Leaders in denial as C'bean economic crisis worsens

St Lucia’s Prime Minister Dr Kenny Anthony says that there is a grave economic crisis gnawing away at Caribbean countries and “governments are busy looking inward – each busy with their own agenda – rather than pursuing a Caribbean solution to the economic crisis”. Not for the first time Dr Anthony has dared to tread where many other Caribbean leaders have shied away.

Describing it as a “tragedy of the times”, he charged that governments are “engaged in one form or another of self-denial” while the Caribbean is “in the throes of a major crisis like it has never ever
experienced before”.

Dr Anthony did not say something not previously said by regional commentators, foreign aid agencies and multilateral institutions. But now it has come from a Prime Minister who was previously Legal Counsel to the Secretariat of the 15-nation Caribbean Community and Common Market (CARICOM) and, earlier, a lecturer at the University of the West Indies deeply immersed in the many challenges and limited prospects of small States. His remarks, therefore, come with a special authority and should be a reality jolt for all Caribbean leaders in government, opposition political parties, the private sector and the labour movement.

Dr Anthony’s comments are of greater significance because they were a spontaneous response to a question after a lecture he delivered on “Education in the Caribbean” at the Barbados campus of the University of the West Indies on October 29. In this context, his observations have to be regarded as coming from that inner place in the soul that confronts reality when all other options have been exhausted.

Dr Anthony has sounded these alarm bells before. Almost a year before on October 31, 2012, he had spoken similarly to the Barbados Chamber of Commerce when he said: “Make no mistake about it, our region is in the throes of the greatest crisis since independence. The spectre of evolving into failed societies is no longer a subject of imagination. How our societies crawl out of this vicious vortex of persistent low growth, crippling debt, huge fiscal deficits and high unemployment is the single most important question facing us at this time.”

With the exception of Trinidad and Tobago where oil and gas revenues keep the economy buoyant, and Guyana with its broad agricultural and mineral base, the economic picture of the majority of CARICOM countries is grim. Yet, some governments try to airbrush from the portrait rising poverty, rising unemployment, rising debt and declining economic growth. The few encouraging words in country reports of the International Monetary Fund (IMF) and World Bank are inflated in government statements to try to conceal the more damaging assessments of the condition of many economies. The objective seems to be to try to persuade their populations that all is well, when all is far from well and to convince people against the reality of their own day to day experience.

In almost every country, except Trinidad and Tobago (37.30%), debt to GDP ratios are high and expenditure on education and health has declined either in real terms or as a proportion of governments’ total budget.

Generally, government debt as a per cent of GDP is used by investors to measure a country’s ability to make future payments on its debt. When debt is high in relation to GDP, the country’s borrowing costs and yields from government bond are adversely affected.

Worryingly, a UNDP report says: “There is a recent trend amongst several Caribbean nations of domestic debt increasing as a percentage of their total debt burden. Large amounts of sovereign debt are typically held by domestic banks and a sovereign’s default can often be followed by a domestic banking crisis. This means that shifts in the composition of the debt (from foreign) towards domestic debt can increase rather than decrease debt vulnerabilities for governments”.

Many governments in CARICOM have high domestic debt owed mostly to local commercial banks, and in some cases to statutory corporations. The failure of any of these governments to service their domestic debt or to require restructuring would cause havoc for local savings and also for state-run pensions and health schemes.

While this problem exists in the larger countries of CARICOM, including The Bahamas, Barbados and Jamaica, it bedevils the sub-regional group of seven territories that comprise the Organisation of Eastern Caribbean States (OECS). These territories and the British dependency, Anguilla, form the Eastern Caribbean Currency Union (ECCU) which has a single currency and a common Monetary Authority that also regulates the Union’s domestic banks.

Dr Anthony shortly assumes the Chairmanship of the ECCB when governments are pursuing insular policies that, in many instances, conflict with stated goals for the fiscal stability of the area. A snapshot of recent reports compiled by the IMF, World Bank and the United Nations Development Programme shows these December 2012 debt-to-GDP ratios in OECS members: Grenada 104%; St Kitts-Nevis 92%; Antigua and Barbuda 89%; Dominica 72%; St Vincent and the Grenadines 70%.

Dr Anthony’s own St Lucia is the largest economy in the ECCU, but the IMF says that “external and domestic uncertainties led to a broad-based decline in activity in 2012” and public debt increased to 78% of GDP.

Given that the members of the OECS already have a single currency and many shared institutions such as the ECCB, the deeper integration of their economies and the establishment of binding decision-making machinery would improve their economic circumstances.  Each government could reduce expenditure through the expansion and deepening of functional co-operation in a range of areas. They could also widen and deepen areas for production integration in the development of their natural resources through cross-border investment, and by joint backing of loans raised on the international market for economically sustainable projects in food production and geothermal energy.

But this would call for a greater element of political integration than OECS governments have been willing to undertake.

The picture is no more encouraging on the wider CARICOM front. On the debt-to-GDP ratio, at the low end is The Bahamas at an all-time high of 49.9%, Guyana 60% (but with the second lowest per capita income after Haiti), Belize 78%, Barbados 116%, and Jamaica highest at 147%.

In April 2011 at the very meeting when CARICOM leaders decided to put the development of a Single Economy on “pause”, they had before them a paper, “Re-Energising Caricom Integration”, produced by a group of CARICOM experts that identified areas of joint investment that could considerably reduce costs to governments and spin-off new economic activity. Three key areas were: agriculture and food sovereignty; renewable energy; and maritime transport. That paper is well worth revisiting as one way of addressing the crisis that Dr Anthony has highlighted.

He is to be congratulated for his courage in speaking up for a second time. A third occasion would be less convincing. Now, action is required by all.  

(The writer is a consultant, Senior Research Fellow at London University and former Caribbean diplomat) Responses and previous commentaries: www.sirronaldsanders.com