IDEAS FOR THE PM
BASIL SPRINGER COLUMN TO APPEAR IN THE BARBADOS ADVOCATE’S BUSINESS MONDAY ON 31 OCTOBER 2005
IDEAS FOR THE PM
“Think not that I am come to destroy the law, or the prophets: I am not come to destroy, but to fulfill†– Matthew 5:17
The role of government of a nation is to provide regulatory and service functions in support of the sustainable socio-economic well being of the populace. Government has the power to make and enforce laws for the nation. Government must raise taxes to sustain a revenue base in support of the management of its operations. Government may have to obtain loans to embark on developmental activity for the benefit of the current and future generations. Government has the responsibility to stimulate economic growth so as to ensure that the foreign reserves are healthy enough to pay for the imported goods and services which complement what can be produced locally.
A government sets annual objectives by which its stewardship can be measured and these relate to, for example: (1) passing laws which are in the best interest of its people, (2) raising taxes in such a way as to mitigate the wealth divide between the rich and the poor, (3) borrowing funds for investment in national development projects based on sound cost-benefit analyses, (4) identifying productive sectors which can earn foreign exchange, (5) identifying sectors which can save the outflow of foreign exchange, (6) ensuring that macro-economic policies are in place to support the parity of the currency against, say, the US dollar, (7) regulating the supply of credit (usually by tinkering with interest rates) and (8) effecting a smart partnership with the private sector, the trade unions and members of civil society. The government, therefore, has a major responsibility to its people in the interest of sustainable development.
Recently, the Barbados government mounted its annual national private sector consultation. The purpose of this two-day event, as I understand it, apart from its obvious networking potential, was for the government to garner ideas from the private sector on how best to stimulate the economy. I was not privileged to be among the invitees but I understand from third party sources that the Prime Minister was somewhat disappointed by the lack of innovative thinking.
In this context, it is interesting to note that Dr. Edward de Bono, a pioneer in lateral and creative thinking, is scheduled to give the 30th Sir Winston Scott Memorial Lecture at the Central Bank of Barbados on November 14, 2005. I remember sitting on a panel with Dr. de Bono at a CAPAM conference in the Seychelles in April 1997 and can attest to the humility of the man and the brilliance of his mind. All those who are exposed to him in Barbados will undoubtedly benefit from a stimulating experience, which will hopefully allow us to think laterally, embrace change and find solutions to our problems.
It has been reported in the press that Barbados’ net international reserves have incurred a further decline and that the Central Bank of Barbados announced yet another adjustment to interest rates. The Central Bank has raised interest rates on three other occasions this year, leading to speculation that the rate hikes are taking a long time to dampen credit levels. I must preface my remarks by saying, I am not a formally trained economist, but I ask the question ‘would be not wise to go to the source of the credit and dampen it there’? There are ‘Loans to go’ at financial institutions and ‘No down payment’ in other places. This is where we must address the problem for immediate impact. Even if the interest rate adjustment policy is the theoretical solution, by the time it takes to work, there will many other casualties in terms of business failure and the inevitable consequences of non-performing domestic loans. The people to suffer will be the weaker financial elements in the society and this will exacerbate the wealth divide.
If we want to maintain the parity of our currency at two Barbados dollars to one US dollar, then we must act now! Freeze wages and prices and promote increased productivity. NISE is nice but not enough. Interest rate increases will not protect this parity without other potentially disastrous effects on our economy.
The only real answer, as I see it, is to aggressively restructure the economy. Do not only focus on exports, focus also on displacement of imports. Both of these will have a positive impact on stabilising our foreign reserves.
Start with tourism – identify all the leakages that exist and fix them. Hotel Building construction (a major foreign exchange drain), when average occupancy is less than 60%, – at least introduce an aggressive and innovative marketing strategy to fill the rooms. Imported food – focus on food security, mobilise the arable land, encourage farmers to produce competitively and supply the hospitality industry with food, grow what we eat and eat what we grow. Fossil fuels, the price of a barrel of oil is escalating – we have an abundance of solar energy (it is free), also biomass energy, let us think laterally and use it, the technology is available. Cotton – get it right. Derelict vehicles – convert them into a commercial reality. Use the recent 3% tax on selected imports to address the above.
Prime Minster, these are some ideas for your statement.