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BEHIND THE HEADLINES: The debt monster and Barbados


BEHIND THE HEADLINES: The debt monster and Barbados

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UNITED NATIONS (UN) DIPLOMATS including Barbados’ representatives would be among the first to say it was bound to happen. Stated simply: time has overtaken William Shakespeare’s well-meaning advice about the dangers of debt which he articulated in Hamlet more than 400 years ago.

“Neither a borrower nor a lender be, for loan oft loses itself and friend, and borrowing dulls the edge of husbandry,” the world’s best known playwright put in a soliloquy by Polonius in his advice to a son. Regionally and globally, it’s too late to cite Shakespeare’s admonition.

So, when the issue of sovereign debt owed by developing countries came up for a vote in the UN recently, Barbados and a host of developing countries didn’t invoke Shakespeare but quite sensibly approved a resolution that called for an international debt restructuring process designed to aid the world’s poorer nations. Inevitably, the resolution encountered stiff opposition from the United States, Canada, Germany, Israel, Britain and Japan.

Tony Marshall, Barbados’ new UN Ambassador who backed the measure, told BARBADOS BUSINESS AUTHORITY afterwards that it made eminent sense for his country, indeed for the entire CARICOM region to support the call for the delineation of basic principles for a sovereign debt restructuring process.

“There wasn’t anything peculiar about it surrounding Barbados,” he said. “We took a principled position. I can tell you firmly that our position had nothing to do with restructuring debt. It is a principled stance. Personally, I thought it was the right thing to do because one never knows what may happen and if there is nothing philosophically wrong with the subject under debate I didn’t see why we shouldn’t actively participate in it.”

Understandably, the issue of restructuring debt is high on the Caribbean’s agenda for discussion. The region is one of the developing world’s most highly indebted areas. Jamaica’s debt ratio to its gross domestic product stands at about 140 per cent. Depending on whose numbers are being used, Barbados’ total debt has surpassed 100 per cent of its economy. Two years ago, five Caribbean states – Antigua & Barbuda, Barbados, Grenada, Jamaica, and St. Kitts and Nevis – were listed among the most highly indebted states in the world.

That’s not all. UN Economic Commission for Latin America and the Caribbean (ECLAC) figures indicate that seven countries in our region – Belize, Dominica, Guyana, Jamaica, St. Lucia and St. Vincent had sovereign debts amounting to almost US$11 billion. Of that amount, explained ECLAC, 40 per cent was multilateral and 14 per cent bilateral, while at least US$5 billion was private debt that was publicly guaranteed.

Any attempt to reduce that pile of debt by turning to tax adjustments, warned ECLAC, would be so tough that it would trigger an economic recession. Hence, the commission’s call for a gradual write-off of the amount owed by the Caribbean to the multilateral financial institutions such as the World Bank, International Monetary Fund, the Inter-American Development Bank (IDB) and the Caribbean Development Bank.

Another thing to consider was a statement made in July by Portia Simpson-Miller, Jamaica’s Prime Minister, when she addressed the UN Security Council on behalf of the Caribbean. She endorsed ECLAC’s proposal for a debt write-off scheme for the Caribbean.

But the rich nations have a different approach in mind. They contend in the General Assembly that debt restructuring was a bilateral matter between two countries and not something the UN should consider. Interestingly, a few days before the UN vote, Marla Dukharan, a regional economist, urged Barbados to undertake a domestic debt restructuring programme that would heighten economic activity.

“I am of the personal view that domestic debt restructuring would be beneficial not just for the balance sheet of the Government, but also for the wider economy as it would give the Government some breathing space.”

She went futher: “Alongside this [restructuring], of course, the Government would have to implement certain reforms to make sure it wouldn’t get right back into the same position”, in which it now finds itself.”

Charlie Skeete, a high profile economic analyst in Washington, said he found “little” in Dukharan’s proposal to “disagree with”. In May, Skeete, a retired senior economic adviser at the IDB, pinpointed two options available to Barbados to deal with its fiscal woes.

“When confronted with increasing unfavourable borrowing terms and decreasing access to capital markets, a borrower can follow one of two courses,” he wrote in Business Barbados. “It can strengthen its fiscal adjustment strategy enough to lower public debt ratios to levels that ensure sustainability or added debt restructuring/exchange to the policy framework to address macro-economic imbalances.”

The challenge for Barbados and its Caribbean neighbours is to secure a greenlight from rich nations which dominate the multilateral financial institutions to go along with a restructuring initiative. In the absence of such endorsement, the restructuring plan wouldn’t get off the ground.

In Barbados’ case, Dukharan’s plan focuses on domestic debt, not the multilateral obligations the Caribbean has with the international financial institutions. That’s an animal of a different colour.