Barbados could relax foreign exchange measures

Barbados is considering relaxing its decades-old foreign exchange measures in a bid to attract foreign exchange into the island, a senior government advisor has said.
However, Government’s Special Economic Advisor, Professor Avinash Persaud, said the Mia Amor Mottley administration, which came into office in May this year and has been struggling to revitalise an ailing economy with the assistance of the International Monetary Fund (IMF), would not be rushed into dismantling the controls.
“We are not going to do it in any rushed and rash way. The country is going through a tough adjustment in order to protect our peg. We are not going to endanger the peg,” he told a panel discussion discussing Bridgetown’s decision to enter into a multi-million dollar Extended Fund Facility (EFF) with the Washington-based financial institution.
Persaud told the panel that Barbados’ competitiveness must first be right and its reserves sufficient to cushion any potential shocks that might confront a small economy.
He said the relaxation of foreign exchange controls by the Central Bank of Barbados is a long-term process that is to be phased in.
The economist said that with nearly US$500 million in financial support from the IMF, the Inter-American Development Bank (IDB) and the Barbados-based Caribbean Development Bank (CDB) for the Barbados Economic Recovery and Transformation (BERT) programme, the funding would lay the foundation toward removing the controls.
But he warned against Barbados returning to the days when foreign exchange was “leaking all over”, partly due to the printing of cash, thereby forcing the Central Bank and exchange control officers to tighten the screws on money outflows even though investors were to be allowed to repatriate the returns on their investment.
“One of the benefits of the IMF’s backing of BERT, of (the) backing with the IDB and with the CDB, is that we are probably going to end up with $500 million of new foreign currency coming from the official sector.
“So Barbados dollars and reserves go from $400 (million) today to $1.4 billion. And if that helps to catalyse new investments and we are heading towards the $2 billion mark, we will feel more comfortable about further relations of our foreign exchange controls.”
Persaud said the island might phase in the scrapping of exchange controls by returning first to the spirit of those regulations which say that “people who bring money in can take it out” even as he reiterated that the removal of the controls would not be rushed into.
“People who are bringing money and to put that money into an investment that is generating foreign exchange, when they take their money out, they don’t actually [drain] the system because they brought that money and they created new money. So we first need to get back to the spirit of our exchange controls,” he added.
Mission Chief of the IMF in Barbados Dr Bert van Selm, who also participated in the panel discussion, said he shared the position outlined by Persaud.
“We believe the fixed exchange rate regime served Barbados very well. But, of course, it can only prosper if it is underpinned by the right fiscal and structural policies. It needs to be underpinned by structural policies to help boost growth and it needs to be supported by fiscal policies that are tight enough that they sew confidence and they don’t require monetary financing,.
“And we also truly agreed with the intention of the Government to gradually liberalize capital controls to make it easier to move money in and out. That would need to be done in a very cautious and gradual way,” van Selm said.