What Position Do You Play? The Central Bank Governor Faces Some Tough Tackling

Since presenting his review of the first quarter last week, the central bank Governor has been assailed by several leading members of the opposition Barbados Labour Party about what he did and did not say and how he presented the economic picture, claiming that it was not 'fair and balanced' (see, for example, Nation report 'Economic report missed the mark, says Mottley' and Advocate, April 16, page 3). I'm not really getting into what is brewing up to be some top level political fight, with the current PM/Finance Minister quickly rebutting the claims (see Advocate report). I would not wish to take away the chance for some opportunistic opposition politicking, though it's worth noting that there is a lot that could have been said about many economic developments in many previous quarterly reviews. The discussion has a number of points of interest, most notably the highlighting of the overall cost of the building of a new prison. It's good that past government ministers feel that a fuller picture should now be given of this obligation, which begs the question in my mind why that was not insisted on earlier. That information, which is in the purview of the PM, Finance Minister, and Cabinet, should not be coming to the population now. The country has limited resources and good husbandry of those should be a paramount point in the minds of politicians, together with clear explanations of what the decisions mean at a given time and in the future. Without knowing whether discussions were ever held between previous PMs, finance ministers and central bank governors about the tone and content of the central bank's publication, I will take it that the latest comments will be duly noted, with or without the Governor raising an eyebrow.

What should not be in contention is that the Barbadian people should not be in the dark about the nation's obligations, and it feeds confusion to give no clear or only partial information about these, sometimes in a drip fashion. The details of the Build, Operate, Lease, Transfer (BOLT) agreement for Dodd's Prison may be contentious in some eyes, especially if the options for building of a new prison and its financing were not fully aired in a manner that the public could understand. But the details of this and other BOLT arrangements and other obligations should be known: it's the public's business to know what they have been committed to by elected officials. Looking forward, it should be standard to show the forthcoming government obligations to repay principal and debt service on a loan-by-loan basis, and the underlying terms of the loans should not be any big mystery.

I have also been interested by reports about the Governor's comments about two red flag issues for Barbados. One is the country's foreign reserves and the other is the level of central government debt.

On reserves, the Governor is reported to have said that the current level of reserves (about 20 weeks of imports) is "enough" when compared with an international norm of 12 weeks for 'our kinds of economies'. He added that raising this level would "not be in Barbados' favour". He did argue that "adequate" reserves were needed to protect the value of the exchange rate, but holding reserves are not a good thing as "reserves are ... funds that you have earned and are lending back mostly to the US government". He seemed to dodge the issue of letting reserves fall so that more could be used for domestic purposes, saying that the "issue of credibility needs to be considered" and letting them dip too much would worry people. But, he has opened the door to speculation about that possibility that there is going to be repositioning on the matter and that too may lead to his having to face more heavy bombardments.

The second intriguing repositioning being undertaken by the Governor appears to be in the context of 'constructive dialogue with rating agencies' on how to view Barbados' public debt. The press report suggests that he has been arguing that because much of the central government debt is held by the National Insurance Scheme (NIS), it is not at risk of not being repaid because NIS is only interested in the income from the debt and will roll over the principal because they need the income to pay national insurance claims. He also added that because government and statutory corporations hold bank deposits these should somehow be netted against the debt outstanding, and the position of general government and debt held by non-general government (which would be under 50% of GDP) is perhaps more appropriate. Clearly, the international markets are very sensitive right now to the prospects faced by heavily indebted countries so trying to put your national position in the most favourable light is a good strategy. I don't know if the NIS shares the Governor's views about its holdings of government debt and whether they are not concerned about getting back that principal. Bad news if they are. I'm not clear where the line of argument about cash in the bank takes you: it is not there to deal with debt obligations and has plenty of claims on it for every day operations. In similar vein, foreign assets in commercial banks are not part of the country's reserves, having other calls on them, so the country would not throw those in to show that it has adequate import cover. Nice that it exists but it has another role to play.

Well, Dr. Worrell is not ducking controversy, and opening up a raft of issues for discussion makes for more interesting times.