Barbados Economy: Crisis & Stimulus

Those who think that Barbados is better positioned than many to weather the global financial crisis, and that the impact will be limited and short-term should think again.  Right now the industrial states are in deep recession with little but cautious optimism for short term recovery in a shrinking world economy where job loss is projected at around 50 million in 2009.  The Third World which is responsible for about 70% of world trade is buckling at the knees.  Royal Caribbean Cruise Line just reported a 98% decline in revenue, and airlines are in a passenger and freight free fall.  So how can we, a virtually dependent country with nothing to trade be better positioned to hold our own or weather the storm?  The fact that most sectors can hold their own with decline only tourism and construction argues against the need for stimulus.

It is hard to understand–or is it given certain ‘interlocking’ connections—why it is that Clico, who will or should be bailed out by the T&T government, is being handed $10 million in bail-out by our government when some pensioners haven’t got a check in three months.

It is highly unlikely that all of Clico’s subsidiaries on the island are facing potential bankruptcy. Clico is in many ways a miniscule version of the Wall Street meltdown. The implications for Barbados will likely be shocking.  Among other things it means that the Trinidad government will end up owning much more of the island, which raises the question: can Bajans own property in Trinidad ?  More about this as the air clears. In the meantime ponder this: will the government proposed housing project go to tender or will it be given to Clico?

Forget Rescues From Obama or CSME

Don’t bank on President Obama coming to the rescue.  A front row seat in Denver failed to translate into a backdoor peep-in at the inauguration.  The man has too much on his plate and little by way of scratch-grain to hand out.  As a senator he co-signed a bill to kill off shore banking business (we are about fourth of 26 countries on the list).  Should the bill be resurrected the off-shore component of our economy will dry up.  But there may be a saving grace. There is a limit to which you can bite the hand that fed you.

Also forget CSME.  The dictum “one from thirteen leaves nothing” (about the old Federation) still stands.  The country in question, Trinidad , is now all powerful in the region (for the time being), owns much of the island (hear Plastic Bag), is setting up to take over tourism from us, and today imports labour from everywhere except Barbados .

Much more nationalization of banks and business recapitalization will be needed in order to avoid an outright world catastrophe.  Inevitable restructuring of the financial and trade system will clip America ’s wings and shift the balance of power to the East and or Europe .  Already we have lost much of what we owned or thought we owned.  By the time normality returns to the global economy we could be reduced to structural servitude: a severely shrunken middle class and a massive underclass; tenants rather than owners. Promises and or innuendoes of prosperity buttressed by questionable propaganda are unlikely to save us.

The current global crisis is a reminder that our flawed economy with, to quote the IMF in 2006, its “macro-imbalances,” is a breeding ground for social unrest and disorder.  Discontent is often a first necessity of progress. When critical mass is reached there will likely be an explosion that will rock the foundation.  However, an article in the UK press gave assurance that the island will not be allowed to Go to Seed, which suggests that the Mother Country will take over. The time may not be far away.

Authored by Un-encumbered

February 11, 2009

Next in the series: The state of our economy and stimulus

BFP Editor’s Comment

Our apology to author Un-encumbered as your email was hiding unnoticed in the spam bucket for some reason. Thanks for alerting us.

This article was published with two changes. The title was changed from “Bajan Economy…” to “Barbados Economy…” and the first sentence was changed from “Those who think that we are better positioned…” to “Those who think that Barbados is better positioned…”

14 Comments

Filed under Barbados, Barbados Tourism, Business & Banking, Offshore Investments, Tourism, Travel, Traveling and Tourism

14 responses to “Barbados Economy: Crisis & Stimulus

  1. Checkin-out

    bfp

    This is one of the few reasonable articles I have seen on the Barbados aspect of the global financial crisis on this blog. There’s lots more to be said but bfp need more inputs like un-encumbered’s and a few others who often seem to be given short shrift in this forum.

    The pronouncements by the ruling powers that be about the crisis in Barbados makes very little sense.

  2. james

    We should be very, very worried for most of the reasons outlined in this article. But not because Royal Caribbean revenues were down 98% (which would imply that the cruise and tourism industry has tanked and we’d all better go hide up in St. Lucy as civilization collapses). Royal Caribbean’s NET INCOME (e.g. profits) are down 98% to US$1.5m. REVENUES are flat on last year. Basically, they’ve been discounting heavily to keep people on ships. Not a good story but not a catastrophe either. Having screwed up last time he was Finance minister, will Thompson actually do something now ? Please ? How long did we have to see this coming before we got some action ? One more press release about constituency councils and I will go crazy. It’s not that they’re a bad idea, it’s just that surely the government have bigger fish to fry.

  3. Straight talk

    The foresight of our much maligned former tourism minister is about to pay off.

    Minister of Tourism, Noel Lynch stated ‘We have determined that rather than moving from year to year with such uncertainty in the market place, what Barbados was going to attempt to do was find the basis of forming an agreement with our major cruise partners to ensure a minimal number of passengers arrive at our ports every year’.

    He added “clearly no partner is going to ensure there is a certain number of calls or a certain number of flights, unless there are incentives’.

    Stuart Layne went on to describe ‘the deal as an insurance policy, and a historic and major development for Barbados’

  4. Mathilde

    Im waiting to see if BFP bring up the subject of First Caribbean charging $10 for accounts under $1000..

    oh and Guadeloupe too…

    till then I’ll be planting some more veggies in my back yard and look into buying chickens…. and maybe get a shot gun too….

  5. Hants

    @ Mathilde

    Get a goat and a dog. Milk and protection.

  6. Sylvan Greenidge

    I find this article most interesting. That a person, not employed as one of the five economic advisors to Thompson, can so accurately capture the full extent of the economic challenge facing Barbados and can so clearly articulate the urgency with which we need to move to minimize the impact of the global recession, is absolutely fascinating.

    For twelve months now the BLP has been pressing the DLP, and in particular the Prime Minister for a stimulus package that will help us to navigate our way through this economic crisis. Sadly, we are no closer to date to seeing that package than we were a year ago.

    The economic outlook for Barbados is frightening. Barbados’ export earnings (tourism receipts, sale of goods and services) are down significantly. Remittances have declined sharply and foreign direct investment has but dried up. Activity in the Offshore Banking Sector is on the decline.

    All of the abovementioned areas are foreign revenue generating sectors for Barbados. That these sectors are in decline must spell trouble for the Barbados’ economy. It is not enough for us to through our hands in the air, blame everything on the global recession and do nothing as this Government has been doing. There are things that can be done.

    It is unfortunate that Constituency Councils, a Government programme design exclusively to create a slush fund for DLP operatives within the constituencies, have taken precedent over the economic survival of the country.

    The projected length of the recession in the USA suggest that unless home-grown measures are found to avert the full impact of the recession we will likely to face record levels of unemployment, hotel and other business foreclosures, high interest rates, a collapse of the banking system, rapid depletion in our foreign reserves and a whole host of other social and economic woes.

    These are scary times but nothing is more scary than the realization that our Minister of Finance, who was also our Minister of Finance during the dark days of the early 1990s, understands precious little about economics.

  7. Pat

    Sylvan Greenidge
    February 20, 2009 at 2:14 am

    Remittances have declined sharply and foreign direct investment has but dried up.
    **************************************
    Bajans abroad have to look after themselves first. It is uncertain times all over. Many are facing lay-offs. Others no pay increases. Bajans at home will have to tighten their belts and dont expect the overseas money and barrels by the half dozen.

  8. Sargeant

    I’m not sure if this has been brought up but one of the factors which will effect the economy is the decline of the British pound against the US dollar. Barbados has a significant number of retired citizens who are in receipt of pensions from the UK and as Sterling declined their pensions also took a dive when converted to Barbados dollars since the Barbados dollar is tied to the US dollar.

    In effect, the real value of these pensions has declined by several hundred dollars monthly with a corresponding decline in purchasing power. These pensioners will not only have less to spend they will also avoid spending any of their savings as doubt about the health of the economy dominates the landscape.

    As small business receipts decline less money is available to pay employees thus precipitating layoffs and higher unemployment.

    My sources inform me that they have “cut back” on all goods and services so the fish vendor may see them every two weeks instead of every week and monthly restaurant dinner is now the occasional restaurant dinner.

  9. Pat

    Sargeant, it is bigger than that.

    Travellers who had early booked to get discouted fares will not be spending as much. For instance, a group of 4 going down together, family and one friend. Very little foreign currency will be taken down by us. I keep a small account there and my son does not spend. My mother who winters there buys him what he wants.

    My Canadian friend is the only one bringing any substantial amount. She will be staying with me and will be taking tours, etc. Her only expenses will be food, entertainment and sightseeing. I advised her to bring her breakfast cereals, snacks and herbal teas.

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  11. bajanbat

    excellent analysis. It is a pity that Thompy does not appear to have access to this kind of information or if he does, he evidently does not know what to do with it. It is long past time for the public to be informed of how this Government that was going to change things and make them all transparent does just that. Hiding behind the talk about Constituency Councils is not going to solve our problems. But that is the politics of DISTRACTION not INCLUSION! Some can be fooled but some have their eyes and ears open and can still think. Red herrings only smell and Squeaky Clean does not feed people or provide jobs. If Four Seasons closes, and I don’t think there is a lot of hope of it reopening anytime soon, because the two banks they were to get funds from, RB of Scotland and an Icelandic bank are both just about broke and looking for handouts themselves! Think of the job losses, who is going to hire those workers? Thomnpy says it “can’t close” but how can he stop it?

  12. Pingback: » Opposition Leader Mia Mottley urges Leroy Parris to Resign from CBC Keltruth Corp.: News Blog of Keltruth Corp. - Miami, Florida, USA.

  13. USA’s FAST ECONOMIC RECOVERY IN 2 STEPS

    Step 1 – STOP THE BAILOUTS and FIX THE BANKS
    – Solve the loan problem.
    – Solve the derivative problem.
    – Reassemble whole loan mortgages

    The U.S. economy is shrinking fast, because businesses cannot get loans that they need to operate normally. Banks and lenders already own $ billions in bad loans, and they are afraid to make new loans. The government gave $ billions in bailout money for banks to start lending, but banks hoard the money to save themselves.

    Our financial system became untrustworthy, because it mixed $ billions in bad loans in with the good loans. Now, banks do not trust any of the loans, and the entire credit market stopped working.

    The U.S. economy will continue to shrink until we untangle the loans. Once the bad loans are isolated, they can be fixed one at a time. Then trust will be restored. Credit will flow, and the economy will grow.

    So far, our government is spending $ trillions on bailouts and pork projects, out of ignorance and political ideology. The real solution is much less expensive than that.

    The USA has fixed this problem before, and it is not hard to fix again. This is how:

    A) Start with the Resolution Trust Corporation (RTC), which the federal government setup to solve a Savings and Loan problem in the 1980s.

    B) RTC buys up securitized mortgages and derivatives to reassemble whole mortgage loans.
    1. “Securitized mortgages” are home loans that have been bundled into large groups and sold to investors. A group of about 4,000 mortgages can be “securitized” and sold just like a stock or bond. Investors like to buy groups of mortgages because they receive all the monthly house payments.
    2. Some groups of securitized mortgages were subdivided into smaller pieces, called “derivatives.” However, both of the fancy names refer to mortgage loans.
    3. The problem is that many bad loans (with no payments) got mixed in with good loans. That turned the all the securitized mortgages into bad investments, which are ruining our banks. It is a huge problem, and the government has to fix it, before our economy will recover.
    4. Total securitized mortgage and derivative market is estimated at $1.3 Trillion by a Professor of Economics at Ohio State University. (Also see the graph from Deutsche Bank at “The Death of Securitized Mortgages” http://www.nakedcapitalism.com/2008/06/death-of-securitized-mortgages.html )
    5. Government should buy up securitized mortgages and derivatives at the lowest market price, which is set via a reverse auction. (Google on “reverse auction”.)
    6. Squatters, who sit on their mortgage derivatives, in order to extort big $ from the rest of the system, can be forced to sell. (Law is analogous to eminent domain, or sales forced on cybersquatters that registered the domain names of well-established companies.)
    7. Government pays mortgage derivative squatters at market price set by previous reverse auctions, perhaps with a penalty to the squatters.
    8. Sellers give up all rights. No new law there.
    9. Banks, investors, and insurers now have cash instead of questionable mortgage loans and derivatives. So, the banking system is healthy with cash to lend.
    10. Credit will flow, and the economy will grow.

    C) Government reassembles whole loans from securitized mortgage components and derivatives.

    D) Government sorts the newly reassembled whole loans (mortgages) into groups according to risk/quality.
    1. Government uses traditional mortgage experts and guidelines to sort the home loans into quality groups, for example, a high quality group would include homeowners with 20% (or more) equity in their house at today’s market price; and house payments that are 25% (or less) of homeowners monthly income.

    E) Government (RTC) sells the reassembled whole loans to traditional mortgage banks.
    1. This solves the problem of renegotiating home loans with homeowners. Read on.
    2. Law must be changed so that reassembled whole loan mortgages cannot be securitized into derivatives, again.
    3. An important purpose is to reconnect each homeowner with his lender, and vice versa.
    4. It eliminates incentive for mortgage lenders to make predatory and junk loans. If the loan fails, the lender is stuck with a bad loan.
    5. Government recovers much of the $1.3 Trillion purchase cost, because government auctions off the reassembled mortgages.
    6. The lower quality, more risky mortgages would fetch a lower price at auction.
    7. Mortgage companies, that buy the risky loans, will have more room to negotiate with the homeowners.
    8. Some homeowner negotiations will not succeed. Those homeowners will move into affordable rentals. (The government does not owe everyone a free house.)
    9. Other renters would like to buy those empty homes at reduced market prices.
    10. If the government gets stuck with some homes, the government could profit by selling the homes when the housing market recovers.

    F) Insurers like AIG may be reorganized through bankruptcy.
    1. Securitized mortgage pools never made business sense, unless they were protected by various insurance schemes.
    2. Those insurance schemes always were a scam.
    3. Insurance only works when most of the insured assets are never hit with a disaster. That is why flood insurance does not work very well. A major flood ruins all the buildings in a large area, all at the same time. So, the insurance company goes broke, and people that bought the insurance are not protected. That is the problem with securitized mortgage insurance. In an economic downturn, the “disaster” hits all the houses at the same time. Securitized mortgage insurance was doomed to fail, and the insurance companies went broke in 2009.
    4. Companies that ran the insurance scam may have to go through bankruptcy.
    5. Never ending government bailouts for insurers like AIG are just throwing good money after bad. So, stop the bailouts.

    This plan is inexpensive, tried and true. It leaves the banks healthy, with cash to lend. It restores trust in the credit markets, so loans will be made. It reassembles mortgage derivatives into whole loans, and restarts traditional mortgage lending. People can get loans to buy homes. Credit will flow, and the economy will grow.*

    Step 2 – STOP THE PORK and START THE RECOVERY

    *The economy will grow if President Obama’s massive tax, borrow, and spending plans can be stopped, before he creates another Great Depression. Presidents Hoover and Roosevelt already tried to tax, borrow and spend their way out of a recession in the 1930s. Instead, they created the Great Depression, which lasted 12 years. Straight as he goes, President Obama is doing it, again. Nevertheless, cleaning up the securitized mortgage mess is a necessary first step.

    If President Obama announced Steps 1 and 2, today, the stock market would go up within hours. Investors love a real business plan, instead of a political pork plan. Millions of people will be wealthier, feel wealthier, and have more money to spend. That will jump start the economic recovery within days.

  14. always i used tto read smaller content that also clear their motive, and that is also happening with this paragraph which I am reading at this place.