The Tribune

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.