REPORT #61 March 2003

by Ray Auxillou, UHK

To manage Belize properly, one has to have a basic understanding of the things that effect the economy. In a large country these things can easily be confused, but in small Belize the shock of doing the wrong things can be found to effect the economy very fast. Every politician should know some economic basics. These items below have been selected from long term historical studies to be standards, around which all other effects, perturb the economic cycle.

1) Inflation can damage Belize greater than a war with Guatemala! That said, inflation is the forecaster that the economy has gone wrong. Usually from unwise political interference. An economic slump, recession, or depression, or political campaign ploy can cause the GOB (Government of Belize) to print more money. This triggers rising prices and inflation, but does not cure the recessionary slump it is aimed at. Inflation is only sustained if you give it more fuel. The fuel is the GOB expanding the money supply, or printing money. When charting inflation and money expansion, the average inflation rate leads the actual money supply growth. Inflation is always ahead of the money supply on the cycle charts from statistics.

2) A country that borrows foreign money from abroad, usually causes the local currency to crash. This is because politicians are forced to print more money, or increase the money supply, which in turn causes inflation and rising prices- a vicious cycle. Short term solutions are not good and rarely if ever effective. The only solution to fighting inflation is increasing business competition, so that the supply and demand equation ratio produces lower prices. Monopolies automatically create higher prices, as do mergers into pseudo monopolies.

3) Mergers into pseudo monopolies, or monopolies themselves create higher prices, lower quality and poor service to customers. Often political parties are helpless to change this cycle, due to the demands of campaign finance in election cycles for democracies. Only a dictatorship can then correct the imbalances.

4) The real value of local currency is a simple ratio. This is the difference between the interest rate paid to lending banks and the actual inflation rate. The real value of local money is what you get for lending money, trimmed by rising prices.

5) A strong Belizean economy is diversified by law setting policies; that create high savings rates, and high quality controls on goods sold, or produced. This is accompanied by none, or very low consumer debt. Watch the consumer debt figures!

6) We haven't got much in the way of public stock companies in Belize, but the day will come when it happens. When wages rise too high, stock prices also soar, creating a false bubble, preceding an economic meltdown.

7) GDP ratios by economists can give false readings. If you have an expanding wage gap, between a few in the highest paid categories and the lowest paid in Belize, this is a recipe for economic disaster and recession. A rising GDP must be accompanied by rising wages for the lowest paid workers to be valid. A rising GDP that has an expanding gap between the lowest paid and the highest paid is a false reading and worthless. You get an illusion of prosperity that has to be balanced eventually through economic recession.

8) Higher wages must be tied to a reward system of higher productivity, or profits and work downwards in reverse as well.

9) An economy killer for Belize are crony capitalism ties with political parties, nowadays prevalent in Belize. Crony capitalism creates a borrowing spree from government regulated institutions using "foreign borrowed money" to address their cash shortfalls. Foreign debt will bring economic recession.

10) The actual real FOREIGN EXCHANGE reserves of Belize should be at least three times as big as the annual government revenue averages. More is better here and shows good political management techniques.

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