Jul 2012 Financial News

New S&P rating mystifies Central Bank (Barbados)

Jul 19, 2012

Governor of the Central Bank of Barbados, Dr Delisle Worrell, said he is puzzled at the decision of the US-based rating agency Standard & Poor's (S&P) to lower the island's long-term foreign and local currency sovereign credit ratings to 'BB+' from 'BBB-'.

"The downgrade reflects our opinion that Barbados' economic fundamentals continue to weaken," said S&P credit analyst Olga Kalinina.

"We believe this weakening stems, in part, from rising competitive challenges and other structural factors that the government can address only in the long term."

But in an immediate reaction, Worrell said "there's nothing in the statement which justifies the downgrade".

"It's a puzzle to us," he told a news conference, insisting S&P has misclassified Barbados.

"We happen to know that these ratings are decided by an investment committee which is drawn from within Standard and Poor's office from around the world, and we happen to know there was considerable debate about this downgrade within the committee," Worrell said.

He added: "There are many members of the committee who I believe understand that what they have done makes no sense, but obviously, they were not able to persuade the people who do not understand."

Appropriate strategy

Worrell said that the government's medium-term fiscal strategy is an appropriate strategy which has been yielding positive results in the current circumstances.

"The economy is stable and we are living within our means. Inflows are sufficient to fund outflows, foreign exchange reserves are adequate and the exchange rate anchor remains secure," Worrell said.

"Barbados does not have a debt problem, our debt/GDP (gross domestic product) ratio measured by comparable definitions is lower than that of some major economies," he said, adding that the government intends to bring it down further.

"S&P's own analysis ... fails to justify its action in downgrading Barbados' investments," Worrell said, assuring Barbadians that the island's currency, pegged at two to one to the US dollar, is in no way threatened because of the downgrade.

The governor said it has been a "prevailing notion that the way to adjust to the crisis is to have a flexible exchange rate". But he said devaluation of the local currency is not a policy option for a small, open economy like Barbados.

The governor went on to say that "Our policy does not depend on the opinions of S&P, does not depend on the opinions of Moody's, does not depend on the IMF. We are in control of our own affairs precisely because we manage and live within our means."

- CMC


Source:
Jamaica Gleaner
Thursday July 19, 2012

http://jamaica-gleaner.com/gleaner/20120719/business/business1.html