Part III – Image is Everything

According to the Central Bank of Barbados, the country needs more foreign exchange inflows to buy fuel, equipment, materials and finished products to keep its economy ticking. Considering that tourism and international banking facilities [IBFS] are the biggest engines to growth of this West Indies island, one is compelled to ask how the heck this country could put itself in a position to have its credit rating downgraded to almost junk! Like reported on the Habari Network, Moody’s Investors Service lowered Barbados’ domestic currency rating in June 2011 questioning the nation’s ability to absorb high levels of government debt issuance. In February 2012 – just 8 months later, the country is on the brink of another financial downgrade.

Now, let us put a few things into perspective: Greece has undergone a downgrade. Spain and Italy were downgraded in October 2011 and a few months before that, the US was downgraded for the first time in the history of the world’s wealthiest nation. So … What is a downgrade to Barbados if the bigger fish are being challenged?

The response to this is twofold: Barbados is in a unique situation because it is still a popular tourist destination. In 2006, Barbados had around 570,000 tourists from America. Besides, with international celebrities like Rihanna, the Island will continue to brand itself as the last, truly Caribbean experience. Simply, the more tourists visit the island and take advantage of its infrastructure, the more monies the country will have in spite of a financial downgrade. Its important to note that the downgrade is to the country’s currency and not to the dollar which is, more or less, the lowest common multiple currency.

The second part to this is based on a delicate balance. I think that many of these countries – African, Caribbean or otherwise [and this includes Syria, Lebanon and Iran] apparently take a great many things for granted when it comes to the management of their state affairs. Yes … Barbados is steady politically. But so is Mozambique. The latter country has over 2,500 kilometers of prime beach and has a steady stream of international tourists. However, right at the mouth of the country’s international airport in Maputo, the first thing a tourist sees is poverty. You will find the same thing in Ethiopia. The Grantley Adams International at Barbados is different from Maputo or Addis because the essence of poverty has, somewhat been hidden away from the roving eye. Of course, you will find pockets of leaking sewage if you are as nosy as this writer – but that will not be the essence of this editorial.

What’s key is simple: The country, like many other LDC’s [Least Developed Countries], does not have enough money in its central bank to meet the country’s external financial needs. And since 2010, the things that have to be paid for in Barbados are not reducing fast enough and the reserves are falling. Because there are few reserves, the country needs to borrow monies. Of course, like many experts will tell you, Barbados can access foreign assets held by commercial banks – banks that service corporations that hold off shore accounts. But this is largely private money and there’s only so much a country can do. In line with this dialectical, if there is another downgrade, then the interest rates on Barbados borrowing will be higher because of the risk. Ultimately, this is like a vicious circle – more and more money will be spent servicing debt – and less money will be used to purchase vital services for the country’s needs [Some of these expressions are from this excellent blog]. This will lead to a higher cost of living for people in Barbados and this might lead to all kinds of political disruption.

To return to downgrades and all, countries like Spain and Italy – and especially the US – are able to spend their way out of a downturn. Keynesians understand this despite what followers of Adam Smith and Milton Friedman claim. Besides, with better credit ratings, they can access cheaper financing. Barbados does not have that luxury. And like mentioned earlier, tourism and financial services are very delicate things to base your economy upon. If there are strikes or protests in the Barbados capital demanding services from the government, tourism will suffer and foreigners will move their money to other islands. In this post Arab Spring world – in an era when the most repressive regimes [read Syria, Iran, Russia and China] will eventually succumb to popular sentiment and demands, Barbados is a long way away from this chaos. However, the policymakers in this country are playing a very dangerous game. They have an opportunity to manage their fiscal house or else, no amount of money will hide the images of protest from the world. For example, in October 2005, after spending about $ 1,000,000 on an international advertising campaign, Uganda received a double dose of exposure: The country’s 60 second advert promoting how naturally gifted the country was played on CNN. In the next segment, Jim Clancy – CNN International’s reporter – showed the massive protests sparked by the arrest of a popular opposition figure. No one remembered the crested crane flapping its wings in slow motion. All people remembered was burning tires and angry policemen. In the business of managing countries and economies, image is everything.

Dennis Matanda,
Editor – editor@thehabarinetwork.com