BUSINESS MONDAY: ECONOMIC VIEWPOINT: Sinckler not playing to the crowd
THE Political business cycle occurs when a Government seeking re-election pursues policies to enhance its chances of winning the election. These policies may range from measures to lower unemployment and taxation, and among other things, fostering an environment that makes it conducive for businesses to flourish. Governments all over the world have done it, and even when they are successful, resort to policies that pull back some of the largess to steer the economy from troubled waters. Such is the nature of politics.
Therefore it takes a bold man (politician) to ignore the chances of being re-elected to present a Budget that will bring him more detractors than supporters.
Last Friday the Minister of Finance and Economic Affairs, Christopher Sinckler addressed the Astor B. Watts (DLP’s) Lunchtime lecture. Earlier in the week, Sinckler had told the media following consultations he held on the May 30 Budget with private sector leaders, that the economic measures and principally the National Social Responsibility Levy (NSRL) and the two per cent commission on foreign currency sales are going to remain. He had clarified the position on both taxes which seem to create much apprehension. So while speaking to party supporters in the small room in George Street on Friday, the Minister stated that his mission is to arrest the slide in the economy. Defying calls for Government to lower the taxes, Sinckler said Government was not going to bring an election budget in order to be re-elected just as others including the BLP, would have done. He again appealed for alternatives to his Budgetary measures, saying he is open to suggestions.
On the NSRL, Sinckler said this tax was in place since last year. He explained it and so too did the Barbados Revenue Authority. Yet, according to him, there was no confusion. “All we did was to increase the rate from two per cent to 10 per cent and all kinds if issues are now surfacing.”
The measures will be painful although the way some people in Barbados are behaving it does not indicate that the country’s economy is in real trouble. That the Minister has ignored playing to the crowd is an indication of the extent of the issues confronting the economy. The fiscal imbalances, the high debt, declining foreign reserves and economic downgrades call for more urgent attention. So severe is the situation that calls have gone out for the country to secure an agreement with financing from the International Monetary Fund, a suggestion that Sinckler and his colleagues in Government, are not entertaining at least for now.
The NSRL is aimed at injecting close to $300 million into Government’s coffers. The two per cent commission on the sale of foreign exchange a further $150 million. All of this will contribute to the Government reducing its dependence on the financing from the Central Bank of Barbados, by more than $600 million and improving some of the other economic fundamentals must be brought back on course. The Budgetary measures therefore are to take priority over making people feel good and comfortable and thereby improving the ruling party’s chances of being returned to office in the elections constitutionally due in under a year’s time.
By also refusing to amend these policies the Minister is fully aware that there will continue to be rumblings by consumers when the price increases start to creep in, retailers who could see a drop in sales because Barbadians will not be engaging in runaway spending and manufacturers who may face declining demand for their goods. Equally so will be the island’s public sector workers whose trade unions will not let up in pressing their case for increased salaries.
Sinckler reasoned that adjusting the measures could mean further inflaming the economic situation. No one wants a situation where the economy declines further forcing the government to eventually turn to the IMF. As was stated earlier there are those who figure that even at this stage the IMF should be called in and that the Government should undertake debt restructuring similar to what Jamaica has done. That is as far as the calls go.
None of them has recognized that Jamaica has had two debt restructurings one in 2010 and the other three years later. Barbados needs to know more of what is at stake with debt restructuring, its implications, and which of the two done by Jamaica should be undertaken here. As far as the IMF goes, those making the call indicate that the Fund has changed its ways and we wait to see if that is the case should the Government go that route.
Sinckler’s stance on the Budgetary measures bring to mind the position of former Prime Minister, Sir Lloyd Erskine Sandiford. Sir Lloyd defended the strong austere measures he took in the early 1990s to rescue the economy. While the measures were successful, his party was not. In the book “Turnaround” by Peter Blair Henry, Sir Lloyd was quoted as saying: “I think that the price that I paid was small in comparison to the good that came to the country.” That quote was in response to a question about whether the sacrifice he had made was worth it. But Sinckler has to ensure that the measures do work and bring the country’s economy out of the present predicament. Once that’s the case he will be justified in ignoring the Political business cycle.