Leroy McClean

BRIDGETOWN, Barbados CMC):

The Central Bank of Barbados has warned that the growing likelihood of a recession in the United Sates poses danger to the island's economy.

"As the US economy slows or goes into recession as it copes with these difficulties, the result could be a slowdown in the growth of the Barbados economy going forward," central bank governor Dr Marion Williams said Wednesday.

The problem would be compounded by a recession in the United Kingdom and some European economies , impacting negatively on Barbados' tourism prospects and investment inflows.

Loss in value realised

"However, the Barbados financial system should remain sound, although there may be some loss in value realised and unrealised on US dollar fixed income securities held by financial institutions, including the central bank, as securities prices in the US markets tumble," the central bank boss said.

Williams noted that efforts by the US government to provide a US$700 billion bailout to the troubled businesses could also affect the island in the longer term.

President George Bush, who says the massive government intervention is needed to stave off economic catastrophe, planned to address Americans Wednesday night about how the crisis affects them, said White House press secretary Dana Perino.

The Barbados Central Bank governor said that given the high cost of that rescue, it was expected there would be larger US fiscal deficits, a possible further depreciation in the US dollar and a likelihood of a longer US recession than anticipated.

Global slowdown

"The likelihood of a global slowdown will also become greater in those circumstances. However, given the healthy level of Barbados' foreign exchange reserves, this is unlikely to be significant for Barbados given the level of official borrowing at this time, but foreign investors into Barbados, who were depending on borrowing on the international markets may be put on pause," she said.

Williams suggested that Barbadian investors holding direct deposits with commercial banks in the US could take comfort from the fact that the Federal Reserve Bank appears to be taking a protective stance and is unlikely to allow any large US commercial bank to fail.

The central bank governor said the one positive outcome of the financial situation was that if there is a global slowdown as expected and, therefore, a lower demand for oil, prices for that commodity should drop.