DECLINING “foreign reserves cover” is not a new phenomenon in Barbados.
However, unlike previous governments of the day, the Democratic Labour Party (DLP) government is not looking to borrow large sums of money to prop up the reserves, nor is it currently seeking to implement credit controls.
This is according to Prime Minister the Rt. Hon. Freundel Stuart, who was addressing a DLP St. Michael South branch meeting at the Bay Primary School on Sunday night.
Instead, the Prime Minister stated, “We take the position that you have to pay your way in the world, earn your way and the stage has to be reached that we recognise the need to live within our means and stop financing lifestyles that the country cannot realistically afford and tune our budgets to fit the things we need rather than to finance the things that we just want.”
The Prime Minister said this is an issue that will require educating the people of Barbados about the impact of their spending habits, which go back many years. “Errol Barrow warned about them in 1970. In fact, he used to always say that the problem in Barbados isn’t the high cost of living, it is the cost of high living. That a lot of us want to live too high and therefore live beyond our means and we had to control that.”
He explained that the country has been importing much more than it has been exporting in recent times which led to a dip in the foreign reserves, which according to international standards should be enough for 12 weeks of cover.
The Prime Minister also touched on the topic of devaluation, which he recently discussed at the monthly meeting of the Barbados Chamber of Commerce and Industry. He reiterated that devaluation is off the table.
“Why do countries devalue their currencies? The answer is very simple. If a country is suffering from a chronic balance of payments problem, that is another way of saying if a country is importing more than it is exporting and therefore spending more on imports than it is earning from its exports, and therefore is not able to pay comfortably for its imports, one way of dealing with that challenge is to adjust the exchange rate.
“The reason you adjust the exchange rate is that you want to make it more difficult for people to buy foreign currency to import goods into the country. I want to encourage people to concentrate more on exporting, so that the country can earn more foreign exchange rather than to spend the country’s money on other people’s goods and services.
“The two countries in the Caribbean that have devalued currencies over the years are Guyana and Jamaica, and nobody has ever satisfied that those devaluations have worked any miracles in those two countries. In fact, I think the opposite may be the case.
“So devaluation is not a solution. What ultimately is a solution is our people taking the decision to live within their means and to rely less on what they want, and more on what they need.”
He further explained that credit controls, while used in the past until the danger period passed, are also not an option currently being explored. “We have not done that recently and there are no immediate plans to do it, but a job of serious public education has to take place if we are going to steer clear of these challenges,” he stressed. (JH)