From Our Road To Damascus Files…
“Barbados now spends about half-a-billion dollars more on imports than we earn from the sale of our goods and services, and we can choose to borrow that half-a-billion dollars. But of course that is not the way. We have at some stage to begin to earn it and to close the gap between the foreign exchange that we earn and the foreign exchange that we spend…”
“…Barbados needs to be able to expand its capacity to earn foreign exchange and this is the national priority to which I call the whole country. We must not continue to borrow to pay our way. We must earn our way, and to do so we need new production capacity.”
He said the island needed projects which will give it the assurance that the day will come when the country will be able to pay its foreign-exchange way in the world.
Prime Minister Owen Arthur in The Nation News (complete article – link here)
What is even more fabulous about this story is that the PM said these words while touring the Kensington Oval worksite.
Remind us… how much money did we borrow for Cricket World Cup? Will the CWC bring in more money than we borrowed? Will we then immediately pay back the money we borrowed to host the event?
For the answers to all these questions…
I don’t know. Maybe its time to take out the old Chicken Foot Voodoo Stick again!
photo – PM Owen Arthur lectures nation from deficit-funded Cricket World Cup site. Photo courtesy of The Nation News – fair trade for the link.
Barbados Free Press 
PM is in Wall Street today. Why do you think he is there? To try and pull wool over the eyes of Standards and Poors and to meet those who might buy a strip of the next major Barbados Captial Market issue which the usual reliable grapevine says will be over US$300 million!
Dr. Estwick is right. No amount of pretty economic window-dressing can tell me Barbados is not on the wrong path when it comes to foreign borrowing and selling off our land for Arthur’s big projects. Is this the legacy?
I hope readers realised that the prime minister’s topic for the press was not Kensington Oval. He used the opportunity to let us know he has no patience with citizens who cannot see why the country must borrow. Borrow or be bowled out!
My fear is for my teenaged children who will bear the brunt of the payback and any government which takes over from the BLP will have hell to pay. Pardon the pun. This government is borrowing as if there is no tomorrow, and spending to suit. Just this weekend we were told the flyover project has not started yet, but it will cost $20 million more than originally announced. Was this $20m budgeted for? The way they have set up the companies and contract arrangements means government does not have to go to parliament for the extra money. They have used the system the opposition keeps talking about in the House of Assembly, where government sets up companies that are legally entitled to by pass parliament to spend money. Probably the more politically astute who log on here can explain this company system better than I can. But at the end of the day, the taxpayers will pay. The trouble is, with these companies all over the place, we really do not know exactly how much we will have to pay!
What is disrespectful is the government’s failure to communicate with us honestly. They do not answer questions and they come to you with town hall meetings after the fact. That’s why I would never leave home to attend one. For what? To rubber stamp crap?
This arrogant behaviour has the potential to give citizens a feeling of impotence and anger and while the Barbados Free Press is here for those of us who wish to express our frustration and vent our ideas in a civilised forum, think carefully about the folks who cannot articulate like we can. They will find other, less socially acceptable ways to do it, making Barbados a very uncomfortable place for all of us. That will be the legacy.
“Read between the lines”.
Contractor not paid.
http://www.nationnews.com/story/308789627664562.php
This is why I read the online Nation and Advocate every day.I also visit the CBC.bb website.
I live in Toronto and I find a lot of useful information I would not get otherwise.
Now I have BFP to truly inform on the important issues.
Thank you, Hants
A cursory look at the macro-economic performance of Barbados since 1994 might have led BFP to present this story in a fairer light. The Central Bank link here is helpful:
Click to access ASD05_Selected_Indicators.pdf
The headline numbers are impressive enough: a decline by over half of the unemployment rate; the increase in per capita income; the increase in real GDP every year bar that of the 9/11 attacks; the persistently low inflation environment; and the evolution of international reserves and import cover.
Public borrowing has played a key role in producing such data; and there is a difference, which your article does not do justice to, between borrowing and investing vs borrowing and spending. In terms of affordability it may yet become the case that external debt becomes unmanageable but the external debt ratios in the table simply do not suggest this is the case.
More generally, at a time of historically low interest rates and tame inflation had the government NOT borrowed significantly to make capital investment (sporting infrastructure included) it would be my view that they ought to be voted out for an administration which knows how to seize an opportunity. Dogmatic critics of debt ought to reflect calmly on this; and how the actual governmental borrowing record deserves to be characterised as profligate as implied by the BFP headline is curious.
Further, if imitation be the sincerest form of flattery I’d suggest that a vast majority of Barbadians agree given the data on page 2 of the Central Bank table. The private sector credit to GDP ratio has not stopped rising since 1994 although it is not clear what percentage is consumer rather than mortgage debt. What is, is that many critics do not appear to be walking their too-much-debt talk.
And I’d suggest that is the key development to which the PM refers to in the text you cite. The private sector is over 60% of GDP; its borrowing has risen to unprecedented levels based on the data shown in the tables; and at the same time savings have dwindled to levels half what they were 12 years ago. Much of the resultant spending is to be seen in the current account deficit. Government finances, though there are criticism to be made, are a model of virtue beside this performance.
The story should be a great deal more (though not exclusively) about how the private sector is going to be bailed out (or bail itself out) in the face of rising rates, a weaker dollar and expensive energy – that is the economic environment before us.
Coping with change should be the issue. Reading about that would have been a pleasure.
Old time bajans would say of the predicament we are in:
Time is longer than twine
or
Night runs till day catches it.
Not sure if I got them right but I know what they mean.
Anyway, wish the PM well up in New York or wherever….. but it is time!!!
Do the right thing.
Anonymous
Barbadians have borrowed and spent on 115,00 cars whose value will dissipate.
This is called I guess, private sector borrowing.
The Barbados Government is “borrowing” $140Million to spend on flyovers to accommodate the 115,000 cars (and more) which have created environmental, productivity, energy, foreign exchange etc. problems for Barbados.
This is called I guess, Public Sector Borrowing.
Are these two sets of Borrowing what would be called “Borrowing to spend” or are they “Borrowing to invest”?
Despite the Central Bank smokescreen, I have listened to Clyde Mascoll who said that you cannot trust the information published by it or the advice of the Governor. I think that I prefer to go with the analysis by Mascoll which I presume has not changed since he joined the Bees. I have my reservations when I see those kinds of explanations above.
We are not economists out here. We are hard-working Barbadians who want proper explanations. If, as Anonymous suggests above, the PM was trying to say something but did not actually say it, what should that tell me?
More blather? More posturing? More public relations?
Hants,
Just read the Nation story re: contractor not paid. I wonder if there is truth to the long running rumour that Ms. Mottley is financially involved with Jose and Jose which is a company in the Belle? Also, this project was started under her, not the current Attorney General.
Hi John.
My points were made from the aggregate perspective regarding the relative economic importance of private and public decision making. I stand by the idea that private, not public, debt will turn out to prove the more problematic in the next 18 months: and that it will be difficult to mitigate the (likely) effects of the first without putting the soundness of the public finances in jeopardy. . That’s the Forest View I suggested BFP consider rather than the single tree of government borrowing.
On the specific issue of car imports, well, they are in accounting terms fixed investments depreciated over their useful lives. How far private sector purchases of 4x4s respect the spirit of this makes for animated discussion. 115,000 is a nice headline number but it would be useful to see also the net car adds and the number of cars per household prior to condemning investment in road infrastructure (not to put words in your mouth) as the appropriate policy response.
The larger point, in my view, is recognising that political economy in a parliamentary democracy is the art (not science) of managing infinite wants with finite means. Citizens want cars, how is it managed? The obvious answer is through right-scaled road development. If that seems to ignore environmental worries et al, recall that all the checks in our system of government are, fundamentally, electoral. This is not Singapore where government simply slaps a car cap on the land. Until there is a political will (read electoral will) to reduce car numbers as the majority-accepted policy decision alternative solutions must be hammered out.
As an aside to Velzo, I don’t know if there are issues with the Central Bank’s methodology but making the assumption that what Mr Macoll charged as a DLP member holds true since he changed sides is about as safe as asking him about his Mum – in or (not a good idea) out of the Chamber.
Also Velzo, I’m not suggesting the PM, as quoted in the text, is trying to pass on some Da Vinci code style message. He is quoted using the collective “we”. My interpretation (and I do not believe this is a stretch) is that this includes both government and private spending. Frankly, his quoted text looks very straightforward in meaning and there seems little need to get into tea-leafery to determine the blather, posturing or public relations levels you touch on. I’m not sure what other “proper explanation” there is bar a venture into Conspiracy Theorems Part XXII. I wish I could convince you of that, though.
Regards,
RA, the commenter formerly known as Anonymous
O.K.
We means royal we.
Just as “a better life for our people” means only “our” people.
“This is not Singapore where government simply slaps a car cap on the land.”
RA, I own two cars, each over 20 years old. When I bought my first car there was a cap on imports of cars because of foreign exchange restrictions. I had to wait my turn. It is called cutting your suit to fit the cloth, an old time cultural expression most Bajans might recognise.
Those were BLP days, even before the cut and contrive politics of the early 1990’s.
At the time, my work brought foreign exchange into the country so I felt justified in asking to spend some on a foreign item.
I do not plan on changing either of my cars in any hurry as they work perfectly well. I have replaced an engine, under $3K, vs buying a new car, over $50K, and I get where I want to go when I want to go there.
I do most of my own maintenance and when I am in a position where I personally can say that I am bringing foreign exchange into my country, I will perhaps look at getting an upgrade if that is justified…. but that is a personal decision.
But, I am not interested in seeing the assets of my country realised willy nilly with no thought for the future through ridiculous large scale unsustainable projects for the benefit of a few persons.
I can do without a new car!!
I am quite happy with my old puma, …. and my old Barbados.
The Central Bank Report I look at occasionally, more to see how language and statistics are used to confuse simple issues than for any other reason.
Guess the folks there have to justify their existence, as we all do.
A Toyota cost $84,000 US in Barbados and $25,000 US in the USA.
It stands to reason that the public is paying about $50,000 US to the Barbados government (duties and taxes) for the privilage of buying a $25,000 US car.
A Toyota corolla cost $30,000 US in Barbados and $14,000 US in the USA
BMW X3 cost $125,000 US in Barbados and $38,000 in the US again Government gets about $80,000 US in taxes and duties so more money is paid to Government on a car than is spent on foreign exchange to buy the car.
http://www.automobilemag.com/am/2006/bmw/x3/prices.html
So RA could you articulate this for me.
http://www.nassco-barbados.com/html/camry_models.cfm
The Government earns more from taxes and duties on a new car than is spent on foreign exchange to buy the car.
Car that cost $80,000US in Barbados cost $25000 in the USA.
Another that cost $125,000 US in Bim cost $38000 US in the USA.
Do the math.
OK, I get it.
The more cars that come in the more dollars the guys and gals down Bay Street (NOT CLOSE TO BUSH HILL) get to spend/invest.
Makes sense.
So they definitely won’t be putting any cap on although it is in the best interest of the country.
Hants, you are a genius.
Thanks.
…. makes the GDP go up too, good for the economy … and the Central Bank Report too.
Man, am I ever slow today.
Got that RA?
Hi Hants & John.
I don’t see what you want me to articulate; or what you want me to get.
John, I really enjoyed your 9.16pm post and philosophy.
But the later 25/7 4.17am demands an important correction. The purchase of imports DOES NOT INCREASE GDP. It in fact reduces it. So maybe we can strangle that funny accounting conspiracy idea at birth before it spawns.
If there is a suggestion that the government has a vested interest in taxing imported cars heavily, well, of course it does. If consumers insist on buying products which, in John’s words, create “environmental, productivity, energy, foreign exchange etc. problems” why should these same goods not be taxed hard to finance, say, roads or other policy responses to the increase in car traffic. Sounds eminiently sensible and it’s hard to imagine anyone would be against the notion.
But let’s please not pretend by implication that high import taxes are encouraging the purchase of cars: it would be the first time taxation has encouraged consumption. High tax is a disincentive to consumer spending; in this example no/lower tax would mean more cars.
It’s not a cap, but it does aim to satisfy “best interests of the country” as referred to by John in the previous message and at the same time permit citizens the freedom of action.
RA
OK, OK, so I am neither an economist nor an accountant.
Just tried to relate what I see in the reports to simple everyday logic.
By the way, when the car dealers sell the cars with their high taxes and markups, does this qualify as a generation of goods and services and increase the GDP?
In number terms, when the outflow of foreign exchange to purchase the car occurs at $25,000US and the GDP falls, does this translate to an increase in GDP when the retailer sells the same good at $80,000?
Is it as simple as saying the first transaction reduces the GDP by x points and the second one increases it by 3x points so there is a net gain of 2x points?
Just asking. I like to understand things in a simple kind of way.
Economist and accountant talk is beyond me.
See, I can’t even get the $80,000US right.
I could never work in a bank or deal with peoples’ money.
Wonder how much a $50,000BDS car would cost over and away?
And to think I bought a brand new car at $18,000BDS way back in the early 1980’s.
Things sure got expensive, and with inflation close to zero, or so the economists tell me. I ain’t even trying to relate that to simple every day logic.
Man!!
Hi John.
I like your accounting; it’s one solution to hiding the effects of the likely global economic slowdown. Perhaps you ought to consider running next time?
Unfortunately for your potential political platform, GDP measures the value of final goods and services produced with the resources of Barbados. And, although there are two ways to make the GDP calculation, this underlying principal holds firm for both.
RA
What are the resources of Barbados?
RA
If I spend some time on this site will it help me understand GDP? I obviously need a crash course on economics.
http://mindtools.net/GlobCourse/formula.shtml
John,
you would have to be a sadist to want to master the calculation of GDP.
“Resources” includes natural (eg oil), physical (eg a factory) and human (eg your car maintenance skills).
John, a $50,000 BDS car cost $14,530 canadian in Toronto
http://yongelawrence.toyota.ca/dwp/experience/en/home/newvehicles/series/YAS/nv_series.jsp?series=YAS
RA
I have heard Owen and Clyde described by many names, but never as sadists.
On the lighter side, suppose, God forbid, I decided this year to buy a new Corolla for $30,000 US and it was imported from the States at $14,000 US. Suppose this was the only transaction which occurred over and above those that occurred last year in Barbados.
Would it be true to say that the Consumer spending (C) component of GDP went up by $30,000 US and the Excess of exports over imports (E) went down by $14,000US while the Investmment component (I) and the Government Spending component (G) remained the same.
If this were the case, the GDP would increase by $16,000US.
Guess I have to account for the tax Government Collects as well so this would reduce the net Government spending (G) so the $16,000US would be reduced, leaving the net increase in GDP caused by my purchase of a new Corolla as only the markup (on expenses and taxes) the Garage makes.
So if I buy a new car, I will cause the GDP to rise.
I will then have to look at disposing of my old puma, and at her advanced age, noone will give her a second look!!
You see my problem.
I then have to consider dumping her, which will require land fill space …. not to mention break my heart.
But I guess you could consider that the destruction of the natural resources of Barbados is the opposite of an investment so this would cause less of an increase in GDP, but this is not measured.
Buying a new car is good for the economy and GDP, but bad for the natural resources, (eg. land, water) and foreign exchange.
In a way I am agreeing with you.
Any economist using GDP figures to tout the growth of an economy must be a sadist, ….. among other things.
Lol! John, now you are putting words in my mouth.
As for the car, you are still talking about a good produced with someone else’s resources; thus an import does not score under “C” in the equation. Buying someone else’s produce for resale domestically cannot count as an increase in Barbados’ GDP.
For Barbados’ GDP to rise it must produce goods & services with its own resources (natural, physical and human).
A $14,000 rise in imports, therefore, is necessarily a $14,000 drop in GDP (other parts of the equation remaining equal).
I’m glad we agree. In a way.
RA
But I would be a consumer, (C), part of the economy, spending money.
The Garage would be part of the economy whose business grows as a result of my consumer spending (C) with it. Part of that C goes to reduce net government spending (G) and to reduce the excess of exports over imports.
The Garage will see a growth in net income from my consumer spending. It can be considered to be producing something which I, as a consumer, want to buy.
Are you saying the Garage, and myself would not be considered to be a part of the economy?
I find that hard to accept.
But then, I am not an economist.
RA
I don’t buy your explanation.
The Garage is producing a service domestically, importing the car. I buy the car (a good), and the service. The service is produced with the local human resource.
The service is the increase in GDP.
I have not said the transaction is outside the domestic economy. The purchase of an imported car is recorded as economic activity, as an import.
If the local garage wants to invoice you a SEPARATE amount for the service of importing the car that could be scored as an increase in GDP (like repair work and warranties for example).
But let’s be realistic: the transaction value of such a purchase is dominated by the value of the good, a good produced by another nation’s resources. That can never be scored as an increase in Barbados’ GDP (how on earth could it – where’s the local production?) and must be netted off against the country’s export performance.
RA
If I purchase a car, I increase the GDP of Barbados.
The service of importing the car is contained in the markup and costs they apply to the cost of delivering the car to me.
When I pay my $30,000US to them, if is for, among other things, $14,000 US to buy the car. Since I do not bring in foreign exchange, for example by selling my old puma to someone outside the island, the E part of the GDP is negative and $14,000 US.
The $16,000US is for transport to Barbados, Duties, taxes, preparation, etc. and markup.
I would like to think that much of the $16,000US goes to Government, but I haven’t bought a car lately so do not know.
What doesn’t go to Government, goes towards increasing the GDP of the economy, …. maybe not the tranportation cost.
In actual fact, the transaction value ($30,000US) is not dominated by the value of the car/good ($14,000US). The increase in GDP is some part of the $16,000US I pay, over and above the value of the car/good.
RA
I was just thinking about our recent discussion and the possibility of categorising someone (me) who wants to master the calculation of GDP as a sadist.
A great friend Dr. Colin Hudson used to make the point that if there was a pile up on the ABC, the GDP would grow because it is a measure of the goods and services created in the economy. A pileup would create the increased need for medical services.
As ridiculous as it sounds, the purchase of a car increases the GDP.
So as harmful as either of these occurrences are, an economist will wring his/her hands in glee because the GDP will increase.
The GDP as quoted now is really a one dimensional measure of a multidimensional process.
In the case of the pile up, what is measured is the creation of medical services. The loss in output caused by injury, or the loss of an investment caused by death do not inform the process of measurement of GDP.
Similarly, the impact of my old puma on the environment when the time comes is not measured.
My conclusion is that an economist must be a sadist.
Back in November, 2004 Dr David Suzuki gave the Sir Winston Scott Memorial Lecture entitled “The Environment or the economy, what is the bottom line”.
I was not there but I recall reading in the paper his response to a question where my understanding of what he said was that an economist will destroy an economy.
I can’t find the article on line so I stand corrected if anyone knows differently.
John,
No, you most certainly do not increase GDP.
You are using what’s called the expenditure method of calculating GDP. This measures the value of FINAL goods and services. It DOES NOT include profits or wages. If an imported car is resold, which is the transaction you have concentrated on, imports and consumption net off to zero. There is no rise in GDP.
The other main methods of calculating GDP (OK there is a lesser used third way) give the same answer just via different (production and income) methods.
Please feel free to get professional second, third and fourth opinions on this. Or more.
NB 1: Great discussion.
NB 2: In your example, it would be amazing if the $14,000 cost is not the single most dominating item in the $30,000 resale value (if it gets resold); and that is prior to counting any other directly associated importation costs.
NB 3: For info, the large tax element of the $16,000 you cite is not counted in GDP. These are transfers, not production of goods or services.
NB 4: When it does come to car “mark ups” the data is not that promising either. For example, in the full year ended 2005 Warren Motors recorded a loss.
NB 5: Did I say “sadist” earlier? I should have said masochist.
John, my last was posted prior to reading your 9.51am.
Agree on limitations of GDP data. But it does have its uses when consistently applied.
RA
So how is the contribution to the econmomy of Warrens Motors, Nassco, etc measured?
And what about supermarkets and imported items, or for that matter, any retailer or wholesaler, especially those who only deal in imported items?
RA
Surely all these importers provide services made by local (human) resources to the economy.
Oh Guys… my head she is spinning with all this economic talk!
I think I now drink a Banks to help… or hurt…. the economy. Not sure which! 🙂
Robert
Hi John (& Robert),
Your logic is compelling insofar as it fits neatly with the income method of measuring GDP.
However, even using that method it cannot be said AS A PRINCIPLE that buying a marked up import increases GDP. That implies every import resale transaction was profitable for the seller. That is clearly unlikely (hence the NB: 4 above).
What is constant is that the import (not its resale) reduces GDP, other factors remaining the same. It simply cannot be otherwise – imports are other nations’ production.
Masochistically yours,
RA
PS/Robert, you guys began this with a distorted presentation of the public purse. You arguably deserve the spinning head. Not sure the Banks is a cure.
Yes RA, we really haven’t got a clue about high finances. We are just ordinary folk.
Everything is just fine. We’re sure that the experts know what they are doing and never act in their own personal interests – only in the best long term interests of Barbados.
Which is why the national debt keeps rising, while taxes (direct and indirect) rise, and the pensions are broke and a greater and greater proportion of the national income has to go to interest on the debt. Meanwhile, government services are tanking, roads are not being maintained at all (oh sure… new bridges and such… but that is only mega projects on the never-never…. no way they would fill in a hole that has been open for two years…. There is no money or squeeze in ordinary maintainence, only in mega-projects.
I’m sure this is all in our best interests. We just don’t understand because we are ordinary folk and such.
Come on, man. The request is for balance, an integral part of the truth. You spend alot of time claiming to preach that.
I’ll never understand economics!!
Nothing is simple.
Enjoyed the discussion though.
It was fun.
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