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Eye on Barbados
Dennis Morrison
Wednesday, April 11, 2007
It is hardly a mere coincidence that the announcement of the abolition of exchange controls in Barbados has come at the same time that Sagicor, a Barbadian insurance company, has moved to be listed on the London Stock Exchange.
Dennis Morrison
If not disallowed, the continuation of exchange controls in Barbados would at least have been seen as incongruous with the stocks of one of its leading financial entities being traded in the freest of markets. Whatever the case, there is some significance, as Prime Minister Owen Arthur has said, to Sagicor's listing coming at this time when we are observing the 200th anniversary of the abolition of the slave trade.
Many Jamaicans may be quite surprised that Barbados, which is regarded as the Caribbean's leader in economic policymaking and in economic performance, is only now doing away with exchange controls. Jamaica took this step nearly 16 years ago and has had to weather economic shocks without the lever of such controls to restrain the movement of capital. Some may say that the premature lifting of exchange controls was itself a serious shock.
A distinguishing feature between the economies of Barbados and Jamaica over the past 20-odd years has been the value of their currencies. Barbados, when faced with loss of foreign reserves, rising fiscal deficits, and negative economic growth, responded with measures that did not whittle away the value of its currency. Through greater social cohesion manifested in moderation of prices by businesses and wage restraint by trade unions, macroeconomic stability was restored. Political leaders even lost their popularity, but the Barbadian dollar kept its value.
Behind the stability in the exchange rate in Barbados, key elements of the socio-economic equation were protected from the necessary macroeconomic adjustments. Among these were the education and health services, as the purchasing power of the professionals in these services was not allowed to be eaten up by repeated rounds of devaluation as happened in Jamaica.
As macroeconomic stability returned, the growth process resumed, and with that Barbados' ranking in human development has been ahead of the rest of the Caribbean.
Jamaica's approach was different and relied to a significant degree on currency devaluation.
ARTHUR... there is some significance to Sagicor's listing on the London Stock Exchange at this time when we are observing the 200th anniversary of the abolition of the slave trade
The expectation was that this would enhance competitiveness, spur exports, and eventually put us on a sustainable growth path. But devaluation was to disrupt severely the education system and raise even greater uncertainty about the value of the Jamaican dollar. Meanwhile, fiscal and current account deficits did not go away, notwithstanding drastic cuts in spending in the late 1970s and the 1980s.
Unprepared in terms of fiscal and monetary measures, but pushed by the Washington multilateral agencies, Jamaica still took the plunge by removing exchange controls in September 1991. Thereafter, it has been a rocky road to achieve single-digit inflation, the lowering of interest rates, and a growth momentum. High interest rates were the primary weapon used to fight inflation, to stabilise the foreign currency market, and to propel the build-up of foreign reserves. Today, Jamaica's external vulnerability measurement is the best it has been for decades, and it has received high marks for its macroeconomic situation.
It is now the turn of Barbados to shed exchange controls. Though showing a small fiscal deficit and falling reserves, that country's economic stability should put it in good stead to enjoy a reasonably smooth transition. Trinidad and Tobago, as if learning from Jamaica's experience, sequenced its currency liberalisation better and avoided the turbulence that buffeted the Jamaican economy. Economic actors in Barbados, while being cautious, can therefore anticipate a lower degree of risk, especially bearing in mind the high level of social capital which that society continues to enjoy.
The Barbados currency liberalisation also comes at a time when emerging markets are receiving favourable attention from the international capital markets. This is due in large part to the strong outlook for world economic growth. Just last week emerging market stocks rose to record levels, erasing the losses suffered from the volatile activity that began in China in late February. Analysts will nonetheless be looking to see the policy measures that the Barbadian authorities will deploy to meet any unforeseen turbulence
Dennis Morrison
Wednesday, April 11, 2007
It is hardly a mere coincidence that the announcement of the abolition of exchange controls in Barbados has come at the same time that Sagicor, a Barbadian insurance company, has moved to be listed on the London Stock Exchange.
Dennis Morrison
If not disallowed, the continuation of exchange controls in Barbados would at least have been seen as incongruous with the stocks of one of its leading financial entities being traded in the freest of markets. Whatever the case, there is some significance, as Prime Minister Owen Arthur has said, to Sagicor's listing coming at this time when we are observing the 200th anniversary of the abolition of the slave trade.
Many Jamaicans may be quite surprised that Barbados, which is regarded as the Caribbean's leader in economic policymaking and in economic performance, is only now doing away with exchange controls. Jamaica took this step nearly 16 years ago and has had to weather economic shocks without the lever of such controls to restrain the movement of capital. Some may say that the premature lifting of exchange controls was itself a serious shock.
A distinguishing feature between the economies of Barbados and Jamaica over the past 20-odd years has been the value of their currencies. Barbados, when faced with loss of foreign reserves, rising fiscal deficits, and negative economic growth, responded with measures that did not whittle away the value of its currency. Through greater social cohesion manifested in moderation of prices by businesses and wage restraint by trade unions, macroeconomic stability was restored. Political leaders even lost their popularity, but the Barbadian dollar kept its value.
Behind the stability in the exchange rate in Barbados, key elements of the socio-economic equation were protected from the necessary macroeconomic adjustments. Among these were the education and health services, as the purchasing power of the professionals in these services was not allowed to be eaten up by repeated rounds of devaluation as happened in Jamaica.
As macroeconomic stability returned, the growth process resumed, and with that Barbados' ranking in human development has been ahead of the rest of the Caribbean.
Jamaica's approach was different and relied to a significant degree on currency devaluation.
ARTHUR... there is some significance to Sagicor's listing on the London Stock Exchange at this time when we are observing the 200th anniversary of the abolition of the slave trade
The expectation was that this would enhance competitiveness, spur exports, and eventually put us on a sustainable growth path. But devaluation was to disrupt severely the education system and raise even greater uncertainty about the value of the Jamaican dollar. Meanwhile, fiscal and current account deficits did not go away, notwithstanding drastic cuts in spending in the late 1970s and the 1980s.
Unprepared in terms of fiscal and monetary measures, but pushed by the Washington multilateral agencies, Jamaica still took the plunge by removing exchange controls in September 1991. Thereafter, it has been a rocky road to achieve single-digit inflation, the lowering of interest rates, and a growth momentum. High interest rates were the primary weapon used to fight inflation, to stabilise the foreign currency market, and to propel the build-up of foreign reserves. Today, Jamaica's external vulnerability measurement is the best it has been for decades, and it has received high marks for its macroeconomic situation.
It is now the turn of Barbados to shed exchange controls. Though showing a small fiscal deficit and falling reserves, that country's economic stability should put it in good stead to enjoy a reasonably smooth transition. Trinidad and Tobago, as if learning from Jamaica's experience, sequenced its currency liberalisation better and avoided the turbulence that buffeted the Jamaican economy. Economic actors in Barbados, while being cautious, can therefore anticipate a lower degree of risk, especially bearing in mind the high level of social capital which that society continues to enjoy.
The Barbados currency liberalisation also comes at a time when emerging markets are receiving favourable attention from the international capital markets. This is due in large part to the strong outlook for world economic growth. Just last week emerging market stocks rose to record levels, erasing the losses suffered from the volatile activity that began in China in late February. Analysts will nonetheless be looking to see the policy measures that the Barbadian authorities will deploy to meet any unforeseen turbulence