Editorial | Mia Mottley goes bold

Her decision to stuff her Cabinet with nearly half of Barbados caused us to wonder if our confidence in Mia Mottley's judgement was misplaced. We still question the efficacy of a 26-member Cabinet - or 30 if you add the appendages - and have visions of a nightmarish Babel at their sittings. But the speed with which Ms Mottley has moved to address Barbados' economic crisis, including a unilateral default on the country's external loans, ahead of a formal restructuring of its debt, is helping to rebuild our view of her as a decisive, fit-for-purpose leader who is willing to take risks.

Sensibly, the prime minister buttressed her suspension of foreign interest payments with an approach to the International Monetary Fund (IMF) for support, which should help to cushion, if not totally insulate, Barbados against negative reaction of international financial markets. Of more than passing interest is the decision by Christine Lagarde, the IMF's managing director, to appoint Bert van Selm to start negotiations with Ms Mottley's government. The Dutchman used to be the IMF's mission chief in Kingston, giving him a ringside seat to the evolution of the Fund's programme with Jamaica.

Obviously, for anyone who won Barbados' general election 10 days ago, addressing the economy had to be priority. Not only has it been slow to recover from the Great Recession and global financial sector stumble of 2008, the tinkering of Freundel Stuart's administration, in an apparent effort to mitigate the political fallout, was no longer sustainable. In the end, Mr Stuart's tiptoeing gained him nothing. His Democratic Labour Party didn't win a single seat in the 30-member House.

Indeed, it is unlikely to be merely coincidental that only days after the election, the IMF executive directors published their review of last November's Article IV Consultation of the Barbadian economy, stressing that "a stronger macroeconomic framework and bolder structural reforms are needed to achieve fiscal and debt sustainability", while building reserves and setting the foundation for growth.

But Ms Mottley has suggested that the situation had deteriorated badly in the five-plus months since the Fund did its analysis. For instance, she says the country has net international reserves (NIR) of US$220 million, or around six weeks of imports, implying a 20 per cent decline in the NIR since last September. And before the prime minister's moratorium on interest payments to foreign creditors, Barbados was estimated to have US$50 million in scheduled payouts over the next fortnight.

Ballooning debt

Additionally, according to Ms Mottley, the country's debt, when arrears are added, was more than BDS$15 billion (US$7.5 billion) or "as high as 171 per cent of GDP, the third-highest in the world". In their November review, the IMF projected the debt for the 2017-18 fiscal year, including obligations to the National Insurance Scheme, at BDS$13.52 billion, or 132.8 per cent of GDP. Significantly, as a proportion of GDP, the country's debt - which costs 7.7 per cent of national output to service - has more than doubled since the onset of the crisis.

It has been, for decades, an article of faith of Barbados' political and economic establishment that the country maintains its fixed exchange rate of US$1 to BDS$2. The tumbling reserves and the fiscal deficit of over four per cent of GDP place question marks around this certitude. Avoiding devaluation, though, will demand tough and aggressive reform similar to the actions of Erskine Sandiford's administration of a quarter-century ago.

Mr Stuart, a successor of Mr Sandiford as leader of the Dems, could muster the courage. Ms Mottley has told the IMF that her government is "committed to taking decisive action to rebuild Barbados". She is starting at the high point of her term. Hopefully, she has the will to go all the way.