Barbados stumbles: lessons for Jamaica

Ian Boyne, Contributor

Barbados, the long-time darling and poster child of Jamaican economic conservatives who mock Jamaica's disastrous economic record, has stumbled into the austere arms of the International Monetary Fund (IMF) and is dumping 3,000, or 13%, of its public-sector workers. Another 500 will go through attrition.

Jamaica has neither the political will nor the social capital to make such a bold move to deal with its fiscal crisis. But Barbados, whose central government deficit hit 8.1% and is expected to shoot to 9.6% in the coming fiscal year, has had to apply drastic measures to cauterise its economic crisis.

Barbados' central government gross debt moved from under 60% in 2009 to 94% of GDP last year. Its foreign reserves declined last year to the point where it had the equivalent of just 3.2 months of imports (US$578 million). Unemployment has hit 11.7% and the current account deficit is 11.4% of GDP. Real wages have declined by about 12% since 2009.

Barbados has implemented a public-sector wage freeze, as well as wage cuts for some, slapped a tax on commercial bank assets, as a well as a municipal solid waste tax. Non-statutory discretionary waivers unrelated to foreign-exchange earnings has been suspended for the next three years.

What has gone wrong? Barbados is the country we were told Jamaica should emulate: Boasting a highly educated population, with strong social capital and an enviable human development record, the Barbados Model was touted as the exemplary one on offer. It's the one the Claude Clarkes, Damien Kings, John Jacksons and Colin Steeles adore. Barbados has a per-capita income of US$16,150 and, according to the authoritative Human Development Report, the best human-development indicators in the region.

In the Global Competitiveness Report 2013-2014, Barbados is ahead of the entire Caribbean in terms of institutional strength, infrastructure, health, education, labour-market efficiency, financial market development, and technological readiness.

In terms of ranking in global competitiveness, Barbados is 47th out of a total of 148 countries. In terms of tourism competitiveness, Barbados ranks 27th out of a total of 140 countries, the top billing for any Caribbean country. Barbados boasts a dynamic international business sector and offshore financial centre market comprising 4,000 licensed entities, including 45 offshore banks.

The Barbadian dollar is pegged to the US dollar and has been since 1975. The effective rate of the Barbadian dollar has appreciated by about 22% since 2008, while the Jamaican dollar climbed over the $108:US$1 last week.

The IMF itself, in an analysis of the Barbadian
economy this month, says: "Barbados continues to rank well in the region
in terms of broad-based indicators of overall competitiveness ... .
Barbados is favoured by a strong business institutional and legal
environment, well-developed infrastructure and a stable socio-political
environment and well-educated populace."

So what went
wrong? How can a country be doing so well by neoliberal standards and
still falter? Those pronouncing on economic matters in Jamaica should
take note and learn some lessons. I will quote the IMF itself:
"Executive directors (of the IMF) noted that Barbados has not succeeded
in recovering from the adverse consequences of the global financial
crisis ... ." As a globalist, I continue to make the point in these
columns that exogenous factors play a major, constraining role in small,
open, import-dependent economies like ours, and that those neoliberal
messiahs who believe that all we have to do is to set our economic house
in order and we will have sustainable growth are leading us down the
garden path.

GLOBAL FACTORS

It is
too common in economic discourse in Jamaica to ignore global factors.
Now we have a near-shore example of a country which did everything right
and yet ran into problems largely because of factors outside its
control. And there is no New International Economic Order that would
provide compensatory mechanisms for countries like Barbados which suffer
because of US capitalism's dysfunction, disequilibrium and
greed.

The IMF, in a statement earlier this month,
said that "the recovery of the Barbadian economy from the international
economic shock of 2008 has been slow and uncertain". It is not the first
time that this highly open, trade-dependent small economy has been so
affected by externally generated recessions. In the 1980s and the 1990s,
the economy contracted by 7% and 14%,
respectively.

In the IMF statement, it is acknowledged
that "the country has lost ground in tourism and international business
and financial services since the onset of the current international
crisis". Small island developing states like Jamaica and Barbados have
to be a careful about aping certain economic orthodoxies and ignoring
our specificities. One of the latest fads is this fiscal rule regime
which the IMF has imposed on Jamaica and which we have to comply with by
the start of the next fiscal year.

BINDING FISCAL
RULES

Newly minted Jamaica Labour Party senator, Dr
Nigel Clarke, in his evangelistic zeal, even wants us to enshrine it in
our Constitution. I am wary of binding fiscal rules because of their
rigidity and our vulnerability to external shocks. Of course, the IMF
expresses cognisance of that and our fiscal rule is supposed to take
that into consideration. But we have to be careful how these fiscal
rules are drafted.

I am afraid that because there is
no effective intellectual challenge to neoliberalism in Jamaica, we run
the risk of enacting fiscal rules that might unnecessarily hobble us and
hurt the working and middle classes. Europe has had such a huge problem
with its own Stability and Growth Pact, let alone us with our huge
structural weaknesses. We need a balanced discussion on this fiscal rule
regime and not let our enthusiasm for fiscal discipline - which is
necessary but not sufficient - cause us to ignore some possible
unintended consequences.

The Barbados experience shows
the limitations of the neoliberal model, but I must also admit that it
also shows the problem with applying stimulus. Though there is
disagreement among even Fund staff on this, a part of the problem seems
to be that Barbados applied counter-cyclical policies to deal with the
downturn following the global recession. The same kind of stimulus being
called for by Andrew Holness, Audley Shaw and some of our
manufacturers. Damien King is saying this is not the US: Stimulus will
only derail our economic programme. It has to be admitted that
expansionary policies can cause problems. We are really between the
devil and the deep blue sea.

SOCIAL
PARTNERSHIP

What is interesting about Barbados,
though, is that its high level of social partnership between government,
private sector and unions ensures social stability to deal with the
tough measures. Besides, as the IMF says in its February Article IV
review: "Barbados has a long-standing and much admired tradition of
economic equity, social justice and social cohesion." Health care and
education in Barbados have traditionally been provided free. Unemployed
people get payments equivalent of 60% of salary. The unemployed also get
other benefits through the National Assistance Board, which provides
welfare services, food vouchers and housing assistance to citizens on
low income.

Fiscal rules that threaten the welfare of
our poor will only foster social unrest.

Ian Boyne is
a veteran journalist. Email feedback to columns@gleanerjm.com and
ianboyne1@yahoo.com.