Jim Henry's Postcard from Barbados

 






Barbados, “the Jewel of the Caribbean,” the tiny easternmost island in the Lesser Antilles with 288,000 year-around inhabitants and lots of very rich foreign visitors and investors, is in the throes of a financial meltdown.
While its entire GDP is now only worth about $4.2 billion, and its population is smaller than that of Duluth Minnesota, this crisis is worth examining closely. For here we have a very precise example of the “finance curse,” where excessive dependence on high debt, an aggressive offshore haven industry, very low tax rates for high-net worth investors, foreign companies, and banks, and high tax rates for everyone else, have essentially brought this little country to its knees.

Economists revel in grim statistics, especially at Christmas time. In recent weeks Barbados’ current account deficit has soared to 12 percent of GDP, and the island is down to 10 weeks of reserves, compared with 16.4 weeks last June – which was already the lowest level since 2008. Deficit spending is 6 percent of GDP and headed higher.

At 94 percent, Barbados’ ratio of public debt to GDP, already the Caribbean’s second highest, is fast approaching Cypriot levels.

Now read on from here from the source at www.forbes.com

Update July 2014: to be informed on the Finance Curse, read here.