Pilgrim and Marshall defend Govt’s printing of money
A local economist today sought to quell fears surrounding Government’s continued printing of money, even though outgoing Central Bank Governor Dr DeLisle Worrell has warned that the practice by the Freundel Stuart administration as a means of meeting its domestic wage bill immediately needs to stop.
Delivering the first address in the Central Bank’s 2017 lecture series at Grande Salle this afternoon, Dr Don Marshall acknowledged that a money printing binge could hurt the domestic currency.
However, he assured that there was no need for panic at this stage, while suggesting that “most of the commentators who have been speaking about the deleterious impact that printing of money can have, actually overstated the argument about it putting pressure on the currency peg.
“It takes some doing for it to lead eventually to dollar devaluation,” Marshall, who is the director of the Sir Arthur Lewis Institute of Social and Economic Studies (SALISES), further assured.
However, he immediately made it clear that he was not ruling out the possibility of a currency devaluation.
“I am not saying that [printing of money] doesn’t lead to that; I am simply saying that when left unabated over a long period it will take some doing,” he contended.
His statement coincided with one issued by an unapologetic General Secretary of the ruling Democratic Labour Party (DLP) George Pilgrim who though admitting that printing new money was not the preferred way to go, said: “Barbadians are not fools. The issues vented in the public domain are no secret. The Government of Barbados prints money. Full stop.”
In further making a case for Government’s printing of money, Pilgrim told reporters at a press conference at party headquarters the policy was necessary in order to make up the shortfall in reduced revenues so public officers could be paid.
“Corporation taxes declined mainly from the offshore sector since 2009 by $200 million per year, transfers are up by only $50 million over the period we were in office [nine years]. Commercial banks are not buying Government paper, which helps create the shortfall, hence the Central Bank picks up the slack, hence printing of money,” he added.
Pilgrim went on to argue that money was being printed to ensure this country’s “fabric” and its people were secured, while insisting that Government has bills to pay.
“Salaries and wages of public servants translate to families and homes surviving in this society and why should this party apologize for keeping public servants in jobs,” the general secretary added.
However, both Marshall and Pilgrim’s position contradicts Worrell’s strong warning to the Government earlier this month to stop printing money.
During a televised economic forum hosted by the Central Bank, the outgoing Governor, whose position on the matter is believed to have influenced Minister of Finance Chris Sinckler’s decision to remove him, said while the Barbados dollar was “a long way” away from devaluation, it was not out of danger.
And as it relates to the printing of money, Worrell had argued that in order not to “cause a disaster in the economy”, the Central Bank was forced to come up with $50 million every month to pay public workers because the tax collection agency, the Barbados Revenue Authority (BRA) was not earning enough to cover the monthly bills.
“On the week on which Government workers are paid, we always know that in addition to all the other expenses, we have to find $50 million approximately to pay Government wages. That is why the amount the Central Bank lends always goes up on that week because BRA does not bring in enough money to meet Government salaries during salary weeks,” Worrell had revealed.
“That is why the current account deficit has to be eliminated, not just reviewed. Government has to live within its means on an ongoing basis,” he added.
However, today Marshall seemly broke ranks with the Governor, in suggesting that the printing of money was not presently a problem even though he did agree with Worrell on the need for Government to rein in its spending.
“It is true that a profligate spender will always be looked at suspiciously by those who wish to make an investment in that spender’s economy. They want to know that the Government of the day is being fiscally responsible and will close its deficit as well as pay attention to its debt servicing,” Marshall said.
The latest report from the Central Bank shows the island’s foreign reserves had fallen below the benchmark 12 weeks of import, to less than $700 million at the end of December. As at January 2017, capital expenditure had also fallen by $36 million and the overall fiscal deficit, estimated at $665 million, was said to $5 million smaller.
However, Marshall took issue with suggestions by other economists that the island needed to enter a formal programme with the International Monetary Fund (IMF).
“I am against going to the IMF not for any ideological reasons other than that there is not one of them that have any modicum of understanding of what industrial policy is like for small island economies like Barbados.
“It is fundamental point and I stand behind it, they went to school and I went to school. Thanks to the Barrow/Grantley Adams vision, I am able to stand before you here and say that none of them in Washington have an understanding of what industrial policy would look like for an economy like ours,” Marshall insisted.
Marshall, who currently sits on a number of Government boards, also argued that despite Barbados’ high debt, the island was not in danger of defaulting on its foreign obligation but that “its debt is largely local, which is a different debt profile to the Caribbean countries that have gone to the IMF.
“Between the NIS [National Insurance Scheme] and the commercial banks, we owe substantial debt. So debt crisis is largely local and we have to service that debt by meeting the interest payments when they become due,” the economist said.
“So more and more the Barbadian dollar rather than going towards refurbishing plants and infrastructure like sewage plants and potholes, it is going towards debt servicing,” he acknowledged, adding that this was largely due to the insistence of the ruling Democratic Labour Party on the maintenance of the social framework, which pre-dated the 2009 collapse of the international business sector, which, apart from tourism, was country’s main economic driver.