Central Bank of Barbados Governor Dr. DeLisle Worrell’s recent devaluation broadside against the International Monetary Fund has won the full support of another prominent Barbadian economist, who is also highly regarded internationally.
Professor Avinash Persaud said Worrell, a former IMF employee, had “rightly intervened on the poor quality and hypocritical advice we are getting from the IMF”.
“On the issue of whether a devaluation is right for Barbados, Governor Worrell is absolutely correct,” the Chairman of Intelligence Capital Limited told Barbados TODAY.
“Indeed, it is interesting that the IMF should be devoting so much resources to preserving European Monetary Union that is a fixed-exchange rate system and then questioning such systems elsewhere where they are arguably more appropriate. This is hypocritical.
“Devaluations only make sense where you export goods which are sensitive to price, we do not. Regrettably we do not export to any significant extent manufacturing or agricultural goods. We export services already priced in dollars and the cost of delivering those services would rise if we devalued.”
Persaud said Jamaica and Guyana were two countries in the region whose own previous “substantial devaluations”, had produced “mixed results”, but “yet both are better placed to benefit from devaluation than us because they export more agricultural and manufactured goods”.
“But devaluation breeds devaluation and both countries have been locked into a cycle that is hard to break and this cycle of devaluation undermines credibility and the certainty overseas investors want to see,” he said.
“It is no surprise that the most successful small states in the world have fixed or largely fixed exchange rates: Hong Kong, Singapore, Luxembourg, Cyprus, Bermuda etcetera.”
Reports out of the recent IMF and World Bank annual meeting held in Tokyo, Japan indicated a difference of opinion between Worrell and IMF Managing Director Christine Lagarde.
“We persistently and consistently get bad advice from the IMF. I have worked in central banks for almost 40 years, so I have known the IMF through many different iterations, and I worked for the fund for 10 years, and we have consistently got bad advice on our policy options because the model is wrong, and we need to change if you are to be helpful to us,” the government official told his high level audience.
Lagarde had suggested that countries like Barbados could improve productivity and competitiveness through currency devaluation or what she called “internal devaluation”. (SC)