Local Economist Prof. Michael Howard who has become a regular commentator on Government’s economic policies today wrote an guest column in the daily Nation offering his views on the way forward for Prime Minister Thompson’s government and Owen Arthur’s stewardship.
His comments on former PM’s Arthur are interesting:
Whether he knew it or not, Arthur was also influenced by Rostow’s misleading “catch-up” notion of Barbados becoming a “developed country”. We may have already reached there since we are now in Rostow’s stage of “high mass consumption”.
Arthur’s expansionary policies eventually led to “overheating” of the Barbadian economy. Overheating was caused by heavy expenditure on the World Cup, the bunching of lumpy capital projects, and high levels of conspicuous consumption. The positive aspects of overheating were increased employment and economic growth.
The Barbados model has now reached a critical turning point where serious decisions have to be made to reduce high levels of spending, maintain capital controls, and curb illegal immigration. Without capital controls the exchange rate will come under significant pressure, as the economy faces a possible recession.
The point on the removal of capital controls we have spoken about on the margin already. It does seem to be a judgement call. As we said in our post “Capital Account Liberalisation – Good or Bad? ” it seems that no one REALLY knows what will happen when capital controls come off. Prof. Howards view that the world economic situation is less favourable MAY be right.
Interestingly his other points include tax policy:
Thompson should not tamper with the VAT system, as indicated by the stated intentions of the Democratic Labour Party’s (DLP) manifesto. This course of action will be fraught with great danger, given the nature of the Value Added Tax (VAT). Many countries have found that too many zero-ratings in the VAT system increase the complexity and reduces the efficiency of the VAT.