All The Rage

The current debate about the state of Barbados' international reserves is not just about statistical measures, but about the nation's ability to pay its way with foreign exchange. The latest salvo that I saw in the press was yesterday's piece in the Nation, with Albert Brandford trying to explain the two common measures cited--gross or net official international reserves (see report)--taking his cue from Clyde Mascoll's muscular arguments during the past week about how the central bank has moved the analytical goal posts in its latest economic review. I am not going to get into a bicep flexing contest about who knows more about these measures--I do know a bit, having worked on developing the methodology for measuring the concepts (take a look at the IMF's Monetary and Financial Statistics Manual, or the associated Compilation Guide) and also having worked on seeing how they are applied in many operational contexts.

The bottom line with any measure of international reserves is how much money does a country's central bank actually have available to meet the country's external financial needs. In some instances, we can stretch the official hand so that it has access to (gross or net) foreign assets held by commercial banks to help bolster the situation. But that is largely private money that is held for commercial operational needs.

Whether you take the current level of gross or net official international reserves, Barbados is seeing the level fall. Moreover, the activities that would help turn that situation around--mainly money coming from tourism--is clearly waning. The things that have to be paid for are not reducing fast enough, hence reserves are falling.

But, are they at a critical level, or approaching that, on any measure? As I cannot see all the cash flow needs that are facing the government and central bank, I cannot say for sure. But, what I do know is that some large needs are there and they will have to be covered in part, or in whole, by borrowing more foreign assets. The conditions for such borrowing are not good, and the sense given by international rating agencies is that they see Barbados as less worthy of being upgraded in their eyes, and more worthy of being downgraded. So, the question that arises is "Will Barbados have friends when it is in need?". If reserves are falling but you cannot borrow commercially (on acceptable terms) then you are in a bind. Something else will have to give in your policies or to whom you have to turn. You can argue about the when and the what and the how, but it has to happen. As an economist, I cannot take it for granted that most people understand this, but I am sure that policy makers do. So, what will they do to either explain that truth or start to deal with it? Lamaze breathing is not going to be enough to deal with the pain.

Rescue Me!

Two of Barbados' well known economists unwittingly, but wittily, faced off in this morning's Nation: they each had articles about the quality of economic analysis, which were set on adjacent pages. Clyde Mascoll, whom I would describe as an economist-turned politician-turning economist again (see Standards for all) attacks the public for their preference for style over substance in economic discussions. In his 'take no prisoners' style, he opens with 'I certainly have offended my share of media practitioners over the years in one way or the other. I am therefore fully aware that I am not popular among certain personalities in the media,' and keeps beating. I'm with him on what I see as an appalling lack on the printed media's part to help the economic debate along, and have said so enough times.

Meanwhile, trained agricultural economist-turned man-of-letters and humorist, Richard ('Lowdown') Hoad, takes economists to task for not saying much that is easily understood and not understanding what can easily be seen, agreeing along the way with similar comments by Central Bank Governor Worrell (see Unstable condits). He opens with 'IT HAS been said that we would be no worse off, and would be equally well informed, if we let the weathermen predict the economy and let the economists predict the weather.' His stance seems to be that if all the economists were put into a dung heap it would certainly smell no better than it did before, and their contributions as mould may be more than their contributions with models.

You have to take each point of view where you wish.

Over a lovely breakfast this morning with another of Barbados' well-known economists (he ate the 'Bajan', I ate the 'English'), I likened the discussion over the state of the economy to that over a piece of broken china. So much of the discussion is about who to blame for the breakage, and too little discussion about how to fix it (if possible), or replace it (if needed). It can even get heated about descriptions of the number of broken pieces and their shape. Meanwhile, the broken pieces are being gazed at or stepped over, and some would even try to deny that there has been any breakage. All very surreal.

One collective voice that I have not heard in the recent discussions is that of the National Council of Economic Advisors. If you read one commentary from over a year ago (see Advocate report), when Minister Estwick 'outlined an extensive action plan which puts Government at the helm of steering Barbados out of troubled waters and called on the public to position themselves as part of the response plan' and a 'set of operational responses were indicated, driven by the Prime Minister and comprising a Cabinet Economic Committee, which Estwick chairs; and a Council of Economic Advisors made up of eminent professionals in the area of economics' you may be tempted to ask at least one question. Have I been deaf or blind in that I had not heard more than a peep from the Council?

When I talk about 'implementation paralysis' it includes not acting in a way that can be seen or heard or understood, after promising that each and all would occur. One of my constant themes has been about transparency, governance and accountability and how each seems to be much talked about but not that much seen.

Still Scratching My Head

I know that odd things happen everywhere, so I am only noting an instance in case anyone else has similar experiences.

I heard today that on a recent visit to a store in Sheraton Mall last week, an acquaintance found a cleaning product she needed, and took it to the cashier for purchase: it was marked at B$13. However, the cashier said that the marked price was wrong (saying it should have been B$20), but did not know the correct price for the item, so would not sell it. Customer left without goods. Store left with merchandise and no additional revenue, but have they since determined the correct price? Part of me says that I would have left B$20 and my phone number in case I was due a refund, that way assuming the risk of being overcharged rather than the store being underpaid. I remember a law class on contracts, decades ago, that was about offer and acceptance and would have thought that my acquaintance would have been in her rights to leave B$13, take the product and leave. Maybe I misunderstood.

Unity Bar Lunchtime Lecture, July 23: "States' obligations under extradition treaties versus their obligation to protect their citizens"

The next lecture in the series will be delivered on Friday, July 23, by Dr. Caleb Pilgrim, an Attorney-at-Law of twenty years standing, at the "Errol Barrow Gallery", DLP Headquarters, 'Kennington', George Street, Belleville, St. Michael; his topic will be "States' obligations under extradition treaties versus their obligation to protect their citizens". As usual lunch will be served from 12.30 pm and the lecture will start at 1.00 pm.

Which Way To Go?

At the end of this month, I will no longer be living in Barbados. That pending departure has caused me no end of problems in deciding what to do with this blog and how to engage on the many issues that interest me, many of which, like the state of economic policy, appear to be at difficult junctures.

Many people have asked that I continue the blog, even though I may not be living on this island, and I cannot say how easy that will be until I see how things work out looking on from afar, but I really appreciate the encouragement behind such requests. I was also touched deeply by a gift I got yesterday from a friend, which as a piece of mahogany with 'Living in Barbados' carved on it, in exactly the style of this blog's title. That is going to be a precious souvenir.

As has been the way for a while, I have made contributions to discussions about the economy without them being in the public glare of this blog, on the radio, or via one of the local newspapers. I know that there is a very vigorous set of discussions going on about the state of the economy and ways forward, and there is nothing secret about it and all the participants are very open with their opinions, which they are expressing without any cover of anonymity. One element that seems lacking has been a forum that is more visible for such discussions, because it is important that people with contributions feel that they can make them freely and openly. Blogs have been useful in opening some channels of discussion but I have always been wary of comments made under cover of anonymity (whatever the apparent bases for choosing that).

Amongst the many things that seem clear to me is that Barbados is not short of people with ideas. But, there is a problem in turning ideas into action. That is a problem of a broader scale which is starting to show up more clearly as a sort of 'implementation paralysis'. In the case of the economy, part of that lack of action has arisen because of the health issues of the Prime Minister/Minister of Finance. But, one of the important tests of organisations, including government, is how well they can function in the absence of particular persons. I would have to say that Barbados is really struggling to function during the past months. Putting the constraints imposed by the Prime Minister's health concerns into a separate category, I see another problem. Many who have opinions and ideas are not directly involved in making decisions about policies, so depend on those who are to listen and decide if the ideas floated can be taken further. So, the simple question I have is whether policy makers seek to really listen to those who have ideas or have they closed their ears? If they are listening would they indicate why the many ideas that seem workable and beneficial do not see the light of day as policy actions?

I am not going to comment much on the wave of views that have been expressed recently about the current state of the economy, though if one looks at column inches or time discussed on the radio, it would seem that this topic is now fully in the centre of many people's concerns. I would merely suggest reading some of the weekend's commentary and thinking about what some of them said. In particular, I was struck by Hartley Henry's piece in Sunday's Advocate, that seemed to take solace in saying that an IMF programme or devaluation were not being discussed as options for Barbados. My take on that is simply that the government in various forms has said that neither option is for consideration. So, having closed the door to them, why would people keep them on the burner publicly as options? But, having summarily dismissed them, the question is still there of how the government will try to right the economic ship and get it to steer a good course.

Starving To Death

I bristle a lot when I read the newspapers in Barbados. Let me limit my spikiness today to matters on the economy. I am not surprised that people do not have a good grasp of certain realities of the economic problems facing this small island. That is, in part, because those who are charged with reporting and discussing them seem unable, or unwilling, to give information that can help that understanding. Let me call that 'context' and 'analysis'. I do not expect that of politicians, because they have a range of agendas that dictate the massaging of information, and misunderstanding by the public. So, the media has to hold politicians and others to a high degree of scrutiny. That is what is so severely lacking. There does not need to be much 'context' and 'analysis', but without it, most people have no idea where to turn and surely cannot draw any conclusion other than that stated on the printed page. Let me focus on some very recent reports.

When I opened Monday's papers, I saw the front page headline of Barbados Advocate Business Monday, 'Minister: Barbados Tourism Rebounding'. The piece noted that Minister Sealy said visitor arrivals from the UK registered an increase during May, but that "we are still down overall in the UK market" (though the US and Canadian markets were "climbing nicely"). The piece was almost all about what the Minister said. Not one word was written about what the Minister said could mean if one looked at other information: nothing about the UK, Canadian, or US economic situation; nothing about what is happening to travel from those countries and what that may imply for tourist destinations like Barbados; nothing else of relevance for context and analysis. If the press or parts of it are accused of being merely a mouthpiece for government or some political party, then it is rightly because of reports such as this.

Many can, and will, take issue with statistics, or facts, or information, but do not let that stop the press from feeding them to us. So, let me just throw in a few salient pieces. On the same day as we read about 'tourism rebounding', the UK Guardian flags how UK travellers are shunning foreign holidays, with visits abroad in 2009 declining by 15%, the greatest decline on record (since they began in the 1970s). That is at least context. We can all analyse what it may mean for any expected rebound. Since the new British government took office, concern has been expressed about how its efforts to address deep budgetary problems could tip the UK back into recession. Last week, I was taken aback to read a New York Times editorial that criticized that UK's recent (June) budget under the headline Britain's Budget Pain, with comments such as 'the needlessly draconian emergency budget', 'the misguided nature of this budget', and 'the coalition’s budget aims to cut too much too soon, in pursuit of a pointless structural budget surplus by 2015'. That, at least, would tell you that some see the UK as headed into a further economic tail spin and would make you ask how this may affect Barbados. Top it off with remarks from Mr. Adam Posen, a member of the Bank of England Monetary Policy Committee, saying that he sees a risk of renewed recession in the UK, in part because of looming fiscal austerity and problems in the euro zone, and your rosy glow should have dimmed.

On page 3 of the same Barbados Advocate Business Monday, I also saw comments attributed to fellow economist, Anthony Johnson, under the headline 'Recovery of pound sterling should bode well for Barbados'. The article talked about sterling's 'rally' to now trade at close to B$3 (following its move to just over the US$1.50 mark). The article flagged that Barbados depends heavily on British long-stay tourists (40% of overall), and also for exports and imports. But my concern was to read nothing about how the exchange rate--the central point of the article--had changed. Were the readers supposed to have all of the recent historical context in their heads? Were they supposed to have recalled that the pound fell from a high of US$ 2.1o (B$ 4.20) in November 2007 to a low of about US$ 1.35 (B$ 2.70) in January 2009--a fall of some 35-35%? Were they supposed to recall that sterling rallied well (up 25%) from that 2009 low to US$1.70 (B$3.40) in the middle of 2009, before falling again to the US$1.40-1.50 area that is being cited as a rally? To me, sterling is now not far from the recent lows, and I would not say that that bodes well for Barbados. But what do I know?

Barbados is supposed to have a highly literate and well-educated population. If that is the case, why is it not fed a diet of material that would put all of that literacy and education to good use?

Unity Bar Lunchtime Lecture

The next lecture in the series will be delivered on Friday, July 16, 2010, by the Hon. Ronald Jones MP, Minister of Education and Human Resource Development, at the "Errol Barrow Gallery", DLP Headquarters, 'Kennington', George Street, Belleville, St. Michael; his topic will be "Challenges to Formal Education in the Era of Technology - Dilemma and Survival". As usual lunch will be served from 12.30 pm and the lecture will start at 1.00 pm.

Still Not Getting It

I spent the first 9 days of July in the USA, and strangely, did not have a lot of access to either computer or Internet. So, I am back in Barbados and trying to do a bit of catching up on issues and ideas. So, what do I find in just the Sunday papers?

First, I have to wonder (again) about what the newspaper editors do. The front page of the Sunday Sun celebrates 'golden girls', two sisters who have passed 100 years of life. They are described as 'from a family of long livers'. Now, I have mentioned before that my wife has a keen eye. "What does the size of the liver have to do with how long you live?" she asked me. I am no doctor, so I do not know. Maybe the Editor can elaborate tomorrow, and perhaps explain if what was meant was that the ladies came from a family of long lifers. That said, let me pass on my congratulations to the two ladies and wish them many more happy years of life.

I had seen the announcement on July 1 that the Prime Minister was going to take two months' leave from his duties as prime minister, and that the time would be spent outside Barbados (see Nation report). I was puzzled by the associated statement that Mr. Freundel Stuart (already Deputy Prime Minister) was going to hold the reins of government and the PM 'was devolving on him the authority to make whatever decisions he deemed necessary “to keep the social and economic ship of state on even keel”': I thought that was already a given. A news report later passed my eyes that Barbados had a new Attorney General (Adriel Brathwaite, MP for St. Philip South), and that this was not an 'acting' position but substantively taking over the ministerial portfolio up to then held by Mr. Stuart. I was confused, but accepted that from a distance I might not have grasped the right impression, yet wondered if a similar change would soon come regarding the portfolio of Finance Minister (held by the PM). However, Ezra Alleyne put better than I could several constitutional issues in his Focus column today, 'Constitution and power of the PM'. He may not be correct but he poses what, I think, are some valid questions about what is the real constitutional situation underlying the various changes resulting from the PM's leave from duties. While those matters are pondered, however, I would like to add my good wishes to the PM and hope that his time abroad will help resolve his medical problems.

Lastly, I read The Barbados Advocate front page 'No letting up on lobby against APD'. My question from a long time ago has been why the Caribbean Tourism Organization finds the UK's airline passenger duty (APD) contentious but does not seem to find as contentious the seemingly high passenger duties levied by regional countries on intra-regional air travel. I recall a detailed article on these levies written by Adrian Loveridge, where he pointed to the stunningly high level of these taxes but also that they were far higher than taxes levied on cruise travel.

Welcome To The Pleasure Dome

The Barbados Economics Society has decided to dip its toes into the waters of blogging (see http://barbadoseconomicsociety.blogspot.com). In addition, one of their first posts is a recent address by the central bank governor, Dr. Delisle Worrell, who takes issue with several aspects of modern economics and modern economists. I recommend reading his address. It's a good challenge on many fronts. It's good to air some issues for debate in economics, and doing so in Barbados is also refreshing, or could be if it generated a discourse within the profession there.

For my part, in reading the governor's remarks, I disagree with his comparison of exchange rates with physical distance, in defence of fixed exchange rates. Even if you want to say that exchange rates are not prices, they do not measure a fixed relationship, but rather a relative relationship, between countries/economies, so the notion of their being flexible is not so strange. The same logic applies to a composite measure of relative standing, such as the human development index (HDI), which he argues to be a more 'reliable indicator of the quality of life in any society' than GDP. Whether or not exchange rates are realistic or good relative measures would be a different debate.

Let the jousting begin.