Economist worried about effect of whisper campaign
The Barbados dollar is not in danger of devaluation at this stage, says a leading economist.
But, Dr Don Marshall warned today, it will go in that direction if the ongoing currency speculation does not stop.
The acting director of the Sir Arthur Lewis Institute of Social and Economic Studies issued the warning this afternoon while addressing the monthly business luncheon of the Barbados Chamber of Commerce and Industry (BCCI) at Hilton Barbados.
He cautioned Barbadians that if they wanted to avoid devaluation, they must immediately stop the “whisper campaign” which could lead to capital flight.
“Barbados is not in any danger of a devaluation,” he said, supported by BCCI president Tracey Shuffler, who told the gathering that while there were serious economic difficulties, there was no imminent threat that the dollar would lose its value.
“But . . . it’s important to get the bogeyman out in the open, because of the deleterious effect that a whisper campaign can have,” Marshall added as he spoke on the topic Defending The Barbados Currency Peg: A Matter Of National Priority.
He drew reference to Argentina, which he noted was in a “vicious cycle of inflation, high unemployment and devaluation”.
“It is facing this kind of dilemma because of a whisper campaign and the whisper campaign manifested itself in capital flight; the construction of black markets because of the hoarding of foreign currency and so on; and in the best of circumstances where your economic fundamentals are fine or in some cases are reasonably fine, what happens is that you get an undermining of the local currency,” said Marshall, warning that there is “speculation, currency speculation and then there is massive devaluations”.
The academic said he saw it necessary to bring that kind of context to bear on any discussion so that Barbadians understand that the island is part of a global capitalist system.
Marshall rooted his argument of no pending devaluation on the “economic consensus” that the island’s debt service problems were mainly of a local nature and that it boasted of 14 weeks of foreign reserve cover –– a position also highlighted by Shuffler.
“In terms of our foreign debt, there is no client, no sovereign that is in danger of Barbados defaulting in terms of its foreign debt. So that’s what makes the consensus – that, as well as the 14 weeks’ import cover. These two things make the consensus among locals and experts abroad; accept that it’s really as waste of time to be talking about devaluation in the Barbados context,” he said.
At the same time, the economist urged the Freundel Stuart administration to address the ballooning local debt.
He also offered some solutions to the country’s economic problems. They included a restructuring of the economy to focus on producing new products – while keeping the old ones – and finding new trade partners including states such as Qatar.
“If you are in a services [only] bubble, the bubble will burst in terms of the peak that you can reach, in terms of earning foreign exchange and growing of the economy,” Marshall explained.
Speaking directly to the contribution of local businesses to the process, he said it was time for the private sector to move out of the “cozy world” that existed prior to the onset of the global recession in 2008.
He said it would be difficult for the private sector to add value to its services because its operations are tied to the old paradigm.
Another solution to boost economic growth, Marshall said, was for the country to enter new areas such as investing in research services and for the private sector to welcome foreign investment and investors.