Dealing with the debt problem

ONE of the things that we ought to be hearing more about is how the countries making up the Caribbean Community are going to handle the issue of rising debt levels.

The talk in global circles and even right here in this region, is the imminent debt crisis which is staring several Caribbean countries in the face. These small countries owe billions of dollars in foreign debt to international lenders, a situation that has drawn comments from the International Monetary Fund, the World Bank and other observers like the Financial Times newspaper.

The economic plight facing many of these countries is pushing them against the wall to repay loans and giving rise to fears that yet another group of countries in the Western Hemisphere, right in the United States’ backyard, faces the spectre of a debt crisis of unprecedented proportions.

These countries which make up the Caribbean Community are now ranked as among the most heavily indebted countries in the world, a situation that, if not resolved, will have significant repercussions.

The group which passed this way before is that making up Latin America which, interestingly enough, now boasts low debt levels and can look back on those years of the crisis as lessons for current and future policymakers.

Recently the IMF said it plans to assist members in charting new growth policies. Such measures will strengthen policy buffers against shocks and advance programmes to help include more inclusive growth going forward with a particular focus on capacity building.

The proposals to promote economic growth will be greeted warmly since once an economy shows sustainable growth, that in itself can assist in lowering the dreaded indicator of high debt to GDP levels.

In recalling the Latin American debt issue, the influential Economist Magazine said it started in 1982 when Mexico stated point blank it would not be repaying international bankers for a while. That spread to other countries and the magazine went on to acknolwedge that for most of the 1980s, dubbed ‘the lost decade’, Latin America was a pariah in international capital markets. No self-respecting Wall Street house would touch a Latin American bond or equity underwriting, nor would a foreign banker lend new money except as part of a debt rescheduling.

Since the 1990s there was a turnaround in economic policy making in that region – economic reforms that included privatisation, the Brady Plan of debt resheduling, more market friendly policies, and debt write-offs brought that region back in bed with international financial and commercial lenders.

Based on what the IMF has said, one must indeed wonder whether the options used in Latin America are likely to be pursued in the mini-states of the Caribbean. These islands have small economies and many of them are limited to a single sector with tourism being the dominant activity in the economy.

This is unlike the bigger states (Trinidad and Tobago, Guyana, Belize and Jamaica) which have more diversified economies, although the latter is facing the same debt issues as the smaller territories.

Something has to happen to bring not only greater attention to the debt profile of this region, but also how to go about settling it.

As it stands, securing financing is always going to be costly for many of these states given the status of their economies. We wait to see what happens.