Comments on: On The Road To Perdition: A Decade Of Distress And Discontent

By: PMAN

PMAN — Tue, 07 Jul 2009 16:59:06 +0000

Sorry that Veritas is not happy about this discussion. This will be my last comment on this matter.

Domestic borrowing does matter.

We can agree that we cannot ignore domestic borrowing from the central bank(inflationary) and from the non-bank financial sector because of the possibilities of crowding out, high interest rates and capital flight.

By: livinginbarbados

livinginbarbados — Tue, 07 Jul 2009 14:44:18 +0000

@Sargeant
Had I become president of Mexico it would have deprvied you of not much, I hope, not least because the presidency is only one term of 6 years–no re-election. Who knows, had I qualified somehow without becoming Mexican, I could have annexed the Caribbean islands or at least a few of the nicer ones. :-)

By: Veritas

Veritas — Tue, 07 Jul 2009 14:06:25 +0000

Is this just a monotony of words upon words – the conspiracy theorists, the pessimists and the optimists. And Mark “Joker” Adamson of the PDC. A little learning is a very dangerous thing.

By: Sargeant

Sargeant — Tue, 07 Jul 2009 13:47:28 +0000

LIB

Just think that if you had become President of Mexico we would have been deprived of your astute observations 

By: livinginbarbados

livinginbarbados — Tue, 07 Jul 2009 13:41:44 +0000

@PMAN
No bragging, but I did a lot of work in the 1980s to try to measure capital flight. Some fellow called Ernesto Zedillo was also one of the people I worked with, and Paul Luke. Ernesto was at Bank of Mexico at the time and went on to become president. Where did I go wrong? :-)

E&O is a good enough proxy in most cases, as that tends to capture the various illicit ways that people try to sneak money past the border. Remember that some legitimate capital outflows are also capital flying away.

Got to hit the road and try to improve Bimshire’s customer service. (Email works, see my blog for address.)

By: PMAN

PMAN — Tue, 07 Jul 2009 13:22:10 +0000

LIB,

“Capital flight is not a potential problem of much import, especially if you have capital controls that appear to work quite well. There’s a real limit to how much foreign currency cash people can accumulate and take out in suitcases. They cannot take their land and houses abroad, and they are important parts of the capital stock.”

Your comment above is interesting. However my recollection is that during the early 90’s there were quite large “unaccouted for”outflows and as soon as the government changed there was a reverse.

Maybe our capital controls are better now than during the 90’s.

You can check the Errors and Omissions of the Balance of Payments for that period. I could be wrong.I am just working on memory.

By: livinginbarbados

livinginbarbados — Tue, 07 Jul 2009 10:10:51 +0000

@David
I understand, but with something that is all pervasive (uncertainty), what particular aspects do you want to take into account?

Broadly speaking, that’s what you have to deal with all the time, so there is no sense in only having one plan. It’s bound to fail. You only have hope that what you expect turns out to be true.

By: David

David — Tue, 07 Jul 2009 09:42:17 +0000

In the context of a recession obviously.

By: livinginbarbados

livinginbarbados — Tue, 07 Jul 2009 08:40:14 +0000

@David
“How about uncertainty?” The world is full of it. Only death is certain.

By: David

David — Tue, 07 Jul 2009 07:52:12 +0000

How about uncertainty?

By: livinginbarbados

livinginbarbados — Tue, 07 Jul 2009 06:23:42 +0000

@PMAN
I think we’re agreed. Not much private investment is going on now in Barbados, and that may be because of shortage of available funding, unwillingness to pay the rates offered for funding, or both.

By: PMAN

PMAN — Tue, 07 Jul 2009 02:21:26 +0000

I do not know what the typical rate of return is for hotel operations, but I guess based on my previous experiences in banking that it is not very high.

When there is a shortage of funds, investors compete for those funds. This generally means higher interest rates.

What little money is available, hotel investors in Barbados will not be able to compete for it by offering higher rates.Given the modest returns on hotel investment in Barbados the investors would have little or nothing left after paying the bankers.

By: livinginbarbados

livinginbarbados — Tue, 07 Jul 2009 00:43:44 +0000

@PMAN
CORRECTION: FOUR Seasons…

By: livinginbarbados

livinginbarbados — Tue, 07 Jul 2009 00:41:10 +0000

@PMAN
“No guarantee that policies that try to restraint interest rates will lead to increase investment. We can be sure that increases in interest rates will reduce investment.” [Agreed on the first point. I don’t know where local borrowers are in terms of their being able to make desired investments at higher interest rates. In part, that reflects the fact that in a recessionary environment the pressure for rates to rise is much less, but also we may not be dealing with a substantial change, if say rates went from 6% to 7%. We need to know the expected rates of return and also what rates of return materialise. Investments here do not appear to be on hold due to cost, but more to lack of funds (see Cinnammon 88/Paradise/Fous Seasons) and or lower expected demand for the goods (hotel projects, say).

By: PMAN

PMAN — Mon, 06 Jul 2009 23:18:26 +0000

LIB, the anonymous above does not reflect my views.

At a time of uncertainty and declining output we should try everything to encourage investment and hopefully increase output.

No guarantee that policies that try to restraint interest rates will lead to increase investment. We can be sure that increases in interest rates will reduce investment.

By: Anonymous

Anonymous — Mon, 06 Jul 2009 19:52:03 +0000

LIB you should go back home for real and take your stupid accent from off of the radio!

I see that David Ellis run you off the radio!

Stupse! We dont need your advice!

TAKE YOURSELF OUT OF THE BAJANS BUSINESS!

By: livinginbarbados

livinginbarbados — Mon, 06 Jul 2009 18:47:37 +0000

@ Anonymous // July 6, 2009 at 12:33 pm
“The high interest rates would be detrimental to investment (not financial investment).” [You always need to remember that investors are those who need money (eg, borrowers to buy physical capital) and those who have money to ‘lend’, so you have a tension. Economic policy has to try to balance conflicts such as these. Hence the concern about a large government borrowing need: it will tend to raise rates and limit funds available for other borrowers. Part of the perversity is that those who should be investing in physical capital can find themselves tempted to defer that and use spare funds they have to benefit from investing this at higher rates. You can work through that.

By: Anonymous

Anonymous — Mon, 06 Jul 2009 16:33:34 +0000

LIB, Thanks for your explanation.

The high interest rates would be detrimental to investment (not financial investment). I am thinking about a change in physical capital. I am thinking it would cost more to buy equipment, put up building, etc. A reduction in this type of investment cannot be good for the economy.

By: livinginbarbados

livinginbarbados — Mon, 06 Jul 2009 13:22:38 +0000

@David
Some (not me) have said that Barbados has a low pain threshold when it comes to economic performance. If you ascribe to that notion, that will tell you something about likely outcomes in the next year or so.

By: David

David — Mon, 06 Jul 2009 13:15:44 +0000

In the early 90s if we recall correctly there was high unemployment, negligible foreign reserves, flight of capital which was a symptom of a lack of confidence in government, wasn’t there a public sector 8% cut? Both political and economic indicators were pointed firmly South.