“Arthur made it clear that Barbados is not like the United States which can persist in running deficits and consume the goods of all the countries in the world that country can afford to go that route because it is in the favourable position of using the American dollar to pay for those exports if the Barbados economy continues to expand at too rapid a rate and if that expansion comes from not the earning of foreign exchange, it has to carry out adjustments to the course to keep the country on a stable footing” Extract from Prime Minister Arthur’s contribution to the 2005 Estimates debate as reported in the Barbados Advocate of Tuesday 15 March 2005.
The Barbados dollar and indeed most Caribbean currencies are not international currencies and must be supported by foreign reserves. Foreign reserves increase when foreign exchange is earned or saved and decrease when the consumption of imported goods increases. In countries like the Caribbean we therefore need policies that strive for a positive net foreign exchange growth rate, i.e. we earn or save more foreign exchange than we spend on necessary consumption.
In the same article referenced above, Prime Minister Arthur is reported to have said that a three per cent growth rate can help Barbados to meet many of its social and economic targets. It went on to quote the Prime Minister If we fall below three per cent it will give rise to unemployment, and it is also true that if you attempt to grow this economy beyond three per cent there will be a different kind of problemâ€š. The report continued one effect of this (growth beyond three per cent) he explained is that it will put the country in a position where it faces a Balance of Payments problemâ€š.
The restricted growth rate, however, appears to be paradoxical given the economic divide between Barbados and first world countries and the wish, previously expressed by the Prime Minister, to be a first world country within ten years, say. A manifestation of the economic divide is the GDP per capita. The GDP per capita for Barbados is of the order 0f US$ 10,000. The average GDP per capita for first world countries is greater than US$ 30,000, a gap of a factor of at least 10. A cursory look would suggest that, even in the most favourable of circumstances, a three percent growth rate would not have much of an impact on closing the gap of economic divide in the near term.
Also, in 1993, the rest of the world recognised Singapore as a first-world nation. Singapore itself, however, had a goal of first-world status by the year 2010. Singapore had put first things first and had been very successful in terms of its economic development programme. However, Former Prime Ministers Lee Kuan Yew and Goh Chok Tong have since both agreed that there were still two areas that had to be addressed before they were comfortable that the nation could sustain first-world status. These were Clean public toiletsâ€š (which shows how much concern Singaporeans have for public property and the needs of others) and Enjoying good musicâ€š (where music is the metaphor for the finer things in life). Incidentally Singapore’s GDP per capita is now greater than US$ 25,000.
I do not question the logic of the above; in fact, I dare not question the logic of the above lest I be accused by economists of not being trained in their discipline. However, I need to have this paradox resolved.
My training and experience does allow me to test the hypothesis The present structure of the Barbados economy can take Barbados to the brink of first world status in ten to twenty yearsâ€š.
The Prime Minister himself is quoted above as saying if the Barbados economy continues to expand at too rapid a rate (greater than three percent) and if that expansion comes from not the earning of foreign exchange, it has to carry out adjustments to the course to keep the country on a stable footingâ€š. My interpretation of this is that if we continue to expand the construction sector, an absorber of foreign exchange, without the commensurate growth in expanding foreign exchange earnings and savings sectors, then we would be in trouble. I would therefore reject the hypothesis that I posed and seek to change the structure of the economy.
I now pose the question how feasible is it to change the structure of the economy?â€š My answer is very feasible, if we take a strategic focus and think outside of the boxâ€š.
The existing primary foreign exchange earning and saving sectors are Tourism and Travel-Related Services, Financial Services, Manufacturing, Agriculture and Solar Water Heating. Each of these can be expanded to generate a net increase in foreign exchange earnings. In addition to these, the potential foreign exchange earning and saving sectors are Integrated Knowledge and Logistics Management services, Export Agriculture, Tourism Linkages, Recreational, Cultural & Sporting Services, Renewable Energy Services, Business Development Services, Construction & Related Engineering Services, Environmental Services, Informatics Services, Educational Services and Health & Social Services.
Our focus should therefore be to develop and implement a rolling ten-year national strategic plan based on the expansion of these net foreign exchange earning and saving sectors.