Wrong way

Visiting Irish economist says devaluation is a slippery slope

Don’t devalue the Barbados dollar!

That was the advice from former governor of the Central Bank of Ireland Patrick Honohan, who Thursday night warned that devaluation would take the country down a slippery slope to the point of no return.

Questioned during the Caribbean Economic Forum sponsored by the Central Bank of Barbados, Honohan said far from pulling the country out of the current economic slump, devaluation would make matters worse in the long run.

“Of course, at a particular moment it can seem very attractive to pull the lever, devalue, you’re going to be out of the problem. But the pattern of devaluing is not constructive, leads to high interest rates, which holds back the economy again,” the visiting economist told a local and regional audience who followed the forum on television, as well as those gathered at the Grand Salle of the Central Bank.

Honohan pointed to Barbados, the Bahamas, and the nine-country grouping of the Organization of Eastern Caribbean States, all with currencies pegged to the United States dollar, as those likeliest to suffer significant fallout from devaluation.

He said the authorities in these territories should not fool themselves into believing that it is, “just one devaluation, and we will be alright”.

The former economics tutor cautioned that the road to no return begins “with just one devaluation. So if the Bahamas are going to devalue once, they will do it again.

“You have to know what you’re doing in those pegged countries because it is a one-way trip,” Honohan said.

The former director of the board of the European Central Bank made reference to the experiences of Italy, Spain, and Greece, all of which had “leapt at the idea of a single common currency so that they would get out of the practice of just devaluing”.

He explained that prior to joining the euro, these countries quickly devalued whenever there were economic problems.

However, “just devaluing never worked”, the Irish economist said.

“Very quickly the loss of competitiveness arose again, the overspending of government arose again in those countries which were not very well run in the 1980s.”

Honohan, a fellow at the Petersen Institute for International Economics, also offered advice on dollarization, stating it would not help to use the US dollar as the currency of choice here.

He said the American dollar had become a virtual permanent fixture in the economies of the countries that had pegged their currencies to that of the US for lengthy periods. As a result, he said, adopting the “greenback” could end up being messy.

As an example, he pointed to a decade-long experiment by Argentina where the US dollar was adopted as the South American country’s principal currency. In the end, he said, it all came to naught.

“Same as the currency board that they had in Argentina. Those ideas don’t last forever. The currency board in Argentina didn’t last forever,” Honohan said.

20 Responses to Wrong way

  1. Angus Benn
    Angus Benn April 1, 2017 at 2:33 am

    I did not hear what solutions the government should used in order to get it’s deth paid off. So if not the us dollar which dollar we should peg to. The pound Jamaican dollar Guyana dollar or eastern Caribbean dollar. They need some kind of solutions. Tell me how they could get out of this mess that they find themselves in

  2. Angus Benn
    Angus Benn April 1, 2017 at 2:38 am

    So why the finance Minister didn’t haired HONOHAN to give him advice. He is to expensive. he is saying don’t devalue dollar. What they should do then. Tell the government what they should do. The government need help with advice.

  3. Tony Webster April 1, 2017 at 2:42 am

    The slope we are on right nowabouts, and hereabouts….is NOT slippery? What a nice man, to be moved by the purest of motives, and come flying in on angel’s wings, to save us from socio-fiscal implosion and/or devaluation, and nary a hint of getting hands soiled in crass local politics.
    Who’s next to drop in on a visit’n’lecture trip? Mr. Obama? Rihanna?

    I hope you had a pleasant stay Sir. On your return home, please offer your services to those folks now trying to save the E.U. and the euro, Scotland, N. Ireland; all amidst the next two years of bloody axe-swinging associated with the BREXIT mess. Makes our predicament look like a tea-party!

  4. Jennifer April 1, 2017 at 4:03 am

    This man has clearly demonstrated he has been educated and then trained. What has happened with the politicians is that they are trained then they need to be educated. This is why we need this man to come and give his advice. Now you can past go, collect 200 pounds, do not stop, then advance to boardwalk, then onto community chest and take a get out of jail free card. I am sure that your targeted audience will take your invaluable advice on board.

  5. jrsmith April 1, 2017 at 5:34 am

    @, jennifer hail , hail, as usual on the button , further adding we are educated and still lacking in education , my point all we see and hear is all the educated so call educators in Barbados and none makes any sense or give the useless government direction to help getting us out of the rutt…..
    I totally agree we are playing Americans with bajan money , we are bajans many visitors ask this question , why , you fronting your local business with (US) dollars….our bajan dollar carries a lot of strength in the region and around the world…..but its just we dont have the economic management skills in Barbados to stand behind our bajan dollar ……………….

    As I always say ,the world beyond our shores brings to us the value of free education, on offer as to anything in barbados but we are so educated , all in the wrong direction……….

    • Jennifer April 1, 2017 at 9:35 am

      @jrsmith – thank you for nailing things. Now let me just do some sealing off the conversation. ANYTHING that is MANDATORY and FREE is tainted, the UK has perfect examples they will do to the vulnerable. In other wards that is why education is free, all tainted with much white paint in there. What the tainted infusion engineers has realized is that as they put you to a certain point in the “system” free, then the free point will come to a stop so that you cannot go any further. Now in order to get a “GOOD JOB” you will now have to pay for that higher level of education/indoctrination which is no longer MANDATORY or free. Mind you it is all now compartmentalized. You just get into your compartment. Its like how many people keep paying a doctor to keep them sick. Bear in mind that to truly INVENT, DESIGN, MANUFACTURE, PRODUCE, etc will not come from education. So then why are our children being given an engineered education???? DO I DEAR SAY IT…………………….
      I remember some years back watching a movie in which aliens had invade earth and was now living among the people. But in order to see them you had to put on a SPECIFIC pair of sun glasses. I rest my case.

      • Jennifer April 1, 2017 at 9:38 am


  6. Khati D
    Khati D'Souza April 1, 2017 at 6:29 am

    Isnt it a shame in the first place some foreigner got to come advise us what to do? In all my life on this Land, i never heard such a thing despite which party was leading and it bothers me everytime if i am not too sick to go anywhere and listen to the pains of the people. I feel confused living in this kind of environment. I voted since I was 18yrs old and only because I was told to go vote. If I ever do it again it will have to be done from the heart and right now my heart is as dead as the economy!!! Does anyone knows if its a charge if you decide not to go vote come election day?

  7. Lilian Lloyd
    Lilian Lloyd April 1, 2017 at 7:21 am


  8. Alex Alleyne April 1, 2017 at 8:55 am

    “”””’it’s music too my ear.
    Best thing coming from anyone since the economic slide .
    There is no going forward with this leadership or another and a WEAK dollar.

  9. Greengiant April 1, 2017 at 9:37 am

    This lecture is most timely, and if any of us have any interest in seeing the turn around in our country and not just coming in this forum to support or tear down a political party you would get a copy of this lecture and study it carefully.

    The practical and experienced economist has made it clear on every occasion he has spoken that a local model to fiscal management is the best method, and always works. He’s made it clear that devaluation is a continuous slope downwards.

    So, now we know that the government has the correct approach in theory so they have to apply it right and they need to have the business community on board as well. This government’s main problem has always been communication and sadly no body wants to hear them now. I would prefer political parties to publish a document of intent long before their manifesto. This document will give the people a guide of their principles and guide our expectations.

    My main concern is being led by a government that goes the route of an I M F program for the sake of quick dept settlement but with harsh, long term consequences. Once you get into external dept solutions you remain there for several decades. So contrary to what we and even our noted economists may believe our problem started in the 70’s when Tom Adams entered our first IMF program.

    We have been economically challenged every 15 years since then. We need to check the records. So whoever forms the next government they should use home based economic medicine.

    • Jennifer April 1, 2017 at 9:48 am

      @Greengiant – you said that we have been economically challenged every 15yrs – correct. Have you noticed the party that is always in power?????? Now Why???? do you think that this party comes up against any engineered challenges?????? or are they just nincons???

  10. patrick johnson April 1, 2017 at 9:44 am

    If we are to get out of this mess for help; we have to check with the AIIB Bank Gold back funds, trust funds 800#.

  11. BimJim April 1, 2017 at 9:47 am

    With a population of some 6.4 million, perhaps the good gentleman would tell Bajans what the people of Ireland might do if it had a rapidly rising national debt of (11 x 20 =) BD$220 or US$110 BILLION dollars (roughly the same debt as Barbados, but with Ireland’s population) due SOLELY to political incompetence and stupidity. I leave NOBODY out in the current Cabinet.

    Perhaps the good gentleman’s response would be more along the line of a stream of Irish curse words – and then to go and seek out the IRA activists again to rid themselves of these incredibly destructive political morons one way or another.

    Once again, average Bajans don’t need foreign advice to know what to do. We need an election ASAP, and some new Parties – not consisting of ex-Labourites of any flag – to bring new blood, new ideas and HONESTY into the political arena.

    As I have said many times, a class of informed 5th-formers from any Bajan Secondary school could do better than the current crop of braying and silent jackasses – of BOTH parties.

    Barbados now has almost 300,000 population – are there not a couple dozen of all that number who are willing to represent their own people?

    COME ON, SHEEPLE!! It is YOUR future!!

    • Jennifer April 1, 2017 at 9:55 am

      @Bim jim – I can wee with you, but with all respect due – u too need a pair of sunglasses. This man is not talking to “average” bajans, he was STRATEGICALLY speaking to specific people.

  12. jrsmith April 1, 2017 at 10:04 am

    Lets look at the management activity of the past 5 years of this present government ……………………………………….
    There is no efficient way they are collecting taxes, so if they give a figure of whats owed, how can the people believe……

    In the (AUDIT GENERAL’S ) last report details showed that a number of departments had not been audited some for 10 to 15 years , so how can these people allowed to stay in office calling themselves government ministers …. what are they doing …….
    Nobody is trying to tear down anything , the politicians in this present government is doing a ( very good job this themselves)
    they dont need any help………………………………………..

    The (AUDIT GENERAL’S) report showed how there is 700 to 800 millions Bds owed or cannot be account for , why then dont the (Priminster ) and the (Finance Minister ) go after what is owed this is not a very good looking situation, for our government around the world , is they conflict of interest………

  13. Kevin April 1, 2017 at 4:24 pm

    But government already said that is not an option. Why people behaving as if it was on the cards.

  14. Andrew Simpson April 1, 2017 at 6:16 pm

    If we might only act as though our currency was devalued, exercising prudence and naturally making the structural adjustments which would come about as a result of an IMF program, then our economic outlook might be strengthened and the peg retained. It’s called self-discipline.
    Discipling is also needed.

  15. Richard Johnston April 2, 2017 at 7:01 am

    Interest rates are already high. He is saying don’t devalue with the same lousy leadership. A well-managed devaluation can work fine.

  16. Sverige fotbollströjor barn July 10, 2017 at 12:40 am

    Very good article! We are linking to this particularly great post on our site.
    Keep up the good writing.
    Sverige fotbollströjor barn


Leave a Reply

Your email address will not be published. Required fields are marked *