Home' Trinidad and Tobago Guardian : December 19th 2013 Contents The Barbados currency has been pegged to the
United States dollar at the rate of 2:1 for the last
40 years. Barbados has managed to retain this
peg through some very rough periods weathering
foreign currency crises in 1991 and after September
11, 2001. The country has developed a reputation throughout
the region as being one of the strongest adherents to the policy
of a fixed exchange rate.
But there is a point beyond which adherence to economic
policies can become irrational, even doctrinaire.
Last Friday, exactly 12 days before Christmas, the Minister
of Finance in Barbados, along with his Cabinet colleagues,
took the decision to send home 3,000 of the country s pub-
lic-sector employees by the end of March next year.
As a result of this decision, the lives of those 3,000 workers,
their immediate families and their dependents (such as their
ageing parents) will never be the same, as they stare financial
uncertainty and potential vagrancy in the face.
The Barbados Cabinet decided to consign at least 15,000
of their fellowmen to misery because the country has on many
occasions refused to even consider the possibility of a deval-
uation or depreciation of its currency.
As one banker said to me on Tuesday, for a Barbadian
devaluing their dollar would be like burning their flag.
One of the leading flagwavers of the anti-devaluation doctrine
is the Governor of the Central Bank Dr DeLisle Worrell, a
former IMF staffer who was involved in a very heated exchange
with the current managing director of the IMF, Christine
Lagarde, at a meeting in Japan last year. The exchange was
over the very issue of devaluation. In responding to the furore
that followed the heated exchange, Worrell said: "To most of
us in the Caribbean, it does not seem rational to impoverish
yourself to grow your economy. To us, it is obvious that is
what devaluation implies."
Worrell has articulated his position so clearly and for so
long that the issue of devaluation is no longer on the table
for discussion with the IMF.
Here is the one reference to the exchange-rate peg that the
IMF made in its statement issued last Friday: "...Downsizing
by attrition and implementing a wage formula that freezes
the average wage per worker would also reduce the wage bill
significantly over time and would contribute to lowering econ-
omy-wide labour costs. This is needed to raise Barbados
external competitiveness, particularly given the nation s deep
commitment to its exchange-rate peg, which the IMF recog-
Worrell, during one of his quarterly meetings with the media
last year, is reported to have said: "It is Barbadians who have
rejected devaluation because they understand that since we
don t produce what we consume, that strategy cannot work,
and it cannot work for any country that is like Barbados."
In a paper titled Policies for Stabilization and Growth in
Small Very Open Economies, published last year under the
auspices of the high-powered Group of 30, Worrell argued:
"The simplest and most effective policy for stabilization of
small emerging market economies is to anchor a market-deter-
mined exchange rate, by means of adjusting aggregate demand,
using fiscal policy.
"Furthermore, sustained growth in the very open economy
must be led by the sectors that earn or save foreign exchange.
These are the sectors that produce tradable goods, which may
be sold at the ruling internationally competitive prices on world
On this issue of not producing what it consumes, there is no
country in the world that produces all that it consumes and
while the propensity to import in Barbados is higher than many
other countries, I am old enough to remember the days when
Barbados products dominated supermarket shelves in this coun-
try.The fact is Barbados imports everything and produces almost
nothing because it is more profitable for people with money in
Barbados to invest in a hotel rather than a factory and it seems
to me that the country s fixed exchange rate encourages the
choices made by capital.
The other point about maintaining a fixed exchange rate for
40 years, while exchange rates throughout the world change,
on average, every 40 minutes, is that Barbados has now become
uncompetitive even for the high-end tourism niche that it pur-
And a third point is that no one in the Caribbean should
discuss or promote a position on the issue of devaluation without
reference to T&T s experience with this tool since the 1980s.
As I have argued in this space before, it is clear that the
flotation of the TT dollar in April 1993---along with other measures
aimed at liberalising the domestic economy, such as the reduction
in tariffs and the introduction of VAT in 1990---was partly instru-
mental in increasing the competitiveness of the local manufac-
T&T s manufacturers quickly became the dominant force in
the Caricom region, as anyone who has been in a supermarket
anywhere in the Eastern Caribbean at any time in the last decade
and a half can testify, partly as a result of the fact that devaluation
made domestic manufactured exports more competitive on the
The issue in the Caribbean is competitiveness, not maintaining
a fixed peg for ever and ever, amen.
Countries devalue their currencies, or allow their currencies
to depreciate through market forces, in order to make their
exports more competitive and their imports more expensive---
which was the case of T&T in 1993 and Japan now. To put it
another way, devaluation or depreciation make the acquisition
of foreign currencies more expensive and increase the amount
of the domestic currency from the same amount of foreign cur-
12 difficult days of Christmas
DECEMEBER 2013 • WEEK THREE www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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