The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamians must abandon their "xenophobic and schizophrenic" attitude towards foreign investors if the economy is to survive the devastation inflicted by COVID-19, a prominent doctor warned yesterday.

Dr Johnathan Rodgers, pictured, the "eye doctor" and well-known economic commentator, told Tribune Business that the country's urgent need for alternative foreign currency inflows amid the tourism industry shutdown meant the deeply-ingrained mindset of "we want your money, we don't want you" regarding foreign direct investment (FDI) must cease immediately.

Arguing that the Bahamian economy needs a US dollar infusion "right now", Dr Rodgers urged the Central Bank and other public sector agencies "to cut through the bureaucratic red tape" and permit overseas investors to purchase Bahamian dollar-denominated government debt.

Also calling for foreign-owned companies based in The Bahamas to be permitted to pay their employees in US dollars, he added that the "walls" traditionally separating the domestic banking industry from its international counterpart need to be truly broken down so that some of the billions of dollars passing through the latter annually have a chance to remain in this nation via investments.

Demanding that the government and regulatory agencies "seize the bull by the horns", otherwise the Bahamian economy will sink, Dr Rodgers also suggested that the country revisit offering so-called "investor citizenships", or economic passports, to high net worth individuals and their families in return for investing multi-million dollar sums locally.

He voiced optimism that the Central Bank might heed the International Monetary Fund's (IMF) suggestion that there was "some room" to cut interest rates without creating any risks for The Bahamas' foreign currency reserves and one:one US dollar peg, advocating that the discount rate be slashed in half to two percent to provide urgent relief for hard-pressed borrowers.

Dr Rodgers added that fiscal policy stimulus alone would be insufficient to drag The Bahamas from its post-COVID-19 "rut", and said the country needed to "use all tools at our disposal" - including an expansionary monetary policy, which has been opposed by John Rolle, the Central Bank's governor.

Otherwise, he warned, the country will "wake up from this nightmare and find we're in hell". Dr Rodgers argued that The Bahamas' monetary dilemma stemmed not from the fixed exchange rate peg, but the fact that at all times before the COVID-19 pandemic hit it was attracting insufficient US dollar inflows to provide the necessary foreign reserves buffer.

"The real issue for us in this economic recovery is that the Budget used only fiscal policy, not monetary policy. All other countries have used a combination of both because you need both to properly structure any hope of recovery," Dr Rodgers said.

"The problem that The Bahamas faces is we have the peg. We are at a point between choosing to maintain the reserves to maintain the peg, or lowering interest rates and using monetary policy to help the recovery process. I totally understand the Central Bank's position in wanting to protect the peg, but the fact is they would not have to worry about protecting the peg if there were sufficient US dollars in the economy.

"If there were sufficient US dollars in the economy at all times the peg would not be the issue... The problem is not the peg itself. It's because we have insufficient inflows of US dollars coming into the economy at the best of times."

The Central Bank's primary monetary policy objective has always been to protect the foreign currency reserves, ensuring they are always adequate to maintain the one:one US dollar peg, given the economic dislocation and disruption a devaluation would cause. This, if it were to happen, would cause a major spike in prices and inflation, resulting in reduced living standards and purchasing power for all Bahamians.

However, Dr Rodgers argued that this policy focus creates an economic "paradox". He explained that when the economy was performing well, with persons investing and spending money, consumption demand inevitably increased import volumes which, in turn, boosted government revenues.

However, the increased drain on the foreign reserves caused by the spike in imports always threatens to prompt the Central Bank to "put the brakes on", slowing both the economy and government taxes due to the need to protect the US dollar peg.

"Now we have an even greater shortage of US dollars because of the tourism shutdown," Dr Rodgers added. "A major structural anomaly is coming back to bite us in the back side. Now our backs are up against the wall with no US dollars coming in, the reserves will gradually go down and the economy is at a standstill.

"That's why we have to drop this legacy mindset and find ways to get US dollars into the economy right now. That means the Investments Board, NEC (the Cabinet), and Central Bank are going to have to take the position that we need this money, cut through the bureaucratic red tape that exists and let this money in."

Detailing the liberalisation measures he believes should be implemented, Dr Rodgers added: "It means allowing foreigners to buy Bahamian dollar government debt. It means that we have to allow those foreign companies here in The Bahamas to pay Bahamians in US dollars. It means we have to encourage those big entities here to have Treasury functions in The Bahamas so US dollars come into The Bahamas.

"We have to allow those offshore banks to participate in the local domestic banking sector, and allow all that money coming into The Bahamas through the offshore sector to stay in The Bahamas. Billions of dollars pass through The Bahamas every year. Allow it to stay here and buy Bahamian stocks, bonds and real estate."

While The Bahamas' need to comply with the European Union's (EU) demands to eliminate so-called "ring fencing" meant that the so-called walls between the domestic and international banking sectors have been broken down, Dr Rodgers argued that an attitude change was more important.

"Open the God damn thing up," he said of the Bahamian economy. "We say we're an open economy, but it's nonsense. It's open for foreigners but not ourselves, and even they cannot invest how they'd like. It's time for us to drop our xenophobic, schizophrenic mindset to foreigners of : 'We want your money but we don't want you'. It's absolute nonsense."

Dr Rodgers added that The Bahamas also needed to revisit offering "investor citizenships" to high net worth individuals who domiciled in this nation and invested in the local economy, arguing that this would both generate crucial foreign exchange earnings and help to counter the regulatory threats from the likes of the EU and Organisation for Economic Co-Operation and Development (OECD).

"If we make things comfortable for them in The Bahamas, and they feel safe and secure, and there is the rule of law, the money will come," he told Tribune Business. "This old mindset, this old legacy that we have adhered to with religious fanaticism, we have to drop it.

"We have to swim, otherwise we are in danger of sinking. This is the time. It's time to drop the old legacy nonsense. It never made sense. It's time for the regulators to ease up, get rid of all this old insanity, or we will all go down together.

"We don't have time to be waiting; we need to take the bull by the horns and do what needs to be done. They have a moral and ethical responsibility to do the right thing. All these things about being taken over by foreigners and their money, it's nonsense," Dr Rodgers continued.

"No matter what the Economic Recovery Committee comes up with, it will not work unless these old anomalies and albatrosses are put aside and these legacy policies are repealed to suit the times we are in right now."

Arguing that policymakers "need to be shocked, Dr Rodgers said the Central Bank needed to cut its discount rate from the present 4 percent to just 2 percent "flat boom". He argued that this would help spur renewed economic growth by reducing debt servicing costs for households and businesses, freeing up disposable income and investment capital to be injected back into the economy.

The Government's debt servicing costs, given that many of its domestic bond issues are tied to Bahamian Prime, will also reduce. "You're simply using straightforward monetary text book policy that every country in the world is using, and using now to the max," Dr Rodgers reiterated.

"Fiscal policy by itself is good but not enough to get us out of the pandemic. We have to use all tools at our disposal, fiscal and monetary, to get us out of this rut otherwise we are doomed. Period. We're going to wake up from this nightmare and find we're in hell."