, or 0.03 percentage point, this week. The 2022 bonds trade at 9.61 per cent after rising to a record 9.64 per cent on December 18.”
 

Best adds that the decline in foreign reserves is the major reason for the record-high interest rates Barbados is paying on its bonds. Such a decline, which also occurred before the IMF intervention in 1991 (after Barbados attempted to emulate the Reagan tax cuts in 1986) essentially was accelerated when people with monetary interests in Bim (but living in the U.S.) began pulling money out - or existing residents tried to get money into U.S. banks to escape possible devaluation. But even before this, foreign reserves were dropping because of the island's continued massive importation, e.g. of food stuffs, as well as automobiles.

 I pointed such problems out in a blog back in May, 2010 ('Will Barbados Fall to the Sovereign Debt Crisis', Pts. 1 and 2). I wrote:

 "In terms of food, nearly all has to be imported and fuel costs add to the import costs. Bajans do grow a lot of their own, e.g. chickens for example, but it can't meet the island's demands. Autos, meanwhile,  clog the island's narrow highways and biways. Each also must be imported, as does petrol, and the costs of both are eating up precious capital"

What must be done? Best's words are stark and unforgiving but probably spot-on:


"Barbados has to take tougher action in order to stabilize its finances and boost its credibility. So, despite the statements by unions about layoffs and the delay in accelerating the layoff by two weeks, Government must go ahead with its plans."

Carl Rose, a managing director of Oppenheimer in Atlanta, quoted in Tony Best's piece, observed:
 

"The market's signal is clear: Barbados must implement its adjustment report quickly and forcefully.”

Tony's parting words?


"The Barbados Workers’ Union and National Union of Public Workers may shout and scream but more painful cuts, even beyond the initial 3 000 tranche of layoffs, are needed to protect the currency, cut the deficit and reduce the debt."

Let's hope the island's leaders, and its people, do the right thing to protect the country ....and soon!
  

Devaluation in Barbados Imminent? Looks That Way!

The news in this morning's online Barbados NATION is exactly what many of us who used to live there, and still hold assets there, didn't want to hear. That it isn't a question of whether or 'if' a devaluation will occur, but what manner it will take.

According to the brief article, THREE DEVALUATION OPTIONS have been presented to the Caribbean (specifically to Barbados) by the Inter-American Development Bank (IDB), which also "hailed Barbados as having successfully implemented one over two decades ago." That was the one I was there for, which entailed an eight percent cut across the board in civil servants' wages. That was also the one that drove wifey and myself back to the States, realizing that if we remained we'd be in endless penury and not even be able afford "poor man's" food of chicken and rice or macaroni pie or salt fish and cuccoo. (For reference, imagine having your wages cut 8% and paying up to $14 for a box of cereal, never mind bacon at $6 a lb. and eggs for $1.50 each- in the money you earn.)

As I pointed out in a letter published in The Financial Times, in 2008, the lead up to that "internal" devaluation - whereby the fiscal deficit was reduced from eight per cent of Gross Domestic Product (GDP) to two per cent by 1992, and capital expenditure diminished by 50 per cent- was a "tax cut" implemented in 1986. At that time the then newly elected DLP government decided to hand out generous tax cuts based on the Reagan "supply side" nonsense in the U.S. Like many others, I strongly argued in the Bajan press against this, given that: a) Barbados was not the U.S., and b) the loss in revenue would seriously compromise Bim's balance of payments issues, as well as banking liquidity.

This proved to be prophetic, as less and less revenue was collected leading up to 1991, and the conditions became so unstable that they drew the attention of the International Monetary Fund, or IMF. The IMF insisted on a full currency devaluation (fiscal) devaluaton, but the administration wisely begged off, seeing what such moves had already done to Trinidad, Guyana and Jamaica. The result was an across the board permanent wage cut for hospital radiotherapists like my wife, and for college physics teachers like yours truly. Within another year, we'd left for Columbia, MD given we couldn't break even or save a dime working our regular jobs plus two after-hours jobs (tutoring physics for me, repairing VCRs for wifey).

Anyway, in its latest policy brief the Washington-based IDB listed "external, internal and fiscal devaluation" as the main choices in the face of reduced competitiveness and a sustained current account deficit across the region, while noting that Barbados "had successfully implemented the internal option in the 1991 economic recession." Let's understand here that the reasons for the current morass are the under-utilization of the tourist industry, and the essential regression of the island's offshore banking business - no thanks to Neoliberal ideologues like France's (now deposed) Nicholas Sarkozy who several years back (at an OECD confab) complained about "offshore banking outlaws" in the region. Most of the island nations with offshore banking went apoplectic at the scurrilous lies, given that this was one of the few financial pillars that remained, after the loss of tourist dollars and the downscaling of the sugar cane industry.

The other problem is Barbadians are spending beyond their means, to be sure, as I pointed out in a blog back in May, 2010 ('Will Barbados Fall to the Sovereign Debt Crisis', Pts. 1 and 2). In terms of food, nearly all has to be imported and fuel costs add to the import costs. Bajans do grow a lot of their own, e.g. chickens for example, but it can't meet the island's demands. Another drag is the ever prominent "motor car" - which now clogs the island's narrow highways and biways. Each also must be imported, as does petrol, and the costs of both are eating up precious capital. Coupled with loss of income in an ongoing aggregate demand crisis (worse than in the U.S., obviously) the island has barely seen one percent growth in the past year - while it' s suffered credit downgrades.

So, the writing may now be well on the wall. In the brief entitled The Question Is Not Whether To Devalue Or Not To Devalue, But Rather What To Devalue, IDB senior economist Inder Jit Ruprah stated that “the typical example of success, given by proponents of internal devaluation, is Latvia. Rarely is Greece or Barbados mentioned”. True, but the fact he is mentioning it now again, indicates that Bajans - as well as other Caribbean island nations- may soon be expected to follow suit. Again, for Bim. But at least an internal devaluation would be a bit more tolerable than a fiscal (currency) devaluation. Ruprah added that before 1991 Barbados’ external position had begun to rapidly deteriorate but after the implementation "the current account improved."

Realistically, however, we can expect any current account enhancement will only be temporary - irrespective of devaluation (if at all forthcoming)- unless Bajans learn to somehow live within their means! One also hopes this can be achieved without acceding to the increasing demands from the local Neoliberal bastions (mainly former sugar plantation owners and long time, inherited business types) to "cut pensions" or "privatize" them.

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.