Barbados must maintain local currency’s fixed exchange rate with US dollar
TALKING ECONOMICS! Economist Charlie Skeete (centre) engages the attention of David Simpson of Prestige Accounting Incorporated (left) and Michael Berry, Principal and Chief Investment Officer of Pencarrek Limited after the Fortress Investment Forum which was held at the Frank Collymore Hall on Wednesday night.
IF Barbados wants to keep its fixed exchange rate, then the country has to be more disciplined in what it consumes and must stimulate other export sectors.
That’s the view of Barbadian Economist, Charlie Skeete, who is based in the United States. Skeete who is now retired, worked in the Ministry of Finance before going to the United States where he worked with the Inter-American Development Bank (IDB).
Participating in a panel discussion at the Fortress Investment Forum at the Frank Collymore Hall on Wednesday night, Skeete said that devaluation is a blunt instrument which hurts everyone.
He insisted that Barbados can make the fixed exchange rate work, but there are certain disciplines that must be followed. “If you break those disciplines you are not going to have a fixed exchange rate,” he reasoned before a large audience.
Skeete pointed to a number of things which the country has to do to keep the existing peg of one US dollar to two Barbados dollars. He suggested that Barbados cannot afford to have a fiscal deficit above 2.5 per cent, since a study has shown that a deficit above that level leads to economic difficulties. In addition, Skeete recommends that the country has to suppress consumption, while watching what people are consuming. Furthermore, he argued that Tourism alone cannot maintain the country’s standard of living, therefore, other sectors must be stimulated.
“We don’t want the discipline of keeping wages down, we don’t want the discipline of keeping the fiscal deficit down, but we want to keep the fixed exchange rate. That is a difficult thing to do,” said Skeete.
“I go on the Internet and see trade unions asking for 30 per cent pay increases. What madness is this, with a fixed exchange rate?” he questioned.
Skeete along with Michael Berry, Principal and Chief Investment Officer of Pencarrek Limited, and Keith Collister of the Sandals Group, discussed the topic: Mirage or Oasis: Do Currency adjustments bring prosperity or pain?” The moderator was David Simpson of Prestige Accounting Incorporated.
The Economist further noted that an alternative to devaluation would be for the country to follow a series of commercial policies. These would include subsidies and other forms of support to industries, to grant 35-year tax breaks to new hotels looking to set up in Barbados, and to allow the same hotels to sell food and beverages without collecting the Value Added Tax (VAT).
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