Wednesday, July 27, 2016
By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
Devaluation concerns were yesterday branded “premature” by the Bahamas Chamber of Commerce’s chairman, who argued against using the issue “to cause fear and pandemonium”.
With a general election due within nine months, Gowon Bowe urged the political parties not to play on an emotive issue for many Bahamians by stoking devaluation fears as a means to undermine Government policy.
He backed assertions by John Rolle, the Central Bank’s governor, that the Bahamian dollar faced “no imminent or medium-term threat of devaluation”, as both the private sector and foreign currency reserves were performing adequately.
However, he acknowledged the “long-term” concerns created by previous government foreign currency borrowings to support the reserves, given the pressures that might arise when such debts became due for repayment.
“I think that it would be premature to make these types of statement,” Mr Bowe told Tribune Business of recently-expressed devaluation concerns.
“As it currently stands, private sector performance and reserves’ performance have been adequate to support monetary policies.”
The Chamber chairman said pressures would only likely arise when the Government’s foreign currency debts became due for repayment, as this could impose a drain on the foreign reserves.
“There have been times when the Government borrowed in foreign currency to support the reserves,” Mr Bowe explained.
“What we should be more concerned about is the long-term when these debts come due, and making sure the current account is in a position to enable us to pay back without a drain on the reserves.”
Mr Bowe’s position contrasts with that of his immediate predecessor as Chamber chairman, Robert Myers, who recently told Tribune Business that devaluation of the Bahamian dollar was “a question of when, not if” unless this nation altered course on its economic and fiscal policies.
Devaluation of the Bahamian dollar would be a disaster for an economy that consumes virtually all it imports, as the living standards of Bahamian consumers and households would be drastically slashed.
With reduced purchasing power versus the US dollar, businesses and households would be unable to afford many of the necessities and products taken for granted - at least in the same quantities. And the cost of education and holidays abroad would rise dramatically.
Mr Myers’ comments prompted an immediate riposte from Mr Rolle, who said there was “no imminent or medium-term threat of devaluation”, given that the Bahamas’ foreign currency reserves - at well over $1 billion- were in excess of international benchmarks.
“Although the Bank expects the normal seasonal drawdown in reserves over the rest of the year, balances are still expected to settle at a year-end position that are stable to slightly improved when compared to December 2015,” Mr Rolle added last week.
“In the present circumstances, the Bank remains well equipped to defend the Bahamian dollar, and any forced float or devaluation would not benefit the economy. It is well within the Bahamas’ means of being avoided over the medium-term.”
Astute observers, though, are paying particular attention to the latter statement, and Mr Rolle’s references to no devaluation danger in the ‘short to medium term’.
Several have privately questioned to Tribune Business what Mr Rolle means by the “medium term”, and how long this period will last. They are also interpreting his statement that “it is well within the Bahamas’ means” to avoid a devaluation in the medium term as an implicit admission that Mr Myers’ concerns are correct.
Mr Bowe, though, warned against making alarmist sentiments on an emotional subject (devaluation) that had the ability to provoke strong reactions among Bahamians.
“The current situation is one that holds a strong sentimentality with the general population, and we have to be careful about causing fear and pandemonium on the issue,” he told Tribune Business.
“We have to be very careful sometimes in using this [devaluation] as a wake-up call on issues near and dear to the population, without recklessly creating fear when the facts don’t support that.
“It’s an area where it’s easy to cause alarm, but one where the ‘boy cried wolf’ one too many times, and when the real danger is before us, people will say: ‘We’ve heard that before’.”
In particular, the Chamber chairman urged the political parties not to “fall into the trap” of loose speculation about the economy’s performance “causing the risk of currency devaluation” in a bid to gain advantage with the election approaching.
Suggesting that the Bahamian dollar was akin to “sentimental sovereignty”, Mr Bowe said the Central Bank’s monetary policy flexibility was in reality limited by the need to maintain the fixed exchange rate regime and one:one US dollar peg.
This meant it needed to ensure there were sufficient foreign currency reserves to back the Bahamian dollar money supply, so that the latter could be converted to US dollars in an emergency.
Mr Bowe said fiscal policy only impacted the external reserves if the Government borrowed in foreign currency to cover its deficits, as this would eventually have to be repaid, potentially draining them.
The Bahamas has traditionally relied on foreign currency earnings from tourism, financial services and foreign direct investment (FDI) to cover its multi-billion current account (trade in goods) deficits, given this nation’s propensity to import everything it consumes.
Mr Bowe, though, suggested that the Bahamas needed to reduce its dependency on foreign investors by allowing Bahamian entrepreneurs and groups, with the necessary means and ability, to finance their activities in foreign currency.
This, he added, would help keep foreign currency earnings from such projects in the Bahamas, boosting the external reserves and this nation’s balance of payments position.
“The Government is facilitating that, making it easier where businesses can expand locally and internationally, so they will be able to generate these types of reserves,” said Mr Bowe in reference to recent exchange control liberalisation moves. “If there are investor groups able to expand, let them do so.”
He also said that Bahamians’ understanding of monetary policy needed to be “broadened and enhanced”, so expectations were clearly aligned with what was necessary to support it.
Comments
Well_mudda_take_sic says...
In short: Continued foreign currency borrowings by our government to meet our country's foreign currency needs at a time when our GDP is in protracted decline will surely result in the devaluation of the Bahamian dollar against the U.S. dollar. Why Gowan Bowe or anyone else has to state this simple fact in so many unnecessary words is well beyond comprehension; unless of course one is practicing to be one of those wutless politicians who constantly blows much hot air.
Posted 27 July 2016, 8:10 p.m. Suggest removal
banker says...
For too long under Governor Wendy Craigg, the Central Bank has been politically influenced, wiping out the independence gained by Governor Julian Francis. As a result, the Central Bank has complete tunnel vision and is incapable of truly progressive monetary policy reforms. It sees its main role as a protective cup athletic supporter, protecting the family jewels of foreign reserves. It is so singularly focused on tried and true methods of propping up the shaky peg to the US dollar, that it is incapable of thinking outside the box in allowing Bahamians a role in the accumulation of reserves.
Right now, if a Bahamian wants to invest in foreign securities like the Nasdaq or the New York Stock Exchange, not only are they limited by dollar amounts, but there is a 12.5% load going out and a 10% incoming load, So if a Bahamian invests in the foreign markets, whatever securities they invest in, must make more than 22.5% in profit before the investor makes any money.
So when the next Facebook or Uber comes along, Bahamian cannot invest and make a lot of money like free people in other countries can. But if Bahamians were allowed to invest without the Central Bank load, then savvy investors could actually make a lot of money, and when it is repatriated, the foreign money held by the banks could count towards the reserves. But the backwards Central Bank cannot see this, nor can the dim-witted legislators that are currently in power, as this would require new legislation. Instead the moronic half-wits go and ban drones and issue travel advisories against the US -- demonstrating the lack of horsepower in their sacculated craniums.
The biggest effect of Bahamians not being able to participate in the global village investment milieu, is that they are marginalized, second-class citizens of the world -- made so by their own government.
And as for devaluation, the threat is as real as the next hurricane. Can't say when, but its coming.
Posted 27 July 2016, 8:49 p.m. Suggest removal
OrdinaryMan says...
banker - you are awesome dude !! (um...that's respectful informality, sir). There are days when the only reason I sign in to the Tribune242 is to see if you've written one of your cogent comments. I get a clearer picture of what is really happening in the Bahamas (i'm a USA Vermonter) via your organized thoughts. Thanks. (sigh....I had my eye on a second home in Abaco but now understand that I & family would be better off waiting for a regime change. (Assuming a newly-elected political crowd with a tad more integrity and empathy for its fellow citizens. One can only hope.) I sincerely wish more guys/gals like you were positioned to challenge the current kleptos.
Posted 1 October 2016, 1:44 p.m. Suggest removal
Sickened says...
There is ***way*** too much talk about this now for it not to be in the works. Almost everyone with a financial background is preparing for it. Most of us have heard rumors of it happening in as little as 6 months to within the next 2 years.
Posted 28 July 2016, 9:41 a.m. Suggest removal
banker says...
Many prominent business people have been preparing for it since the PLP came to power. One of the most common vehicles of preparation for business people against a devaluation calamity, is a quasi flow-through offshore corporation that traps some of their income stream in hard currency, domiciled offshore as well.
Then when the devalue-pocalypse comes, they whip out their foreign credit card from those offshore accounts and maintain their standard of living, or domicile themselves to where their flow-through corporation is, or live as expats in a friendlier environment.
As noted above, the smart money has already done so, and it is a little too late to start now.
Posted 28 July 2016, 10:01 a.m. Suggest removal
bogart says...
Given some 28,000 foreign persons on work permits it is guaranteed that they are not finding ways to send back to their families Bahamian dollars but US dollars.
There are also illegals who work and they too do not send back Bahamian dollars. These amounts may total 100 million plus annually as noone seems to know how many illegals reside here but the authorities certainly know how many illegal shanties exist.
Many businesses are likely to hoard and find ways to keep US dollars taking it out of normal banking.
Everyone knows of persons at the stores frequented by US customers trying to exchange B dollars for US.
There is also the immediate and ongoing action of US Corespondent banks curtailing or not wanting to do business with banks who they perceive of posing risks to their banks. Some other areas are disputes customers have with banks and how they are settled or not settled. Plus all banks are connected through the daily clearing and settlements of payments of cheques deposited in each others banks. Also there is the new gambling business.
Closure of legal business to transfer money to other countries will have customers finding other outlets legal like friends traveling.
Decrease in tourists spending US is also a factor, especially the Crime warnings. There is also the decline of foreigners nowt wanting to do business for many reasons.
Increase in persons caught trying to take more than the $10,000 at the airport shows the extent which people are willing to take.
There are some of the ways US dollars is draw out of the system and the authorities can do something about and strengthen measures to better regulate and protect the currency balance position.
Posted 29 July 2016, 9:05 a.m. Suggest removal
banker says...
You raise a lot of points that are truly valid. First, let's take the US correspondent banks. Did you know, that Belize has been so de-risked that there is only one bank left where you can send money out of the country and pay in Belize dollars? You can't wire transfer out of any bank but that one. The rest of them only deal with local currency. So if you are buying food, or stocking your stores, and you need to buy foreign supplies, you have to have an account at that bank. And if you are a AML or KYC risk, you can't open an account at that one bank. That is the future of the Bahamas. The good news is that the numbers kings cannot pass the AML/KYC risk and their money will be only as good as monopoly money.
As for FDI and people wanting to do business, the word is already out what Crisco Butt did to Izmirlian, and FDI has dried up at an alarming rate. The biggest cause of foreigners not wanting to do business in the Bahamas any longer, is the cosying up to the Chinese by the PLP. That has all sorts of risk for American/Canadian or British capital -- especially when they see how the Chinese are favoured over any other nationality.
The suffering of ordinary Bahamians is really increasing, and we haven't seen the worst of it yet. The only hope is that the devaluation brings a correction, and the outmoded ideas fly out the window, and that a phoenix rises from the ashes as a convertible currency, or a dollarization of the economy, such that Bahamians are no longer a child of a lesser god in the global village.
Posted 29 July 2016, 9:58 a.m. Suggest removal
MonkeeDoo says...
Bowe v Myers ? Myers it is. Remember VAT - No good, oh not so bad ! G Bowe .!
Posted 1 August 2016, 9:47 p.m. Suggest removal
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