Moody’s downgrading of The Bahamas in the Era of Financialization: A Critique (Part 2)
In part 2, Nikolaos Karagiannis briefly presents and criticizes the Moody’s report on the downgrading of The Bahamas, and discusses aspects of a holistic development framework for the country.
Moody’s downgrading of The Bahamas: A critique
Within such a challenging global financial environment, coupled with the fact that China has become a major economic and political power in the international arena, a report titled “Moody’s downgrades the Bahamas’ ratings to Baa3 with stable outlook, concluding review for downgrade” was published on 22 August 2016. According to the report, Moody’s considers that the Bahamas’ economic strength will remain Low, the lowest score among Baa-rated sovereigns, which have an average score of Moderate (+). The downgrade is attributed to two main drivers. The first driver is Moody’s expectation that the Bahamas’ economic performance over the next five years will likely remain subdued and constrained by structural rigidities. The second is more limited fiscal space relative to rating peers following the persistent deterioration of the Government’s balance sheet. The Moody’s report mainly emphasizes fiscal management issues, examines various scenarios (e.g., a baseline scenario), and offer policy considerations seeking to help The Bahamas get out of its current crisis.
Specifically, Moody’s baseline incorporates a more gradual fiscal consolidation path, and forecasts that the debt/GDP ratio would peak in 2016/17 at about 67% and then stabilize around 65%. In addition, the Bahamian government has a moderate interest burden, with an interest-to-revenues ratio of about 13%. These fiscal metrics point to somewhat limited fiscal space for the sovereign relative to Baa-rated peers, reducing the Bahamas’ capacity to respond to economic shocks. A strengthening of budgetary processes, including expenditure controls and improvements in revenue collections that lead to a rapid deficit reduction would be credit positive. Upward rating momentum would also emerge if implementation of structural reforms fostered higher potential growth and contributed to a significant improvement in the Bahamas’ debt metrics, aligning these with Baa medians.
However, the Moody’s report, silent on the current conditions of the world capitalist economy, is context-free, Ahistorical, Asocial, and Apolitical, as it suffers from seven important omissions of context, history, political economy factors, local culture and psychology, evolution, internal social dynamism, and the tyranny and impact of the current neoliberal globalization era. These omissions are critically discussed below.
1. From a progressive intellectual inquiry stance, the academic background of the report is superficial. There are a number of important factors which are ignored (seven were specified above), thus leading to incorrect and biased considerations being drawn with respect to Bahamian local development requirements. For example, the effects of pork barrel politics on the Bahamian society have been adverse in regards to the faring of the state economy and political affairs. Pork barrel policy often vitiates prospects of productive investment, drastically weakens the domestic market, and significantly restrains local production and trade expansion. A favouritism-based political system has misused or misappropriated funds derived from tax receipts. However, in contrast to state spending cuts perspective and seeking to deal with the tyranny of political clientelism and patronage, we incorporate a “functional finance” approach to budget positions, place special emphasis on the roles of fiscal policies in addressing sectoral imbalances and cyclical instabilities of the Bahamian economy, and argue that whether budget deficits and government debt are too large should be judged against the functional finance benchmark.
2. A main point of the report is its blind acceptance of global competition and integration, and its unfavourable impact on the Bahamian economy. In contrast, we propose here a dynamic mixture of domestic and competitive developmentalism, with a more inward focus in the first instance and export promotion coming as an extension, as a genuine nationally-propelled alternative approach should give a far bigger role to endogenous growth factors and industrial targeting. Indeed, it is imperative to aggressively pursue advancement of selected dynamic sectors of high potential and achievability (i.e., various forms of tourism and hospitality, food and beverage, maritime, solar, renewable, and alternative energy as well as production lines that can utilize these alternative energy sources) as there is potential to market opportunities for their growth, and these can open up possibilities and set up incentives for new industrial activities. To be more specific, strategic sectors are considered as those with: a significant and/or growing weight in the Bahamian economy in terms of their industrial value-added and employment generation; high propensity of private firms to invest in these sectors; high and rising productivity and compensation of labour; and the best trade performance or competitiveness.
Modern production techniques make it possible to manufacture in small series on a viable basis. Targeting and flexibility are also possible, especially if they can draw on modern industrial planning and on smart specialization. Given the growth of production of local industries and improvement of national competitiveness, demand for imported capital and goods could decline and exports of local products expand. Consequently, the country would make a greater and better use of its productive resources and capacity, while at the same time easing its balance of payments constraint. Clearly, industrial targeting can be a realistic and feasible policy option which will only require employment of existing resources in different ways, a rigorous system of checks and balances, a wiser public finance, and different government policy choices which are free of corruption and favour.
Since investment funds will come through government and international sources and, largely, private initiatives, the market and the state will have to successfully coexist and act as partners with one another to carve out their own spheres of competency and influence, and share in the benefits from their mutual collaboration. A modern intelligent Bahamian government that has learned from the wasteful mistakes of the past should find ways to ensure that the best business practices of dynamic and propulsive industries benefit the national economy; should focus on investment on the modern factors of growth aligning finance with the industrial targets and linking productivity improvements with incomes; and should emphasize technically proficient initiatives that allow industries to craft responses to changing market circumstances and translate industrial applications into commercial products.
3. Enabling political, economic, and other social institutions, necessary politico-institutional reforms and enhanced democratic participation are of paramount importance in our argument as without fundamental reform of existing government institutions the results will likely be stillborn. These reforms are to facilitate national development planning to be developed and implemented successfully. It has to be reminded that, by promoting the interests of the few over the needs of the many, the Bahamian society has suffered from an overemphasis on the needs of special interests. Just as important, functions of various government entities need to be arranged so that spheres of operation are not overlapping and interdepartmental conflict is being eliminated. Without these preconditions, such a radical development framework will founder on short-term expedients, the deficiencies of the civil service, the existing configuration of socio-economic power and certain interests, or the mindset of politicians and people.
4. Culturally, the idea of underdevelopment can be seen as a mental structure (to paraphrase Wolfgang Sachs), where the underdeveloped nations desire to be like the developed ones. Uncritical borrowing of foreign models without the intervening stage of local theoretical formulation serves merely to import ideas which neither recognize the possibilities of change permitted by local conditions nor respect the limits on these possibilities imposed by them. Consequently, the Western lifestyle may not be a realistic goal for the Bahamian population, as externally endorsed development can exacerbate underdevelopment and may result in a loss of a country’s culture, people’s perception of themselves, and modes of life. Clearly, dependency thinking has been an important part of the oppositional tradition in the sphere of knowledge, and one of various manifestations of resistance in the behavioural, religious, ideological and philosophical elements that have their roots deep within the Bahamian society, with its experience of colonialism, slavery and indentured servitude.
As the institutions which voice concern over underdevelopment are very Western-oriented, genuine, distinctively Bahamian national development efforts call for a broader cultural involvement in development thinking, and propose a vision of society which removes itself from the ideas and social psychology which currently dominate it. Ultimately, the best road ahead cannot be found by relying on new “masters”, such as China, as this approach perpetuates excessive dependency. It can only be found by way of analysis of history, and of the specific economic, social, and cultural conditions of the society. Such a holistic development approach is interested instead in local culture and knowledge, and a critical view against established sciences. In addition, social change is absolutely vital in order to reach solidarity, reciprocity, and a larger involvement in local knowledge enhancement. Challenging neoliberalism at the intellectual and ideological level is the first large step to confront the vexing shortcomings of the neoliberal policy proposals and embark in turn on development strategies that help improve the overall conditions of the Bahamian society. An alternative future to barbaric neoliberalism is very much possible. What is required is the spread of a social movement that believes in an alternative future for The Bahamas but relies on its own national experience to overcome underdevelopment, economic pressures, and social injustice while building bridges of international solidarity with other like-minded movements and governments.
Nikolaos Karagiannis, Professor of Economics, Winston-Salem State University, North Carolina, USA. Invited Visiting Scholar, Department of Land Economy, University of Cambridge, England.
