The IMF Executive Board published its 2010 Article IV Consultation with Barbados and as you would expect all the local media channels are abuzz with its findings. The truth is BU attempted to read the 43 page document and gave up in fairly quick time after being nauseated by the feeling of déjà vu. We decided to get a local perspective by reading the Barbados Economic Society blog titled BES Survey of Economists’ Expectations – Q3 2010 and that did not help to improve our outlook for the economic forecast for Barbados. A surprisingly high number of local economists anticipate some growth even if it is marginal.
The reality has finally taken root that Barbadians just do not get it!
A layman analysis by BU supports the view that the government judging by its recent budget is relying on revenue measures to attack the burgeoning deficit. We have therefore seen the most significant increases in the VAT rate to 17.5% and a 50% increase on the excise tax on gasoline. All the experts seem to be suggesting based on the numbers that the inevitable will have to happen if the government insist on its current policy. Bear in mind the government has promised in a very uncertain economic environment to balance the budget by 2015/2015 fiscal year.
BU suspect this is a pie in the sky projection.
Back to why we have been feeling nauseated. We have blogged on it before and it merits repeating. The economic model which fuelled much of Barbados’ success before the world economy went belly-up was unsustainable. We relied mainly on tourism and foreign direct investment. Obviously a successful tourist product is 100% dependent on favourable economic conditions in the external markets. Secondly foreign direct investment was real estate driven on our 166 square mile little rock. Central Bank reports confirm significant growth in bank lending for mortgages and building related loans in the period leading up to the global crash. Can there be any reasonable analysis posited to support buoyant sustained economic activity based on foreigners pumping money into real estate and construction in Barbados?
BU say no!
Barbados public debt is expected to rise to well over 100% of gross domestic product in the current fiscal year. A very disturbing forecast indeed. Minister Sinckler delivered the politically correct statement during the budget that the government will be protecting jobs which he used to explain the government’s astronomical rise in debt. Our ‘army of occupation’ appears to have risen from twenty one thousand plus in 1994 to over thirty thousand in 2009 without any commensurate increase in national productivity. The government finds itself in a corner with few options open to it if revenues continue to suffer. Next on the table will be to aggressively reform the public sector which the United Kingdom has already started and to levy user fees on education and health services. There goes our socialist policies and the mendacity which it has incubated.
The political dynamic at play for the DLP government raises the spectre of 1991 all over again. No way will they want a ‘2peat’.
It is time our government confronts the problem facing it. It is noble to want to keep Barbadians employed but to do so by unsustainable means compares equally to when the Arthur administration racked up debt because a ratio indicator suggested Barbados had the capacity to repay loans. Despite our touted high literacy, we never learned from the simple philosophy of the ant and now we will have to pay a very expensive price. Even in the face of a global economy in the soup, Barbadians who have never had to confront lean years are demonstrating they do not have the mental or intellectual capacity to brainstorm their way out of the mess we find ourselves.
It was ironic to listen to an academic in the news last week opining that Barbados will have to diversify its productive sectors if it expects to create capacity in the economy to fuel growth.
It is time we get our best and brightest from at home and abroad and let us strategize and mobilize to position Barbados for future success. On the current path we are headed …
Let us thank God for the National Insurance Fund!
Barbados Underground 
@ jack spratt | December 18, 2010 at 10:31 AM |
And what did she do when she was in charge of economic affairs?
You must read:
In the 2010 Estimates, Miss Mottley reminded the country that in 2007 when it looked as though the competitive benefits with China would go, as Minister of International Business – she went to China to discuss Barbados being given more time to allow for the repositioning of its marketing strategy with China as well as Barbados’ business model in the International Business Sector.
According to her, those discussions were extremely successful and as a result, Barbados was able to gain an additional two-and-a-half years in respect of those amendments to the Barbados-China treaty. The intention was to use Barbados as an outward investment domicile for Chinese surplus capital into the rest of the world, in the same way that we had done with Canada.
When Miss Mottley was Minister of Economic Development, the Parliament of Barbados passed the International Arbitration Bill. That Bill was intended to position Barbados as a centre for international arbitration for the rest of the world. To Miss Mottley’s credit, the London Court of Arbitration, which had said “NO” to the Australians’ request to do similar – said “YES” to Barbados. Unfortunately, Barbados lost that opportunity and India became the recipient of the Court.
In her 2010 Estimates presentation – Miss Mottley queried the status of the 495,000 pounds Euro grant from the European Union brokered during her tenure, which was intended to develop an educational institution at the University of the West Indies to prepare Barbadians to occupy better positions in the International Business Sector. As I understand it, there was also to be a partnership with the University of Toronto. Unfortunately, no further action has been taken on these matters.
Another area raised by Miss Mottley in the 2010 Estimates in March was: ‘The Special Technical Assistance Programme,’ which had helped up to 495 businesses up to the end of 2007 in the repositioning of their companies in order to meet the more liberalized environment. Miss Mottley expressed shock that the vote was cut from $6 million to $4 million when it was needed most.
It is said that Barbados now has potential for an offshore oil exploration Programme after she successfully won a battle with Trinidad in maritime boundaries dispute when she served as Attorney General.
***Listen, consistent with the standards set by Mr. Thompson, I will not cheat! I will not steal and I will not lie. Enough of the distractions! Now let’s have a serious conversation about the way forward. ***
@Bajan Panday:
What practical benefits to Barbados do you see from the 495 companies who received this STAP aid?
Please respond.
@ David
“The socialist/welfare model which has served us well has reached its tether as evidenced by what is happening in the UK.”
Was this not done during the Thatcherite years? I never knew you were a supporter of market-driven policies?
After all the rhetoric, I want to know where in the private sector these 20,000 jobs would come from?
@ Zoe
“…. and mortgage debt in excess of $1.1 Billion? What exactly do these figures reveal about our society?
According to David it is promoting ‘ sense of belonging’.
@Enuff
Please don’t bend what was stated. That comment was made relative to West Indians needing to own piece of land as part of satisfying a sense of belonging.
@David,”own piece of land”
Every descendant of slaves should make it one of their ambitions.
Do any of you remember living on tenantry land and having to put your house on a truck and move it if the plantation or the Government wanted the house spot?
The Good, The Bad
The Ugly & The Crazy
USA Wild Wild West
@Hants “Every descendant of slaves should make it one of their ambitions.”
Why should the slaves and their decendents be made to work 75% of their lives for only a house spot?
When slave owners and their decendents ent pay a cent for whole plantations!
Question for anyone.
I is wonder how stupid are smart people? How can the whole world go into recession at the same time? So who has the money then? Where has all the money gone? Can someone explain?
To reposition Barbados the Government needs to do the following:
1. Privatise the Transport Board as was done with UCAL. Also make school children and pensioners pay some cost for use of the service. Make police officers pay full fare.
2. Privatise the works section of MTW. Make them bid for certain jobs and also contract them to carry out road repairs.
3. Outsource cleaning and other such activities at the various government departments.
4. Privatise CBC.
5. Barbados is too small for 30 constituencies and 21 senators.
Constituency councils should be eliminated as constituted. Reduce the number of ministries by amalgamation. Rural and Urban Development commissions should be morphed into one entity. There are several other agencies and departments which can be merged also.
6. Make students pay 10% of their tuition cost at UWI, SJPP, Erdistion and BCC.
7. Use attrition as one of the means of reducing the civil service i.e. retirement, resignations and medically unfit persons.
8. Make departments charge persons the true cost for services as apposed to the meagre sums charged. This would reduce or eliminate transfers and the need for budget supplementaries.
9. Develop our energy sector vis-a-vis off shore drilling and exploration. Install pv and wind systems at government facilities and schools to augment their power requirements. Look at converting our sewerage plants to provide biogas which can then be used to generate power.
10. We provide universal free health care but it is costly and needs to be revisited. Charge users of the QEH and the various Polyclinics a minimum charge of say $10 per visit. This 20% of what my doctor charges me per visit.
11. Eliminate the reverse tax credit of $1300.00. It is discriminatory.
12. Revitalize the manufacturing and agricultural sectors. Understand that we need to export finished top quality products made from our sugar and cotton. Develop coops in these industries as a means of improving production and efficiencies.
What i have outlined above will not find favour with everyone, but i put them up for discussion.
@Snipes
Thanks for your points, Hants will be pleased when he read.
Many of your points if they were to be implemented would be a good precursor to improving efficiency in government and reducing public expenditure.
Along with your suggestions we have to also identify significant strategies to reform/reorder our productive sectors.
BAFBFP | December 16, 2010 at 9:51 PM | You know Sarge Cow Williams a year and a half ago said that Barbados’ Best and Brightest were gravitating towards Real Estate and Construction because this was where the opportunities existed. Hmmm, go figure!
+++++++++++
I am perhaps taking this comment out of context. I have also taken it from another thread.
If it is really true that Barbados’ Best and Brightest are gravitating to Real Estate and Construction may God have mercy on Barbados.
Both of these sectors require resources that are physically limited because of the physical size of the island so both of these sectors are of themselves physically limited.
The best and the brightest will not follow a path with a dead end.
It is a fact that all of the easily available 6/7ths of the island’s water resources have been fully committed since 1995/96.
It is a fact that this situation is obvious to even the dumbest and worst amongst us because even the dumbest and worst amongst us can understand that Barbados is small!!!
The politicians even have it in their economic reports but are so taken up with $ as a unit of measure that they don’t understand the significance of gallons … or cubic metres!!
These two sectors flourish because our best and brightest have long left these shores since large scale emigration begun first to Panama, the US through Ellis Island and the UK after WWII and the path our “leaders” have chosen is to realise or “sell off” the family silver.
That is all they are capable of imagining or doing.
For a period some of us will make handsome returns, but when that period is expired, all of us will suck salt.
What those who left from the days of Panama took with them is their work ethic.
This characterised what was best in Barbados.
This is what makes followers actually follow leaders and separates leaders from the pack.
It is difficult to sit around doing nothing and going nowhere when leaders are moving forward through hardwork and setting an example.
You want to be one too.
It is the best we miss, not necessarily the brightest.
The brightest among us do have a contribution to make but many are cobbled by a lack of what makes them the best and that is work ethic.
They need like the rest of us to become the best.
So, David you have never spoken a truer word than when you answered no to the question you posed in the beginning:
“Can there be any reasonable analysis posited to support buoyant sustained economic activity based on foreigners pumping money into real estate and construction in Barbados?
BU say no! ”
It is common sense …. and I am neither one of the best or the brightest.
It is staring us right in the face.
@readydone
The money never existed but on paper or digital files or shares. fact is most of worlds money exist this way. This way allows you to make money from nothing in fact or vice versa lose it. That why there is normally huge difference between a company capitalization (total share worth ) and it assets. For most companies if the share price dropped 50% that a loss of 50% of the market capitalization for a billion dollar company that could mean a loss of 50 billion dollars to the investors. Now to get to that 50 billion, many share would have traded hand but nowhere near 50 billion dollars worth. by share trading between people the change exchange price would drive the current market prices. For Simple example Suppose at a IPO share where priced at $20. Now a few of person who bought share and wanted to invest in something else sell the shares for $1 extra. This contunies until share are worth $40 now. Now the market cap is now double the IPO but vast majority shares never trade hands. this leaves 100% growth but most of the money came from nowhere really. Sound like easy way to make up money. Now reality say they can’t ever get back all at that prices unless some does a takeover or the company buy back shares but then suppose they place loan based on those share values. they have net worth but what the actual worth. Now compound that problem by 1000’s of companies with other momentary issue such as insurance , mutual funds etc. and people who have loans based on them and we how really messed up the system can be. Now While actual worth is not a issue since probability of buyout or buyback are small. The main issue is now the capital repayment for the loans. If those stop then the systems collapses in on itself. So back in 2008 the jacked up interest rate in the states which was done to try to fight back inflation cause as much. The loans that people got that was based on majoirty payments of there salary was now greater than what they could pay as such people started en mass to defaults. this default lead the banks defaulting on their own payments to bigger banks and so forth. this is what really caused meltdown. with loan portfolios sold and resold and resold yet more. they couldn’t repay this lead to no liquidity in that market. Therefore with noway to pay their own bills they companies folded in on themselves and took who ever with them. This is why the fed had to inject money into these companies to stabilize the biggest ones. That basically how we got to today.
… the best and brightest do not follow a path to a dead end!!!
@ David
I bent nothing. This premise that land ownership equals belonging is why there is that $1.1 billion of mortgage debt.
@ Hants
That situation has been substantially reduced through sensible legislation.
Question for anyone.
I is wonder how stupid are smart people? How can the whole world go into recession at the same time? So who has the money then? Where has all the money gone? Can someone explain?
==========================================
There are credible theories in the public domain about the financial shenanigans (Secret or dishonest activity or maneuvering) of Financial Institutions which duped the rest of the world due to the complex nature of CDO’s MBS’s and Derivatives traded off book with no accountability of the underlying asset compositions
http://www.newswithviews.com/Spingola/deanna112.htm
@Enuff
One should always analyse the numbers e.g. what percentage of the 1.1 billion is residential versus commercial? Is the value of real estate inflated in Barbados? We are trying to be dispassionate here.
@ David
Simple common sense would lead one to conclude that the majority of the mortgagees are individuals (residential) and not companies (commercial); though commercial could constitute a larger % in terms of dollar amount.
Inflated prices? Isn’t this driven by public perception? What/who fuels this perception?
@Enuff
We are talking about quantum here in the context of hard dollars. There is no perception as you term it, it is known by some that the real estate values are ‘managed’ by the stakeholders. Let agree to disagree and you can have the last word.
@ David,
The real estate industry is responding to the FEAR created in the public by the constant talk of shortages, foreigners, owning land, belonging, change of use etc. The public’s perception on which this fear is based is what I am talking about, not whether inflated prices are real or perceived.
We both know that residential mortgages represent a substantial part of that $1.1 billion even if not the majority. As a regular supporter of the argument that Bajans need to stop living above their means, I would have expected you to identify mortgages as a first area to be addressed.
@Enuff
Check Central Bank report, you will see that mortgage lending continues unabated despite the fear you mention. BU will not* attack the right of Bajans to own their own homes. We prefer to attack the cost of doing so.
BU accepts the point that residential mortgages is greater than commercial. We also recognize given the length of time it takes to complete the mortgage process with a financial company that there is a figure missing from the Central Bank report which is probably listed under other loans/overdraft commonly described as bridging finance.
As the old saying goes “ Figures don’t lie but liars can figure”, surely the amount of 1.1 billion in mortgages does not tell us anything when it is presented in a vacuum. We do not know what the average mortgage is as a percentage of the unit value, or what the mortgage represents as a percentage of overall indebtedness. There are also many mortgages for multi occupancy units where the owner occupies part of the dwelling and the other units are rented which does not necessarily address the problem of Bajans owning their own homes but does alleviate a housing need.
In the past one could obtain a mortgage for multi occupancy units at favourable terms, in recent years financing has been a bit more difficult as they are subject to a higher interest rate and a shorter amortization period
@ sargeant
Agreed.
@ Anthony I am still trying to get my head around the concept.
It sounds like the financial crisis everyone is talking about was predictable and actually set up on purpose so the guys on the top can make a lot of money.
Somehow I am not surprised!
The thing is the only people to feel the pinch will be the ones that are oblivious to the concept.
@ David
“BU will not* attack the right of Bajans to own their own homes. We prefer to attack the cost of doing so.”
It is believed that prices are inflated across most if not all sectors. Therefore it is strange that you would attack the “right of Bajans” to own cars, eat and wear what they want, travel etc; but to over extend themselves with mortgage payments that represent their highest monthly expense, not to mention the upfront costs, is acceptable.
Oh yes they made lot of money before the crash. after the crash they either got injected with government funds or bough companies assets for pennys for the dollar worth.
@Ready Done
Do a search on BU for a blog ‘Destruction of Money’, it is a zero sum game, like anthony wrote they are always winners and losers.
@BU.David: “…it is a zero sum game…
Are you telling us that Adam Smith was wrong??? (That’s intended to be humorous…)
I know that Smith has been proven wrong. By no less than Nash.
At the end of the day, what it comes down to is who can produce and provide the most which people want; using the least resources possible.
An important consideration is what various people happen to find themselves sitting upon (read: natural resources).
The “smart money” knows this.
So then the question becomes: we Bajans are sitting upon what exactly?
@Chris
There was a time not too long ago we were told our people is our marketable asset. Based on the current state of affairs, do you agree?
@BU.David: “There was a time not too long ago we were told our people is our marketable asset. Based on the current state of affairs, do you agree?
I absolutely agree. And that was the “trick” answer.
But the question remains…
Why do we allow our “best and brightest” to leave Bim for “Greener Pastures” if we have paid for their education?
@All… Just to clarify my own: “Why do we allow our “best and brightest” to leave Bim for “Greener Pastures” if we have paid for their education?
I argue that when someone receives something from someone else, they owe something in return.
If someone receives University level training at the cost of the taxpayers, they ought to reciprocate with “time done” to who paid their bills with their learnt skills.
Once that “bill is paid”, they of course should be allowed to be free agents.
But they should never forget who paid their bill. (IMHO)