Don Robotham, Contributor
AS WE try to achieve greater unity on economic policy through the difficult time which we face, it may be helpful to look at the experience of Barbados during their economic crisis of 1991.
Let us, therefore, reflect on how Barbados achieved its version of a 'low inflation model' and the very high political price which the then Prime Minister of Barbados, Erskine Sandiford, paid for implementing these policies.
We are able to take a closer look at the Barbados experience because of an excellent piece of journalism on the programme 'Nationwide', on Power 106 FM on last week Thursday afternoon. This brilliant programme needs to be replayed. It showed the vital role which Jamaican journalists can play and are playing in our current crisis.
This programme represented modern Jamaican journalism at its finest. No rancour, no sensationalism, none of the dreadful 'twanging', none of the egoism in which the journalist's persona becomes more important than any of the issues. Cliff Hughes sensitively but incisively questioned former Prime Minister Sandiford, eliciting all the vital information while leaving Mr. Sandiford, who has paid the supreme political price, with his dignity intact. But the most important thing about this programme was not its journalistic excellence. It was the lessons which it holds for us Jamaicans in our present economic crisis.
BARBADOS CRISIS
The Barbados crisis developed in 1990 and 1991. It was caused by a downturn in the world economy and a collapse in tourism earnings as a result of the Gulf War. Whereas between 1983-89 the economy had had a healthy growth rate, thereafter growth sharply declined. In 1990 there was negative growth of -3.3 per cent and in 1991 the worst year of the crisis it fell again by -3.9 per cent. Their external account deficit grew, their Net International Reserves (NIR) fell by US$47 million and import coverage fell to less than a month's supply of imports.
But where the crisis showed itself most, as is the case with Jamaica, was in the Budget. Barbados had always practised fiscal prudence. Before the crisis in 1989/90, there was practically no deficit at all -0.8 per cent of GDP. By 1991, however, this had been dramatically transformed into a deficit of -7.3 per cent of GDP. Needless to say, this situation was unsustainable as it threatened the economy with high inflation and devaluation and made it impossible for economic growth to occur. Barbados was forced to go to Washington and to open discussions with the International Monetary Fund in 1991.
As was to be expected, the International Monetary Fund (IMF), pointing to the growing inflation relative to Barbados' main trading partners and the loss of competitiveness of the Barbadian exports, proposed a drastic stabilisation programme, at the heart of which was devaluation of the Barbados dollar. Mr. Sandiford, advised by leading economists such as Dr. DeLisle Worrell from the Barbados Central Bank, refused. Instead they proposed their own stabilisation programme which in many ways was more drastic than the IMF one. At the core of the home-grown programme was a severely austere low inflation model.
THE BARBADOS LOW INFLATION MODEL
The Barbadian leaders reasoned rightly that the arguments for a devaluation rested on the threat which inflation posed to the competitiveness of Barbadian exports. The main source of this threat was the sudden and perilous jump in the Budget deficit. Therefore, if they could reduce the deficit dramatically then they would remove the threat of inflation. If they eliminated the threat of inflation, then there would be no grounds to devalue the dollar. The issue then was how to achieve this low inflation model without stirring up too much social unrest and creating a political crisis on top of the economic one.
There was no doubt that most external observers simply believed that this could not be done and that very shortly Barbados would be back in Washington cap in hand. Because the targets which Barbados were required to achieve were so drastic, they could not be attained simply by wage restraint. Expenditures had to be cut and cut severely too. But even such very deep cuts would have been unable to close the gap in the Budget and to reduce inflation sufficiently so as to remove the threat of devaluation. Substantial tax increases were necessary as well. Failing this harsh combination of deep cuts and tax increases, Barbados would have had no choice but to devalue their dollar.
The programme agreed to with the IMF in July 1991 was the following:
At its core was a low inflation model: Barbados was required to return to a level of inflation at a rate below that of her main trading partners. The fiscal deficit was to be reduced to -4 per cent in the first instance and then to -1 per cent of GDP by 1994/95. At the same time the NIR was to be rebuilt to cover three months' imports by 1995. On the basis of the draconian reduction in the Budget and the consequent reduction in inflation, the Barbados dollar would remain at the level at which it had been held for many years, approximately US$0.50. As mentioned above, this was an extremely stiff programme which Barbados was expected to fail.
But they did not fail. Prime Minister Sandiford showed amazing leadership qualities at least amazing to us Jamaicans. He showed the kind of qualities which we yearn for in Jamaica but instead we get the most shallow political opportunism and electoral chicanery, self-enrichment and feeding from the public trough and hypocritical chat about "values and attitudes".
After extensive discussion with all the parties, Mr. Sandiford implemented the following measures. He laid off thousands of public sector employees. But he went further. The wages and salaries of all public sector officials were cut by eight per cent for an 18-month period. Yes, not a wage freeze but a cut. A salary give-back.
Then came the following new taxes. Those lucky enough to have an income were required to pay a new 'stabilisation tax' on all sources of gross income. Consumption taxes were also increased. Contributions to the severance pay fund were also increased from 0.25 per cent to 1 per cent. Airport taxes were increased as well as new taxes imposed on 'miscellaneous fees' (taxi drivers, please note).
These proposed measures caused great social turmoil in Barbados, as they would in Jamaica. I well remember being in Bridgetown during this period and witnessing a complete shutdown of the main street and the large number of marooned tourists as thousands of Bajans, mobilised by the trade unions, marched through the city chanting slogans against Sandiford. There is no question that this was an extremely serious crisis which could have brought the country to its knees.
This programme was supported by the Barbados private sector. But it was bitterly opposed by the trade unions and the Opposition (the party of the present Prime Minister, Owen Arthur). But Sandiford persisted. He explained that it was eggs or young ones: either these very harsh measures or devaluation. He said it was a matter of principle. By the most patient explanation he was actually able to get about 60 per cent of public employees to agree to the salary cut. Sandiford kept his word and reversed the salary cuts in 18 months, after the economy had stabilised. There was no devaluation. Painful though it was, Barbados was saved.
But Sandiford paid a bitter price. Although he squeaked through in the elections of 1991, before the cuts and taxes began to bite, by 1994 it was all over for him. In that election he was roundly trounced by the party which had hotly opposed his measures and who are now occupying power during a period of prosperity which was created by Sandiford's harsh measures. In 1994, not only was Sandiford's party defeated at the polls, they were reduced to a tiny number of seats (I think three). Sandiford himself lost his own seat to a relative unknown. Owen Arthur marched triumphantly to power and remains there. Sandiford was pushed to the side and is a forgotten man in Barbados and the Caribbean. Such is the irresponsibility of the Caribbean electorate, not only the Jamaican one.
Of course, some will say that Sandiford's defeat was aggravated by personal issues which arose in 1994. Of course, like many of us, Sandiford had weaknesses. I met him once very briefly. It was at a University of the West Indies ground-breaking ceremony for the new Sir Frank Worrell Hall of Residence at the Cave Hill campus. He struck me then as a very proud black man but also very self-effacing. Not showy at all, like us Jamaicans. I remember thinking then to myself, "Probably a difficult person to get on and to work with."
But whatever personal qualities he may have had, there is no doubt about one thing. He did not give himself a massive salary increase and then turn around to the Barbadian public sector workers and tell them to accept a wage cut. Sandiford was not the kind of political hypocrite which we have grown to know so well in Jamaica. He said it was a matter of principle.
Towards the end of the remarkable interview, Cliff Hughes posed the inevitable question. He asked Mr. Sandiford if, "considering the price", he would have done the same thing again. Sandiford's voice fell and he paused for a moment. Then he said, "I think that the price that I paid was small in comparison to the good that came to the country."
Cliff Hughes did not press him. He left him with his dignity. He would not have had this problem interviewing a Jamaican politician. They have no dignity to lose.
Don Robotham is an anthropologist who specialises in development issues in the Caribbean and West Africa.
