Barrow’s Bubble Bursts – The Belizean Economy in Freefall Recession
This is an official BPP Position Paper on the Economy
Our last recession in Belize occurred in 2009 as a consequence of the bursting of the Housing Bubble that occurred in the United States commencing in the last quarter of 2007. The U.S. Housing Bubble was created when very poor and questionable decisions were taken in the U.S. housing market to spur housing growth. Buyers who were from the outset unable to repay their new housing loans, were lured in by unscrupulous lenders. This was a scheme based on greed and total disregard for the welfare of those borrowers.
In the case of Belize, the Barrow Administration cannot blame any external cause for the two consecutive quarters of economic contraction (January – July 2016), now clearly an official recession of our economy. Even after benefiting from the bounty of taxes on the windfall from BNE when world oil prices were high, and from PetroCaribe largesse, their short-sighted and politically motivated economic policies have backfired with a clear burst.
Like the U.S. Housing Bubble that was inflated by unsustainable spending, these two very large sources of money, the BNE windfall and the PetroCaribe largesse, were used by the government to spend excessively on infrastructure that had the immediate impact of temporarily over-inflating the Belizean economy. Because Belize imports (buys) most of the inputs for this type of infrastructure expenditure, there was considerable leakage of the expenditures to other countries, namely the United States, Mexico, and Guatemala where items such as cement and construction equipment are purchased. These infrastructure expenditures do not have any income stream, compared for example to expenditures in agriculture, manufacturing, and tourism that produce many years of income to cover the costs of the investments and to give a return to the investors for their risks. The myopic spending by the GOB on roads, streets, and monuments, clearly politically motivated to boost the image of the UDP administration for the sake of winning elections, gave the false impression of prosperity and strength, creating the “bubble” that captures in its meaning and image the essence of “false, unsustainable growth”.
These types of apparitions are exposed as phantom when they over-inflate and “burst”. The bang from the bursting of the Barrow Bubble is made even louder due to the additional weight of the excessive repayment for the BTL and BEL nationalizations. The GOB must now resort to money creation via the very large borrowings Central Government is making from the Central Bank to make good on their debt for the nationalizations. The certain negative economic effect of this last ditch gasp for air is to cause severe pressure on our fixed exchange rate. The only way the GOB will be able to hold off the devaluating effect of such borrowing is by imposing even more stifling currency exchange controls, making it very difficult for the productive sector to get U.S. dollars to buy their much needed inputs for production. These negative consequences will only accelerate the downward spinning cycle of worsening economic conditions. This merciless cycle is already sucking down with it any remaining strength left in our social, institutional, and environmental pillars.
Road to Recovery – The BPP Solution To recover from the devastating and long-lasting effects of an economic bubble bursting requires new and visionary leadership that understands sustainable human development and how its pillars function. There are still lagging problems worldwide, a whole nine years after the 2007 bursting of U.S. Housing Bubble, that many countries are struggling to overcome. In Belize we are in an even more precarious position because we do not have the luxury of a global currency like the U.S. dollar that can be expanded to counter the effects of recession. This is because of our fixed exchange rate, as mentioned above, that prevents us, unless we would devalue our currency, and that would surely lead to even more dire consequences. We can only brace for the choke of the stifling currency controls that is sure to intensify.
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Recovery can only come from the only political party that understands sustainable human development, the Belize Progressive Party. All focus must be on rebuilding our productive sector, this time with equity as a central factor, and simultaneously investing heavily in quality, inclusive, education and health.
The Productive Sector We need immediate, equitable growth in the productive sector: (1) To increase employment and a living income to alleviate the crushing weight of expanding poverty;
(2) To increase foreign exchange to build back our foreign reserves and secure our fixed exchange rate; and
(3) To increase the wealth of the country from where sustainable taxation will be derived to provide the needed resources for public expenditures.
The most sustainable way to accomplish this objective is to promote domestic and export production industries facing a myriad of constraints, many imposed by this Barrow Administration. It is of utmost importance to firstly respect the dignity and abilities of our entrepreneurs to build strong and relevant businesses, instead of what is being done now where our business sector, except for the few ultra-powerful, is intimidated into submission to bow down and obey the Barrow Administration’s political wishes and desires. Secondly, our businesses require cutting edge support in production techniques and marketing skills to ensure competitiveness. Thirdly, our banking and financial sector must be reformed to be supportive of our exporting and local production sectors. The present banking structure favors the importing sectors that can afford to pay high interest rates because they charge customers excessive prices and are able to elude import and business taxes. And fourthly, the new growth must be equitable, including new small and micro-businesses, such as the BGYEA initiative at Harmonyville. The Belize Progressive Party will be focused on these endeavors.
The Education and Health Sectors The deplorable neglect of our education and health sectors is astonishing, but distastefully understandable based on the pure political, short-term objectives of the Barrow Administration. These two sectors are the most important for our long-term sustainable human development, and our present state of social disintegration and high crime is directly due to the de-prioritization of investment in and reform of our education and health systems.
The excuse that “education receives the highest percentage of our budget and that we cannot expect much more because it means we are doing the best we can” flies in the face of the of basic understanding and reasoning. Fifty (50) percent of the children that should be in high school are out on the streets. In one year that amounts to twenty thousand (20,000) young human beings whose lives are being made extremely challenging and miserable. Year after year these numbers add up as our education system spits out our children onto the streets to fend for themselves. At the tertiary level the percentage is equally dismal, at less than 20% enrollment, while many countries in the region are double this level. So we are surely not doing our best, and it is not just a matter of needing much more resources, but fundamentally one of needing new leadership and vision.
The combined waste from BNE windfall, PetroCaribe largesse, and the hard-earned tax dollars of our people all unwisely invested, amount to over a billion dollars in the past eight years alone. A large part of these resources could have gone to much needed improvements, including expanding classroom capacity, quality teacher training, and social work to reform and revitalize the education sector.
The health sector mirrors the neglect of the education sector. Sustainable human development requires a holistic approach to health that includes preventative measures, starting from the production and consumption of healthy foods, and the promotion of exercise and healthy lifestyles. Our hospitals are grossly underfunded and under-resourced, making it very difficult for our limited numbers of doctors and nurses to do their jobs properly. Hospital administration must be improved via training and better accounting systems to support the efficient service to those who need quality healthcare. Much more of the bounty and largesse of the BNE windfall, PetroCaribe funds, and tax-payers’ dollars should have gone to improving the health sector.
The bottom line is that the Barrow Administration had the resources and made the conscious decision to spend over a billion dollars on non-productive, politically-expedient, short-sighted activities that ultimately caused the Barrow Bubble to inflate to the point of its own demise. The Belize Progressive Party is the only party that is prepared to take the measures to attain sustainable human development by investing in what is most important to all Belizeans. The central focus of a BPP government will be on people to expand their capacities to attain a high quality of life. This objective will be achieved sustainably by efficiently producing more quality goods and services to increase employment, living wages, foreign exchange, wealth and taxation income that in turn will be able to pay for more long-term investment in quality education, health and social services to build our social capital, protect our environment, and secure sustainable human development.
This is an official BPP Position Paper on the Economy