Devaluation scenarios

The discourse regarding devaluation of the Barbados dollar is most interesting when we think about it in the context of the average Bajan.

The Government is proposing to increase spending by $0.2 billion. It looks to be small in a decimal place but it is $200,000,000 in increased spending.

Presumably, a devalued Barbados dollar should attract more visitors and improve the overall economy but will that happen given the current Government’s ineffectiveness and the failure of the BTMI to recognize the competitive world it is operating in?

Undoubtedly, once visitors arrive, under a different exchange policy, they will presumably spend more given that what once cost 50 cents in a 2:1 situation might only cost 33 cents in a 3:1 environment. Through VAT, perhaps the Government would divert some revenue to improving its foreign exchange reserves but its ability to do that given its debt load remains to be seen.

However, the average Bajan, who is already feeling financially stressed, will feel it more because every imported product bought and paid for in US$$ or UK £ will become more expensive and the standard of living will come under attack. More people may end up having to choose between their medications or feeding themselves.

The assumption by the current government, which is spending 60 per cent of its revenue on debt servicing, is that it can magically find ways and means to increase its foreign reserves. This is doubtful given their track record and inflationary commitment to printing money. Ask the Italians and Greeks how that is working for them!

But who will really benefit most from devaluation? The members of the BTMI will do very well under a devalued currency. The BTMI members and others quote prices in US$$ or UK £s, and given their past behaviours, there likely will be no efforts to reduce prices. Thus in a 3:1 exchange rate scenario ,they will get a de facto 50 per cent increase in revenue in Barbados $$s with no effort of their own. Those revenues will go mainly to their bottom line.

There will be VAT payable on those dollars but they will still retain the vast majority of their windfall from devaluation. It would be naïve to suggest they might share some of it with their staffs.

As I look around, speak with cab drivers, beach vendors, restaurant staff and walk the beaches each day, there can be no doubt this is a very quiet high season. Vacancy rates are clearly down regardless of the spin the BTMI offers.

Doing some quick research, it amazes me at how unrealistic many hotel and villa operators are. For example, a $550 US per night single bedroom apartment on the west coast is currently empty and has been for most of February and March to date. Occupancy is estimated at 30-35 per cent; yet rates for 2018 are being quoted at $575 per night or 5 per cent higher. Is that realistic and helpful to the economy?

Would it not be in everyone’s interest to ask less and be full?

Cash flow would be more consistent, the ability to attract repeat tenants who will stay 1-3 months would increase and financial planning would be so much easier and the whole economy would benefit.

Whereas and until the Government and business build an economy for Barbados that is diversified away from tourism as its core, Barbados has to compete with the rest of the Caribbean, if not the world, for the tourist dollar. Failure to do so will see this wonderful country continue to struggle financially.

Will devaluation help Barbados? Only the top will get a win while the average citizen gets hurt more unless there is a change of thinking at the top. Think about it folks as 2018 approaches and the polls beckon.

Fred Volkman

Puslinch, ON, Canada

St James. Barbados

9 Responses to Devaluation scenarios

  1. jrsmith March 16, 2017 at 11:30 am

    Stop it , what devaluation , major problems , the government is not collecting taxes efficiently or making any effort to enforce measures to do so…
    All the profits made in barbados by the tourist industry and businesses is trafficked out of the island , monies owed to barbados treasury by lots of these companies is not being repaid and they are not even paying taxes……….
    Barbados in manage as like a local rum shop…………

    Reply
  2. jrsmith March 16, 2017 at 11:35 am

    Does any know what has happen to (IDC) whas it International development Corporation……..

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  3. Jerry March 16, 2017 at 1:40 pm

    It is the incorrect thinking by Bajans that it is the Hotels and Business Community that is responsible for Barbados Foreign Exchange Problems. The problems are caused by Bajans collectively who waste the foreign exchange buying food product with no health value ( junk food) cause diabetes, heart and kidney problems.Waste gasoline by excessive wasteful driving in 1 person vehicles all going in the same direction and to the same place, School, Bridgetown, Warrens, If the business and hotels do not earn foreign exchange the the Country no matter who is in power cannot import anything. Try purchasing anything overseas with a Barbados Dollar(Worthless). Remember the song of old Working for the Yankee Dollar.Regretably nothing has changed in 50 years. Keep on printing money and we will end up like Zimbabwe.I Billion Dollars can be purchased as a souvenir in SA for 33 cents as a Tourist Souvenir.

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  4. Alex Alleyne March 16, 2017 at 3:18 pm

    Anything to topple Stuart Government from the ones who just want to see him go. He can go or stay as long as my dollar is OK and it won’t cost me $10 for a plus soft drink in time to come. I fear for our Children coming on board in another 10 to 15 or maybe 20 years.

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  5. Tony Waterman March 16, 2017 at 4:43 pm

    @Jerry!!! Well said, could not have said it any better, what Bajans SHOULD?MUST wake up to is the REAKITY of what is Coming towards them like a Run away freight Train, and the Station Master (Sinckler) has not a CLUE as to how to stop it.

    Hanging onto to Arthur, is like a Dying man hanging on to a Straw, don’t Forget, he was Jamaica’s ECONOMIC Adviser, when their DOWNFALL Started.

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  6. Greengiant March 16, 2017 at 5:08 pm

    Talk about scare mongering. Everyone associates the IMF with Sir Lloyd Sandford, but the DLP administration was the government who made us members of the IMF and the Tom Adams lead BLP administration was the first ruling government to engage the IMF.

    People complain about the incentives granted to sandals, but the government is prepared to do whatever is needed to generate foreign exchange. Any government will do whatever it has to in whatever circumstances it finds itself. George Payne, Mottley, and all the seasoned politicians knows this. Under Arthur we didn’t always raise foreign exchange in favorable ways, but he told did it his way. They sourced financing through various sources, local, regional and international.

    Every government leaves dept or deficit when they leave office. The best kept secret has always been the amount of dept left, and this is still the case. So really what are we voting for? Every government presents an finance proposal ( estimates of revenue ). There’s always a risk in terms of receivables, if this government is prepared to take the risk of receivables, having increased spending then at sometime an administration will have to make decisions needed. We have all heard those recommendations, so if that day should come we should all be prepared. This is not the age of those with short memory. The word is privatization, reduced public spending, increased productivity, dept restructuring or remortgaging the country. This government thinks they will generate the foreign exchange so we can only wait and see. I would like to get that surprise.

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  7. hcalndre March 16, 2017 at 10:07 pm

    Arthur says to go (IMF) Stewart says don`t go, so whose advice should be taken? Stewart is clueless, Arthur is a proven economist, in a real world the PM should be one to say, I will take over the ministry of finance since there were problems at the central bank, but it seems that he would be worse. He has repeatedly said that he is not going to the IMF and the MOF second him, maybe he will get the money from his Chinese` friends, so barbados just has to wait and see what will play out in the coming year. The hotels were low on occupancy this winter, they are building more hotels and if the next winter is not too bad they will a lot more empty rooms. Would devaluation help? I don`t know.

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  8. Mikey March 16, 2017 at 10:20 pm

    @Jerry, I laugh when some of you guys just open your mouths and let whatever comes out without using your Brains.
    The average Bajan does not import anything into the island.
    The business men who are the chief importers are given freedom to import whatever they want.
    Certain food items should be banned from entering the island and FORCE Bajans to eat more potatoes, yams, breadfruit, okras, eddoes, bananas, golden apples, mangoes, etc etc.
    STOP BLAMING THE WRONG PEOPLE !!!

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  9. Joe Vialli March 19, 2017 at 2:23 pm

    A small but very important point – you refer to countries printing money critically and then say: “Ask the Italians and Greeks how that is working for them!” The Greeks and Italians have major problems, but they cannot under any circumstance ‘print money’ as they are in the euro and have been for 17 years. The EU institutions arrange for the printing of the money, and not under the requests or orders of any individual member state. Part of the Greek and Italian problem is indeed the same problem as may be the case for Barbados – they are suffering under a currency arrangement which is not suitable for their needs.

    The use of currency fluctuations as a mechanism CAN be useful at times – to turn your question upside down – ask the world in the 1930s how much damage the fetish of maintaining the link between gold and currency caused to jobs, businesses and politics?

    Reply

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