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BEHIND THE HEADLINES: Evading the debt bomb


BEHIND THE HEADLINES: Evading the debt bomb

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QUESTION: what is debt doing to Barbados, Jamaica, Grenada, Antigua, and most of their neighbours?

Answer: according to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), the mountain of debt is contributing to anemic economic growth; is making it extremely difficult for many governments to achieve their development goals; and is limiting the area’s appeal to foreign investors.

That probably explains why ECLAC has proposed debt relief for the Caribbean, especially for the English-speaking nations of CARICOM, which together with the rest of the region owed about US$46 billion to international financial institutions and private lenders in and out of the Western Hemisphere in 2013.

That total debt, some experts insist, is not repayable, at least, in the forseeable future and it leaves countries with a burden that will force them to grapple with high unemployment and large fiscal deficits for decades to come. Considering that five countries – Antigua and Barbuda, Barbados, Grenada, Jamaica and St. Kitts and Nevis – were on a 2013 list of the world’s 20 most highly indebted countries, it stands to reason that concern about what to do next is rising in CARICOM.

It may also explain why when Jamaica’s Prime Minister Portia Simpson-Miller came to New York last month and addressed the UN Security Council during its open debate on “peace and security challenges facing small island developing states”, she didn’t hesitate to articulate a need for some of the world’s best known financial institutions to do more to help the region.

Simpson-Miller was quick to hail a debt relief plan for the Caribbean that was devised by ECLAC. That plan calls for debt write-offs for Jamaica, Belize, Barbados, St. Lucia and the rest of the heavily indebted Caribbean states.

“Comprehensive debt relief for Caribbean small island developing states that would gradually write off 100 per cent of the multilateral debt stock is timely,” the Jamaica leader said of the ECLAC plan. “In our view, this proposal is worthy of serious consideration and support from the international community.”

What ECLAC wants is the emergence of a debt relief strategy for CARICOM and the creation of a regional resilience fund that would be managed by the Barbados-based Caribbean Development Bank. The money would be used to help countries grapple with natural disasters, assist them as they seek to adapt to the fall out from climate change, and spur social development.

In a series of reports on economic performance of selected Caribbean countries, ECLAC indicated that: Barbados’ gross external debt had risen from $958 million in 2006 and $989 million two years later to almost $1.5 billion in 2014. The ratio of debt to gross domestic product was about 100 per cent. The key challenge to the economy [of Jamaica] continues to be the heavy debt burden, currently the equivalent of 132.5 per cent of GDP, and likely to remain in excess of 100 per cent until 2020. This, of necessity, will require continued monitoring of expenditure and increases in tax revenue.

Guyana’s external debt declined last year to $1.1 billion from $1.2 billion in 2013. In 2012, it was $1.3 billion. Its domestic debt also declined. Trinidad and Tobago’s gross external debt rose slightly from $2.27 billion in 2013 to $2.28 billion in 2014. The country’s total debt picture, [excluding all debt sterilised at the Central Bank], was among the lowest in the region, standing at 40.2 per cent of GDP, with external debt standing at the equivalent of 7.1 per cent of GDP.

In The Bahamas, public debt went from 66.2 per cent of GDP in 2013 to 73.3 per cent in 2014. “This included an almost eight per cent increase in contingent liabilities. The increase amounted to $53 million,” stated ECLAC. Just as worrisome was the picture of debt service costs, which “doubled” to $349.8 million. In Suriname, public debt remained “relatively low” last year, standing at 33.1 per cent of GDP. Even though external debt expanded from 19 per cent in 2013 to 21 per cent of GDP in 2014, domestic debt actually declined to 12 per cent from 15.7 per cent over the same period.

What was interesting was the region’s reaction to ECLAC’s proposal for a gradual write-off of debt. While Jamaica’s leader was quick to endorse the proposal, Barbados’ didn’t say yea or nay. Barbados’ attitude at the Security Council session was seen as an indication that the two countries were not on the same page. And for good reason. After all, most of Barbados debt is owed to domestic investors; especially the National Insurance Scheme and any rescheduling of those obligations would hit Bajans at all socio-economic levels.

In Jamaica’s case most of its debt is owed to the multi-lateral financial institutions and to foreign banks and other investors. Restructuring of foreign debt is one of the most complex and difficult negotiations a country can undertake without any guarantees of success. Just look at what’s happening with Greece and its European partners and the picture would become clear.

Clearly, then, there are no easy answers to the region’s debt dilemma. When most countries address the upcoming annual UN General Assembly session that begins next month, their top officials are expected to deal with debt. Prime Minister Freundel Stuart is scheduled to come to the UN and he may also state his government’s position on it. It’s going to be quite interesting to hear his take on it.