Watcher: “Devalue our Currency!”
Beefcake: “Devaluation won’t help tourism!”
Could Barbados succeed like Singapore?
BFP readers Beefcake and Watcher squared off so well in the comment section of Another Barbados hotel folds, that we knew we had to make it a post. If the discussion continues, we’ll try to update this post…
October 14, 2011 at 2:13 pm
A lot of the high costs of Barbados comes from a currency that is far overvalued on a fixed currency basis. When the currency matter is resolved, the high costs of Barbados will be resolved. It will eventually resolve itself when the Government gets to the point of not having enough “traded currencies” coming in to pay for everything that is imported. If we can’t be competitive we wont have foreign exchange coming in. These monies will be going to other places where, for the tourist, the value for money is much greater. The expenditure level in Barbados can’t be sustained.
October 14, 2011 at 4:56 pm
Devaluation only helps exporters (manufacturers and raw materials).
You need to replace the Barbados dollar with the US dollar, and by extension, get rid of the Barbados Central Bank.
October 14, 2011 at 5:55 pm
The way I see it is the vast majority of things consumed have to eventually be paid for in currencies other than the Barbados dollar. Right now pretty well all payments are based on the US$. Just a matter of time before the foreign exchange reserves are depleted. Looks like the bank is printing money to pay for Government deficits. These deficits include payments for various things that have to be paid for in US$. If there is not a free market to exchange Barbaods dollars for other currences, where is the Government going to get the money to boost foreign exchange reserves to pay the import bill. Part of the soloution rests in making the tourist product more competitive. That is going to mean belt tightening for everyone as well as a much greater emphasis on internal production and import replacement.
October 14, 2011 at 9:12 pm
Barbados is a small island developing state, and proudly hosted a conference to that effect nearly 20 years ago.
Import Substitution Industrialization is not likely to work here as we lack critical mass. It has worked in Singapore and Brazil, but they tend to be the exception than the rule. However, for ISI to work, you must focus on external sales as the goal.
The tourist product will not be made more productive by weakening the currency. Much of the money stays overseas anyhow, with payments being made to tour operators or corporate chains who bill in USD and charge package rates anyhow.
Barbados tourism is faltering because of lower disposable incomes + increased travel taxes + increased fuel costs that are affecting travel to long-haul destinations, Barbados tourism is also faltering due to poor quality service. Barbados tourism is faltering due to harassment relating to vendors, drugs, etc.
The problem with weakening the Barbados dollar is the reliance on imports for everything, especially fuel. Devaluation will further weaken the disposable income of ordinary Barbadians who are already suffering enough under the economic mismanagement of the government. Wages will stay the same (or result in hyperinflation), but cost of living will increase substantially, and people will have difficulty paying for food or transport. Look at how devaluation (and IMF programs) have negatively affected common people in Guyana and Jamaica. Furthermore, property prices will skyrocket, out of the grasp of people who earn Barbados dollars, since property prices are influenced by overseas interests.
There is no free market to exchange Barbados currency because it is a weak-form economy. It would probably benefit from adopting the USD. Bajans hoard USD and buy it wherever they can; Bajans travel mainly to the US.
Drop the value of the Barbados currency, and you are keeping the people of Barbados down and will have eroded all they have worked for. Imagine telling someone who has worked and saved their entire lives, put $60,000 into the bank, and then tell them the next day their savings are only worth $30,000?! It is like buying a pound of fish, getting home and finding you only got a half pound, because the vendor devalued the pound by 50%.
Back to tourism – why does the Mediterranean get so many more British visitors than Barbados? I think the answer is more Value for Money than a currency issue.
Dropping the value of a currency may work in A-level Economics, but that is in theory and on paper. People’s decisions for travel are far more reflected in Behavioural Economics. You’ll get some people that are influenced by a change in price, but not significant amounts.
The increased poverty will drive further visitors away. Under your model, you’ll turn Barbados backwards.