It would be “fatal” for Barbados to believe it can simply ride out the global recession, as there is unlikely to be a strong or quick recovery in the markets the country depends on for most of its foreign exchange earnings, says Leader of the Opposition Owen Arthur.

Instead, he says, the government must reduce its fiscal deficit as a matter of urgency. But the effort to reduce the national debt must be accompanied by policies which will create economic growth.

Mr. Arthur, who was guest speaker at the Barbados Chamber of Commerce’s final monthly luncheon for the year, told his audience of business people that “we also have to stop feeling sorry for ourselves,” noting that Barbados was accustomed to responding to economic crises every decade or so. It was up to the country to create its own sustainable niche in the world economy, and how well it did that would alone determine “if we succeed or fail.”

Delivering his speech in a measured tone, Mr. Arthur kept his analysis focussed on the economic imperative as he saw it, never directly criticising any member of the present administration. Nevertheless, his remedies left no doubt that he believed the country was on the cliff’s edge. 

Mr. Arthur, who served as prime minister from 1993 to 2008, said that under his watch the government’s fiscal deficit had rarely exceeded 2.5 percent in any year, but since leaving office it has been at around eight percent for three years in a row. He said the crisis facing the country was now so “overwhelming” that if not resolved soon would even threaten all the economic gains made since independence.

He warned that the National Insurance Scheme was “reaching the limits of prudence” in its holding of government bonds and the Central Bank of Barbados was “printing money” to finance government’s half a billion shortfall in funding. These were unsustainable policies, and strong fiscal discipline and innovative polices were instead needed “to solve our deficit problem without destabilizing the economy.”

The Opposition leader said that while some of the shortfall in government revenue could be blamed on the global recession, new entitlement programmes had also sapped the Treasury and had been created more for “partisan impact” than for any benefit to the nation as a whole.

Mr. Arthur said it had to be accepted that while Barbados had benefited greatly over the years from its education and social programmes, “a social sector can become too large for an economy to afford,” and the country would have to make changes in how its citizens accessed those services. “We are at such a time and place in this country’s evolution,” he said.

For example, any adjustments made in health care delivery would have to ensure that persons classified as below the poverty line as well as the elderly would not be marginalised. In terms of education, he saw the use of tax incentives as a way of easing the burden on parents called upon to contribute more to their children’s tertiary education.

Mr. Arthur added that the building of new schools and hospitals by the private sector could be growth areas for the economy as long as certain criteria were met. He added that he would support government selling off some of its commercial assets (he did not itemise any) as long as the revenue was used to pay down the national debt, and saw the building of the much-needed sewage system along the west coast as a public-private sector project which could also help create economic growth.

“The Barbados economy needs to grow by three to 3.5 percent per year to keep us on a sustainable path,” he said, “but we are underperforming and may even be falling behind.” Worse, the problems affecting the government sector seem to also be afflicting the private sector, which is reporting lower or no profits, while the household sector has been hit by loss of purchasing power and therefore cannot help sustain growth.

Emerging from the “economic morass” will require Barbados to compete in a new and more difficult marketplace, and Mr. Arthur said he believed the international business sector  had “real potential” which needed to be developed, not just through issuing more licenses in existing categories but in “diversifying the product mix” to keep abreast of new opportunities in the industry.

The tourism industry could also contribute more as long as it remained high end, said Mr. Arthur, who added that discount rates might bring more tourists but won’t help the economy in the long run.

He called on the country to embrace the goal of the Barbados Entrepreneurship Foundation to make entrepreneurship and business facilitation key goals for rebuilding the economy. Barbados will have to put in place “best business practices” to govern its business arrangements and “accept no half measures” that would restrict business development, he said.

He said he wanted to see adopted an incomes policy that would stimulate production and innovation and new policies to get the financial sector to support entrepreneurs.

He said neither the government nor the NIS should finance the Four Seasons project, which had originally been conceived of and approved as a private sector initiative. Four Seasons was occupying the large largest area of undeveloped beachfront land on the west coast and it should not be hard to get other private investors to develop a project there if the current one was unable to proceed.

Finally, Mr Arthur said that instead of the country making public objections to being placed on the list of tax havens by France, it should simply move as quickly as possible to sign the dozen Tax Information Exchange Agreements (TIEAs) required for it to remain on the OECD‘s “white list” of international business jurisdictions. Once that was done, the island could vigorously promote itself as such.