The following is the full version of an article I submitted to Barbados Business Authority (BBA), which was published by BBA (under the title "Govt has little wiggle room"), with a little editing on August 31.
Sustainable job creation needs growth, and available financing. The Government of Barbados has little of each at present. National growth prospects are closely tied to the fortunes of the world economy, given Barbados' heavy reliance on tourism from the UK, Canada, the USA, and the rest of the Caribbean.
Economists seldom agree. World recovery is not yet assured. Some believe we are headed for a V-shaped recovery, with a rapid return to growth. Others expect a weak U-shaped recovery. Some, including the infamous Nouriel Roubini, aka “Dr. Doom”, see a rising risk of a double-dip W-shaped recession. Some speculate that any recovery may be jobless, begging the question of what happened to those 4 million households affected in the US alone. Little may be clear before end 2010. A no-win situation is also looming over how to exit from the huge monetary and that industrial countries have made. One aspect: against their increasing debt, speculation that the US and UK may lose their AAA borrower ratings rocked international currency markets several months ago.
But, one major concern should be whether Barbados' economy remains firmly coupled to the rest of the world's. My belief is that the damage being done during this recession, e.g. restaurant closures, will not be undone simply by growth resuming.
Jobs can be created by short-term “make work” projects--verge cutting, landscaping, drain clearing, etc. But these will be hard to sustain. The current recession has put intense pressure on private firms and government to curb labour costs, and both have had to shed jobs. Some local commentators have argued that other options should have been tried, though they rarely know what processes had occurred before decisions were made. Some commentators argue for wage cuts or freezes to preserve jobs, and we hear of examples of that having been done. But, it is not necessarily a viable option for all firms.
For sustainable jobs, Barbados must tackle underlying structural problems to help secure a better basis for growth. How nimble is the economy? How much room does the private sector have to expand? How fast can the costs of doing business be reduced?
Government's debt burden is heavy, with a debt-to-GDP ratio expected to exceed 100% this year. The government has little fiscal 'space', i.e. it can provide little or no stimulus. Taxes overall are already high, though it could be argued that some could go higher.
Foreign exchange (FX) earnings suffer as tourism suffers. Anecdotal evidence suggests that a huge gap exists between what earns FX and people's sense of their role in generating FX. This must change.
Productivity and efficiency must improve dramatically. Better commuting times, flexible works hours to reduce traffic at peak hours, and lower absenteeism (a significant cost to companies) could help enormously. Service quality is too uneven and reported work attitudes are not consistent with excellence.
Relations between employers and workers need improving and Barbados’ industrial relations might need reform. Poor job performers should not be protected, but employers should not sever workers simply because it is a relatively cheap option.
Should Barbados seek support/relief from the IMF, like some other Caribbean countries and many others mired in this economic crisis? PM Thompson was when Barbados last went to the Fund, and insisted in July that his government had no intention of “re-opening the wounds” of the 1990s, when Barbados was forced into an austere financial programme with the IMF. Many believe that programme, which left a bitter taste in the mouths of ordinary Barbadians, was responsible for his Democratic Labour Party’s defeat in the 1994 general elections. His party has only just ended a 14 year time in opposition. So, politics suggest “No”.
In addition, for Barbados, the currency peg remains sacrosanct. Barbadians view IMF programmes as only imposing “devaluation”. This view is wrong. While, the exchange rate may or may not be an issue (from some accounts it is not an issue), seeking to keep the current rate is not a sufficient basis to reject much needed financing, and in the era of a more friendly IMF, on very good terms.