Event Transcript Macroeconomic Options for Very Small Open Economies DeLisle Worrell, Governor of Central Bank of Barbados Peterson Institute for International Economics, Washington, DC April 17, 2014 Unedited transcript Adam Posen: Good afternoon ladies and gentlemen. Welcome back to the Peterson Institute for Interna- tional Economics. Please continue to grab you lunch and come forward. It is my pleasure today to play preliminary host, at least, to DeLisle Worrell, Governor of the Central Bank of Barbados. People might ask why we are doing a talk from the Governor of the Central Bank of Barbados without recognizing both how special both DeLisle Worrell is, but most impor- tantly, how uniquely interesting the Barbados example is for monetary and fiscal policy. We’re distributing, and we hope to make available in the website, the occasional paper for the Group of Thirty by DeLisle, Governor Worrell, “Policies for Stabilization and Growth in Small, Very Open Economies.” Both my predecessor Fred Bergsten, who was visiting scholar at the Central Bank of Barbados earlier this year, and Governor Worrell will explain more about that. There are now, I believe, fifty countries with under a million people who are, by defini- tion, small, very open economies who in their sovereignty and independence have to cope with the world of capital markets and flows that we all face. And when we worry and we hear of a Brazil or an India complaining about the pressures from the outside, you can only imagine what must be the case for our neighbors in the Caribbean and elsewhere. And it has been very stimulating for us to have Fred Bergsten come back and report in detail on the principled approach that the Central Bank of Barbados and the overall economic policy making has taken in Barbados. Pardon me, I’m a bit—still recovering from an illness and so Fred will be taking over the session momentarily. Just to recap, a number of people, including our own Anders Aslund have paid a lot of attention to the example of Estonia with its hard peg and its policies, and it’s very interesting and controversial to see Barbados, in a sense, taking that to an even fur- ther pitch as a disciplining measure and as a means of competitiveness. Just a bit more about DeLisle Worrell. He was appointed Governor of the Central Bank of Barbados in November 2009. He was previously Executive Director of the Caribbean Center for Money and Finance, and for a long time of course worked for the International Monetary Fund in the Monetary and Capital Markets Department. We have many dis- tinguished alumni of the fund, including former and current Fellows of the Institute, who came out today to welcome DeLisle, and I am delighted to see you all here. He also had previously served as Deputy Governor of the Central Bank of Barbados from 1990 to 1998, and as the bank’s Manager of the Research Department. I have read his G30 paper. I have not yet read, but I have on order, his book Small Island Economies, which combines the best of both worlds: small island reading and economics. He’s also a distin- 1 guished scholar holding Fellowships at the Smithsonian Institution, here at the Peterson Institute, Federal Reserve Board, Yale, Princeton, and of course, the legendary University of the West Indies. I have—given the limits of my voice and of my experience, I will now turn over to Fred Bergsten who can give a more directed and personal introduction to the importance of what DeLisle Worrell, Governor of the Central Bank of Barbados, has to say. Fred? C. Fred Bergsten: Thanks to Adam and thanks to DeLisle for joining us today. Adam has already given you DeLisle’s main CV items so I’ll just add a little color from my recent six weeks as the first Distinguished Visiting Fellow, as they called me, at the Central Bank of Barbados. You will note that I did that from the middle of January to the first of March. Since Barbados has, in my estimation, the best weather in the world, that was an apt time to take up the Fellow- ship that DeLisle and his colleagues had been so gracious as to offer. My first experience on this trip to Barbados was quite revealing about DeLisle and the Cen- tral Bank. I arrived on Saturday, this was the middle of January, and the next day was the date of the Conference Finals in the National Football League playoffs. So I turned on the television to make sure I could watch those epic events, and lo and behold, when I turn on the television what I found immediately on the Caribbean channel to which I turned first, was DeLisle Worrell holding forth on the economy of Barbados, what his policies were, and where it was going. Now this was primetime on a Sunday afternoon … and the Governor of the Central Bank—this is a quarterly event, I learned—was holding forth, instructing and educating his country on his economic policy. Now this was obviously remarkable in two senses. First, to have in prime time an explana- tion of the economy, and he was presenting charts and data and going through the details. Just think: would we ever have that in the United States? And you all know the answer. Secondly, this was the Governor of the Central Bank, and I can tell you he was not talking about M1 or swap agreements, or all the detailed arcana of monetary policy. He was talk- ing about fiscal policy, social policy, structural reforms, and all the key underlying elements of the economy that came home to individuals and were important for carrying out the program. Could you imagine the Governor of the Federal Reserve standing up on national television or anywhere else explicating fiscal policy, social reforms, labor issues, and the like? So this was remarkable. Both in terms of the efforts in Barbados to explain and reinforce the consensus on economic policy—which does exist there and is very strong and DeLisle will explain it—but also underlining the role of the Central bank. Move forward to my time in the capital, Bridgetown; and those of you who’ve been to Bar- bados know that physically, the one building that literally towers over the city, and there- fore the country, is the Central Bank. Everything else is very low-rise. The Central Bank by their standards is high-rise and it literally towers over Bridgetown. To me that was quite a metaphor. It was both figuratively and literally the towering influence over the city and thus the country. And as you listen to DeLisle today, you can be assured that you are listening to the most authoritative voice on economic policy in that country and its influence ranges out through the Caribbean widely as well. I had the great privilege to meet with the Prime Minister, with the Minister of Finance while I was there, and I can tell you they were listening not to what I said, but what DeL- 2 isle said when he accompanied me to those visits. So his role in the country is really enor- mously impressive and critically important. Those of us who’ve worked in developing coun- tries a lot in our careers know that central banks are often the institution in a developing country. They have the best expertise, the greatest credibility, the reputation for objectivity, analytical honesty and the like. I can tell you it is fully the case in Barbados. And DeLisle with a long career at the Central Bank that Adam explained, and his Governorships now for the last five years, exemplifies all that in spades. So that is the background. As Adam said, this is not a set of issues that are important only to Barbados. There are about fifty countries in the world with populations of less than a million. There are a lot of countries who come close to that borderline so the universe of small open economies is actually quite important. It’s a lot of the total countries in the world, probably getting close to half of the total number of sovereign states in the world. And so when DeLisle speaks from the vantage point of Barbados, but more broadly, the role of small open economies, we have someone who speaks with great significance as well as experience. The final point is, just to elaborate, Adam mentioned that DeLisle spent some time as a vis- iting fellow at this institute. It was in the late 1980s or early 1990s the he contributed the chapter on small economies to the book on Latin American adjustment that John William- son put together, which was actually the focal point for the development of the Washington Consensus. And so DeLisle played an important role in the evolution of that set of eco- nomic thinking and ideas which have later become both so important and so controversial. So with all that, his lengthy background, to enable DeLisle to have at least a bite of lunch, it’s a great pleasure, particularly for me, to host him in a reciprocal way for the wonderful hosting he just did for me for six weeks at the Central Bank, but more importantly, to hear him on small open economies and how we should be thinking about their policies. Governor Worrell. DeLisle Worrell: Thanks so much Fred for the introduction and for the opportunity to have this discussion with you. I want to say what a thrill it was for us to have Fred Bergsten as our first Distin- guished Visiting Fellow at the Central Bank.