KINGSTOWN, St. Vincent – This country cannot devalue its currency to jumpstart the economy but must consider its other options, Opposition Leader Arnhim Eustace noted in Parliament on Tuesday.
But Prime Minister Dr. Ralph Gonsalves, who is also Minister of Finance, said that Eustace’s comments, while described as profound by Member of Parliament for Central Kingstown St. Clair Leacock, was a “trite statement” of “economics 101”.
Eustace made the point during the debate of the estimates for the EC$793.9 million budget for 2012.
The Vincentian economy has registered three consecutive years of economic and projections for this year varies from a contraction of 0.4 per cent to growth of 0.8 per cent.
Eustace noted that the Eastern Central Bank handles the economies of the eight-member nations of the Eastern Caribbean Currency Union, unlike in other countries that have their own central banks.
“I am not knocking that arrangement. I am saying that that arrangement is a fact. Indeed, I support the arrangement. I think it has been good for our region,” he said.
He, however, said that the Central Bank arrangements are a reality that has “implications for the ability of governments in terms of taking decisions individually in the OECS (Organisation of Eastern Caribbean States) to stimulate our economies.
“The fact that we have one central bank does not, Mr. Speaker, permit us to take any action independent of the other OECS countries as far as monetary policies are concerned, if we want to stimulate the economy of St. Vincent and the Grenadines.”
Eustace said that the local government cannot, on its own, deal with questions of interest rates without taking into account the other countries of the Currency Union.
“But Barbados can do so with its central bank,” he said.
“If our government were to think that a devaluation of the E.C. (Eastern Caribbean) Dollar will help our economy by stimulating our exports, we can’t do that, because we are part of a central banking arrangement,” said Eustace, an economist.
“Therefore — and I think the Prime Minister recognises this — we are restricted in terms of providing that stimulus to our economy, to our fiscal situation.
“The policies we adopt will relate to the fiscal situation and the estimates and the budget are an embodiment of that because that is the avenue we have left to us since we have no control over monetary policy.
“And therefore, what we do about the estimates becomes very critical for the development of our people and our country. This is the context, this is the reality, in which all governments in the OECS exist,” Eustace said.
He told lawmakers that while they cannot set monetary policy, they could increase taxes, use expenditure on certain items, borrow on appropriate term and give incentives such as tax holidays, and determine public sector investment projects.
“That is why the estimates are so important and at this time must pay great deal of attention to estimates of 2012,” Eustace said.
“I don’t know why grown men and women have to be subjected to that sort of that thing,” Gonsalves said during his wrap-up in response to Eustace’s “trite statement” of “economics 101”.
“The Honourable member for Central Kingstown said it was a profound statement like a schoolmaster teaching errant schoolboys. … A one-eyed man, in blind-eye country, apparently is king. But not in this country; over there!” Gonsalves in reference to the opposition side of the House of Assembly, left vacant because opposition members left before hearing his response.
“We have another instrument other than the fiscal instrument. That instrument is called sovereignty and independence,” Gonsalves said.
He said that his government has used its instrument to implement the one laptop per child policy and to secure healthcare in Cuba for Vincentians.
“But you notice the traditional thinking. He can only manipulate the fiscal side but he doesn’t see the instrument of sovereignty and independence as important instruments for the mobilisation of resources to aid the development of this country. Therefore, the management becomes not only simply a narrow economic matter, it is a matter of political economy,” Gonsalves said.