Dr. Don Marshall, Senior Fellow, UWI Cave Hill
There comes a time in the affairs of man when he must take the bull by the tail and face the situation – W. C. Fields
The recent downgrade in the outlook of Barbados investment paper by Standards & Poors given our BBB rating continues to generate much debate in Barbados. What seems to be fuelling the debate even more is the hint that a downgrade to our investment grade maybe around the corner given the rapid rate Barbados continues to accumulate debt. Barbadians have become alarmed at the prospect of having its investment paper perched at the brink of junk rating, a status most unfamiliar to Barbadians through the years. The fallout from attracting low credit rating by the credit rating agencies is the high cost to borrow if Barbados needs to float bonds in the capital markets.
Isn’t it ironic the current financial crisis which precipitated the global recession and led developing countries like Barbados to go enter an economic tailspin would have to suffer the penalty of credit rating downgrades by agencies which played a part to begin with? BU rejects the explanation by Professor Dr. Avinash Persaud that the credit rating agencies failed when rating structured products and not country ratings. How can one excuse the model for one area of their business over the next?
Dr. Avinash D. Persaud, Chairman of Intelligence Capital Ltd
The current debate from the academics has tossed out some interesting takeaways for John Citizen. In one corner we have the world renown Barbadian Professor Dr. Avinash Persaud who believes the imminent downgrade of Barbados investment paper to junk status will be disastrous and must be avoided at all cost. In the other corner we have the homegrown Senior Fellow at UWI Sir Arthur Lewis Institute Dr. Don Marshall who believes Barbados should seize the opportunity to find creative ways to reduce government spending and enable the environment to encourage entrepreneurial projects to lead growth by expanding exports. He has been very bold by suggesting the Barbados Defence Force should be bastardized to support the police recruitment drive to benefit from opportunity cost savings.
BU is on the side of Dr. Don Marshall. Interestingly we are about to celebrate our 43 year of independence and Dr. Marshall has been strident in advocating the dismantlement of the Barrow (Father of Independence) model which has served us well. The billions of dollars which Barbados has invested in our people in the post-independence period now has to spew forth results. It is crunch time! In makes no sense boasting of how Barbados has used education to enfranchise its people but we continue to build out an economy based on mendicancy i.e. tourism and foreign direct investment
It seems the opposition party remains fixed on sucking political mileage from the defensive economic position the government finds itself. The political polarization in Barbados makes it mandatory that both political parties demonstrate leadership to bring the country together now more than ever to generate ideas. What better time than in the month of November to do it.
Every sound of the drum you hear
Is an african beat
Very well
I’m leaving
http://555dubstreet.wordpress.com/2009/11/17/very-well/
Detour
http://555dubstreet.wordpress.com/2009/11/17/detour/
wolves and leopards
http://555dubstreet.wordpress.com/2009/11/18/wolves-and-leopards/
Step On The Dragon
http://555dubstreet.wordpress.com/2009/11/17/step-on-the-dragon/
Bless you Kiki!
Hi David,
Thanks for emailing me. Interesting thread.
I’d respectfully suggest that Persaud and Marshall are not occupying positions that necessitate a one-or-the-other judgement (at least judging from what is in your piece).
Take the idea that you touch on of encouraging entrepreneurialship. If you have seen this:
http://www.vimeo.com/7056067
you might conclude that Persaud also supports the notion in concrete rather than rhetorical terms. To my ear he also says several things that are critical of BOTH past and current administrations. Politicise the man one may but it would be useful to separate his factual arguments from indulgence in the mischievous alchemy of the inference-to-certainty game.
More generally, Persaud’s criticism that the government has delayed and prayed when it comes to securing contingency funding hardly appears a political point at heart. Suppose, for example, that on top of the daily demands of running the people’s business during a devastating credit crunch that an enormous contingent liability, entered into on a discretionary basis and equal to, say, 3% or >$200m of GDP, comes catastrophically due. Does anyone imagine that this – or even some smaller fraction of it – can be readily covered? Is it mainly political to suggest that “hope for the best but plan for the worst” is superior policy to kicking the can down the road? Only when viewed exclusively through a partisan prism.
One commenter makes the point that if, as the previous government argued, the country’s debt is manageable because much of it is held locally then it must still be. That was an argument aimed at mitigating currency risk concerns and a nod to the large amounts held by the NIS. Surely fair comment though it is worth noting that not only has the debt continued to rise but at least one local mutual fund has unusually (and publicly last week) decided to stop holding Barbados paper. This is a very important change of context not taken account of nor widely noted so far as I can tell.
There’s also the suggestion that, contrary to what anti-government partisans say, Barbados is merely suffering the same pain as others and not some unique, self-inflicted form of economic purgatory. That is largely true. But if one considers the extend-and-pretend treatment afforded Clico Holdings (the contingent liability referred to obliquely above) and gives fair hearing to the Persaud argument that better “rainy day” funding terms should have been secured many months ago it is quite far from being completely true. Of course, that’s just a view not a fact. Perhaps it will all come good.
I do not know what else Persaud might have said to draw the ire of BU and others but fairness suggests articulating it in factual terms in order to dismiss it.
Regarding the comment on ratings agencies, to conclude that assessing countries and financial instruments is such a similar exercise that the failings of one must apply to the other does not bear much scrutiny. If you are able to point to a single disastrously wrong example of a S&P (or other major) country assessment (insofar as it is possible to separate the impact of the collapse of credit from these) please cite it. Further, and with the notable exception of Egan-Jones the major raters had serious conflicts of interest with product ratings arising out of their remuneration method – they got paid by the sellers of the instrument they rated. The rewards for country assessments pale into insignificance.
That said, there does exist a strong alternative case for downplaying the relevance of country assessments: they are too conservative and invariably behind the curve. When they do pronounce it is generally the case that they are merely stating the obvious. Is there truly anyone who was genuinely surprised by the negative watch announcement?
Finally, who could disagree with the sentiment of your concluding paragraph? But it does seem a little one-eyed to imply that the opposition enjoys a monopoly of “sucking political mileage” out of the current circumstances. Both sides seem to be doing a quite magnificent job on that front and the electorate will judge each accordingly come voting time.
[As a small aside and without, again, the benefit of the original sources of what was argued I’d also suggest that whilst having soldiers do police work has precedents these have regularly been difficult episodes. Different training, very different purposes – overlapping duties would require careful terms of reference.]
The Barbados labour Party told us that Thompy was taking his que from the IMF.
———–
The IMF “Directors encouraged the authorities to develop a credible medium-term fiscal adjustment plan and start with its implementation, as soon as possible. They were of the view that, if left unchecked, the large fiscal deficits, combined with an uncertain foreign financing outlook, could result in A DETERIORATION IN INVESTOR CONFIDENCE. A concerted adjustment effort was, therefore, crucial to countering such a risk, by reducing fiscal financing needs, supporting the balance of payments, and placing public debt on a firm downward path”.
————————————————
Thompson did not do this and hence the S&P downgrade.
The BLP said on September 18th….
The Barbados economy is so perilously placed at the moment that it is only one shock away from disaster. The indices like GDP and foreign reserves that should be up are down
————————————————
Lets look at some stats
Baseline: External debt for 2007 46.5%
Baseline: External debt for 2009 50.5%
Imports 2007 62.0%
Exports 2007 68.7%
Imports 2009 53.9%
Imports 2009 57.0%
Public sector debt 2007 103.3%
Public sector debt 2007 115.1%
International reserves, which declined by almost US$100 million in 2008, are likely to broadly stabilize during 2009, boosted by the recent placement abroad of a US$120 million government bond and by SDR allocations of around US$90 million.
The external current account deficit would narrow from 10½ percent of GDP in 2008 to 5¼ percent in 2009, and remain below 6 percent in 2010.
————————————————
Gross international reserves (in months of imports of G&S) 1 2007 4.0
Gross international reserves (in months of imports of G&S) 2009 4.2
@Rawdon
Thanks as always for your input on matters of this nature even though some of your commentary rubbishes BU positions, we can handle it.
The last paragraph was made in the context the Prime Minister David Thompson making a public invite to former PM Arthur, Richie Haynes and Sir Erskine to join him at a breakfast meeting to discuss matters of state.
You obviously are not comfortable with the mouthings and subsequent actions of government regarding the management of the CLICO problem (feel free to get more granular given how the transaction as progressed since your last comment on the matter).
BU has nothing against Dr. Persaud and we are glad when a son of the soil represents the blue yellow at the lofty heights he obviously operates. It does not remove the obligation on our part to ask him to declare his relationship with leader of the opposition Mia Mottley.
Despite your dismissal of BU’s point which questions the decision making process of CAs regarding not only structured products but country ratings Internet searches are replete with examples of conflicting positions between the CAs when establishing country ratings, maybe it is gods mercy one or the other has not been proved wrong yet.
BU expects to post a commentary on the Barbados economy late Thursday night provided by one of our home grown academics.
The foreign exchange reserves are reported at 20.7 weeks of import cover. So the level of reserves can hardly be the concern of the rating agencies.
The foreign exchange reserves have been boosted by funds raised on the T&T capital market. Whether this could have been raised earlier at cheaper rates is debatable. Speed is not everything, getting it right is also quite important.
If Persaud did in fact comment that ” the government has delayed and prayed when it comes to securing contingency funding,” I would find that comment an unfair if not inaccurate one.
Persaud, as knowledgeable as he is, often manages to give the impression that everything can be done overnight.
As far as I am aware the funds raised on the TT market were in hand by June of this year. Surely one can appreciate that that there is a lag between a govt deciding on a bond issue, the actual process of placing the bond and receiving the funds.
When it comes to rating agencies and governments I suggest a read of the article found at this link.
http://www.people.hbs.edu/rabdelal/ToJudgeLeviathan.pdf
@David,
I would not want to “rubbish” anyone. Cordial debate is all.
Re Clico I am aware this is taboo area but you are right – I think it was an error not to underwrite the balance sheet of the company as preparation for a sale. Fixating on the policyholders may actually have hollowed out the commercial viability of the company (in terms of the signal it sent to the largest holders of Clico instruments) rather than shoring it up; and has laid a large contingent liability upon the shoulders of taxpayers at a fiscally inopportune moment. Just a view.
@TE, David: CAs on soveriegns is not a perfect relationship. I don’t suggest this. That link to the HBS paper (thanks) highlights some of the issues of economic dogma in hand with real politik (in broad terms) for sovereigns. This is quite distinct – and of a different financial scale too – from the corrupt and morally questionable interactions that occurred between the CAs and IBs.
@TE, timing point taken. It does, of course, matter which point is chosen as that at which the clock began ticking.
The “delay and pray” is poetic license but not an unfair characterisation of Persaud’s comments in that clip. But I accept that the subtext is up for debate.
@Rawdon
The rubbish comment was made tongue and cheek, no offence taken at all.
Denis, what you think of any blogger is your business. Background information on people like you is important. You have access to certain information from the privileged position you hold.
And now you have background information about me. Or so you say. And who cares? Did you talk to the US security forces again? Or the diplomatic representatives of the mother country? Good.
You have a nasty strategy of making broad sweeping statements about Barbados and people who live here and then when questioned on your innacuracies, you smugly and dangerously start to pull back.
You also have a latent dislike of this country. You can’t conceal it. Your writings, your topic selection, your snide put-downs, your supercilious rantings. You are one unhappy person living in a great country.
Sad.
Barbadians should know that you make such statements from such a privileged IMF position! Simple. Amazing too.
Publicist? Did that disturb you? Why? Its your reputation. The only word I forgot was (self) publicist.
Natty Dread Nah Run
http://555dubstreet.wordpress.com/2009/11/19/natty-dread-nah-run/
Warrior
http://555dubstreet.wordpress.com/2009/11/19/warrior-2/
@Veritas,
One thing that is not contestible is that people who do not reveal themselves clearly have something to hide. What? Why? What is the fear? We may never know, but hiding they are.
I do not need to check on an unknown person, but I can play the game of pretending I know something about someone and leave the impression that I have knowledge. It’s an empty exercise though.
What is clear is that I write about a wide range of topics but some you do not like or on which you have differing views. If you wished the world to know your views then you too could write and let those who share your views say “Yea” and the others say “Nay”. But that is the joy of democracies and I love being able to have my views out there for others to dissect.
As for privileged positions, I would gladly offer you a day of mine any time.
Read again what you wrote: “You have a nasty strategy of making broad sweeping statements about Barbados and people who live here”. Hang on. Isn’t that ‘nasty strategy’ what we read every day on this blog and in the papers–sweeping statements about Barbados and people who live here?
On inaccuracies, I notice a tendency of some who when asked to corroborate what they claim as errors have a veritable habit of going dreadfully silent. Hmm.
Odd choice of name, Veritas, coming as it does from the goddess of ‘Truth’ and the mother of ‘Virtue’. Would that we knew them well.
I agree with LIB, and I as a Bajan personally feel that he is in a somewhat unique position to look at our country from a failry objective perspective. If you don’t like the truth and are in denial it is dangerous, as time is now of the essence.
DLP rode into power a couple of years ago ready to make sweeping changes in integrity, transparency, anti-corruption and so on. These would have made our country accoutable to itself. But all for nought as the background noise and blogsquabbling seems to eclipse the true needs of this once non-corrupt island. Do you hear me? I said “once non-corrupted”.
DLP appears to be merely tinkering, in a dangerous hands-off way, but when it comes to making new government contracts or doling out cash for bailouts moving ahead happily, playing what appears to be a duplicitous game with our tax finances, while we worry about how to make up a deficit.
That’s the way I see DLP, and I too am part of your mirror reflection today, Barbados.
DLP needs to get more seriously hands-on about our island’s financial safety and fulfill more of its given mandate, the mandate that was promised, the mandate of integrity, that we the voters exchanged for our vote.
Otherwise we’ll always have treasury leakage and corruption in office. Maybe if we the masses could know that our government contracts were made with integrity, and some accountability, then we would be more satisfied to deal with having a deficit to make up.
Make political milking of the treasury part of the past, DLP, and then you’ll have better support of the masses again. If you don’t you’ll see more people (like this) speaking out on the blogs and/or on the street.
Enjoy your time and diligently be mindful of what you promised.
@Veritas,
I’m very happy to be judged, and I hope you are too. To help your memory, let others see how good you are at dealing with inconvenient truths.
The thread below (from BU’s post “Walking on Thin Air” http://bajan.wordpress.com/2009/10/12/walking-on-thin-air/), on the UN Human Development Index is to me telling.
I had written on my blog that Barbados’ ranking had slipped. Another reader said that was not so. I cited the UN figures, which showed the fall. You still argued that there was no fall. Despite what you said, local politicians eventually got their teeth into this issue, see http://www.barbadosadvocate.com/newsitem.asp?more=politics&NewsID=7094. Senator Liz Thompson wanted to say the drop was due to the current DLP government. Former PM, Sir Lloyd Erskine Sandiford, pointed out that given the timing of the data in the report any decline should be seen as due to the former BLP administration. Under his administration he claimed the index reached its highest level.
So are you going to argue that the former DLP PM and BLP’s Senator Liz Thompson are all in some conspiracy with me to mislead Barbados?
++++++++++++++++++
Veritas // October 18, 2009 at 3:43 PM
DJ, my point is simple. Your glee was evident, if we had slipped. Pity. We didn’t so you were silent after your error was reveald. Simple.
#
Anonymous // October 18, 2009 at 3:54 PM
@Veritas, what I dislike about certain exchanges is a simple thing: cherry picking. I cited two reports by the UN which showed clearly that Barbados’ position has changed (I did not make up the numbers as you suggested; I gave the references. Did you look at them?). I give the references. You make no note of that (as if they do not exist). I did not produce the reports. A note in the latest UN report makes a point inconsistent with their own published works and you focus on that as fact to contradict. That’s not how one establishes a fact.
The fact that most of the piece does not even discuss Barbados is not of interest to you. I call that a bit blinkered. But, there you go.
If you have looked at the UN reports could you write a sentence that squares their internal contradictions?
#
Anonymous // October 18, 2009 at 3:55 PM
Anonymous // October 18, 2009 at 3:54 PM is Dennis Jones (aka Living in Barbados)…
#
Veritas // October 18, 2009 at 4:26 PM
DJ, you are jesting I am sure. Selective? Did you carry out the same analysis for Jamaica to see if there were contradictions? Or Bahamas? Or the United States? Was your analysis broad-based or are you just a publicity seeker?
Use your knowledge wisely, please.
#
Anonymous // October 18, 2009 at 4:44 PM
@Veritas, for me there was no contradiction as I was using the raw statistics of two reports, not relying on what one report told me had been the historical development. I did raise the question of the apparent inconsisteny with UNHDR via their website but as is common with large bureaucracies I am still awaiting a reply.
I don’t see the readership that my blog gets as giving much real publicity. As the piece had not generated more than my average 1-2 comments, I did not think it hit anybody especially more than other things I write.
#
Dennis Jones (aka Living in Barbados) // October 18, 2009 at 4:58 PM
@Veritas. What a quick check shows is a series of inconsistencies. I compared the raw 2009 report data against the raw 2007/8 report (first figure; and the bases for my commentary) and then what the 2009 report indicates was the change with the 2007/8 report (in a summary table that I did not use): US (-1/-1); Bahamas (-3/0); Antigua (+10/+1); Jamaica (-1/-8); Barbados (-6/+2).
Don’t ask me why the figures differ, but I will let you know if UNHDR reply.
++++++++
After that last point, your interest seemed to go cold. Why?
That’s me done.
The DLP did say all along that management of the economy was not important and that they will concentrate on social issues and leave the management of the economy to the public servants who were well trained.
It is not clear for all to see that the management of the economy is indeed critical and that the DLP does not know what it is doing.
Here is unemployment under DLP rule:
1987 17.9
1988 17.3 (average based on information provided)
1989 15.4 (average based on information provided)
1990 15.0
Elections: DLP re-elected. Unemployment began its climb under the DLP starting from 1990.
1991 20.3
1992 23.0
1992 25.0 (4th quarter)
1993 26.2 (2nd quarter)
1993 24.3
1994 21.1
1994 21.7 (3rd quarter)
The BLP inherited unemployment at
1995 19.6
The DLP is heading back there fast. What “Pathway to Progress?” Seems more like highway to poverty.
In 1994 Mr. Thompson held out “BUS FARE AND LUNCH MONEY AS HIS EMPLOYMENT MODEL. In 2009, he improves on that by telling university students that he cannot find jobs for any body. SHAME!!!.
Sorry if the number do not line up for ease of reading. But I will explain if required.
@RJH Adams
Rawdon,
Many of the comments on the thread reflect that people have not read or listened to most of what Prof. Persaud has said recently or over the past 12 months. His piece in this week’s Business Barbados, http://www.businessbarbados.com/wordpress/?p=271, gives a good summary of his proposals for what the government should be doing, as well as some issues about what some officials have been arguing. One section worth noting I reproduce below:
‘The bottom line is this. Barbados like all other Caricom nations is facing a significant loss of demand and it has no fiscal room for maneuver. This means we can only do five things. (1) We must improve the value for money for every dollar the Government does spend – there is no room for superfluous spending (2) The central bank must busy itself helping banks give forbearance to solvent companies in liquidity difficulties – especially those who commit to holding on to staff. The Bank’s idea of facilitating a loan repayment moratorium is a good one but needs to be better thought through than it has been. (3) We need to better make use of all of the resources from the multilateral agencies we have access to. If they want to lend us money to build a waste to energy plant and this reinforces our broad if not detailed strategy – what are we waiting for? (4) Government must prioritise big projects that have been stalled and ease obstacles without spending cash. (5) The government needs to soften the impact of unemployment on the most vulnerable and keep them engaged in working life.
The Government has announced steps in all of these directions. S&P is telling us we are running out of time and we need to up the pace and persistence. I hope we hear otherwise it is not us who will be having the last laugh.’
He also puts into good context some comments that suggest that Barbados’ reserves are at a comfortable level by some international norms. Like him, I think the danger is for people to think that 20 weeks of cover is adequate in current conditions.
I think there is a great misunderstanding about the role of the credit agencies and you highlight some. One of them for me is that without the ratings, investors would need to do more of their own due diligence and that would require a level of openness about government finances that is considerably more than now. The other point is that there are always lenders who are not concerned by a borrower’s credit worthiness. Amongst nations, the Republic of China comes to mind as a lender with very deep pockets who will be guided by its own socio-economic-political agenda when lending but it always has bilateral conditions of some sort, and these often relate to how the loan is collateralised (eg by minerals) or how the proceeds are used (eg using Chinese workers and materials). [China's activities in Africa are clear testimony to this.] Amongst private individuals and corporations we know that there are many ‘shady’ financiers, some of whose funding comes from illicit sources and some of whom will give what turns out not to be real money but have gained real assets in exchange and then flown into thin air. The Caribbean has a few cases like that in the courts. But they too will want their conditions, often leverage, political access, and access to government contracts: we will see to what extent Allen Stanford was one of those.
I think the dealings over CLICO/CL Financial contain a potential time bomb of contingent liabilities that will limit the government’s room for maneouvre, and these are not yet reflected in any debt statistics.
Finally, on the ‘comfort’ that comes from having moved to more domestic debt financing. To me, the main advantage is that (like the US can), a country can print money to get out of a debt problem but there will ultimately be a price to pay for that. That should mean that the exchange rate should depreciate (as with the USD and the Pound currently) but with a fixed rate peg, the country will get stuck and the ‘pain’ will have to be borne elsewhere, often with unemployment. People need to understand that trade off.
@ Alex Fergusson // November 19, 2009 at 9:32 AM
“The DLP did say all along that management of the economy was not important and that they will concentrate on social issues and leave the management of the economy to the public servants who were well trained.” [Anyone who took that seriously really does not understand how the world works, which may sadly mean a lot of people.]
Take politics out of your analysis, unless you can show how the DLP itself ’caused’ unemployment. Look at the associated economic situation that went with those unemployment levels. I do not have figures to hand, but look for instance at what happened in say The Bahamas (more or less similar to Barbados in size and many aspects of economic structure and management), the US and UK for the same time periods. If the trend in Barbados was hugely divergent then you may be able to point the finger at the politicians. That approach also has its flaws but it also allows you to build or walk away from your case.
Hello Dennis,
Thank you for pointing to that link – I’ve never come across the site before.
@RJH Adams
Rawdon, you’re welcome. The site was launched this week; the PM had the honour of doing that.
Keep up the great analyses on Capital Chronicle.
What is the matter Lowdown, the Nation editors barred you from citing you blog source? Woe to freedom of speech
BTW a colun written in your own immitable style which features the Bio of the Barbados Broadcasting Athority would be hilarious:
CLENNELL BYNOE (chairman), George Pilgrim, John Haynes, Rev. Kim Welch, Mr Devonish (Telecoms Unit) and Mr Callender (G.I.S.)
The crisis in barbados is the DLP. Here is why:
Barbados has a debt to DGP ratio of some 8% and climbing out of control but which is neither being used for stimulus or stabilization.
This is therefore a new era in recklessness and irresponsibility by the DLP, even by its standards
What is the DLP doing to restore the balance between its entitlements programmes and enterprise creation?
What is the DLP doing to protect the financial position of Barbados’ key producing enterprises so that when the recession lifts and demand resurges, this country’s production systems are able to respond?
An issue of truth and judgment
+++++++++++++++
Locally, tourism receipts are down by $150 million but Prime Minister Thompson said recently that Barbados does not have a cashflow problem.
Barbados borrowed US$150 million from T&T recently – their Central Bank should know.
But here is what PM Manning in T&T told the world yersterday:
“And may I say that whereas most countries are experiencing a shortage of cash in the domestic financial system, we in Trinidad and Tobago are battling against a liquidity problem, with the Central Bank having to intervene to keep matters on an even keel.” He added: “Our doors are open and we are willing to partner with foreign investors as long as their policies are in accord with that of the Government and are in the best interest of the people of T&T.”