The Caribbean is often described as a tropical paradise bless with some of the most beautiful beaches in the world and encompasses a melting pot of cultures including African, European, East Indian, Asian and its indigenous people. It is often described as an archipelago of islands divided into the Greater and Lesser Antilles.

As can be seen in the picture above the Greater Antilles include the British overseas Territories, Cuba, Dominican Republic, Haiti, Jamaica and Puerto Rico. It is one of the most visited region in the Caribbean with its hub of tourist coming from North America.

The Lesser Antilles form the border between the Caribbean Sea and the North Atlantic and is further divided into Leeward Islands, Windward Islands and ABC Islands. The Leeward Islands form the Northern chain of islands of the Lesser Antilles including Anguilla, Antigua, British Virgin Islands, Guadelopue, Montserrant, Saba, St Barthelemy, St Martin/ St Maarten, St Eustatius, St Kitts and Nevis and US Virgin islands

The Windward Islands formed southern end of the Lesser Antilles and include Barbados, Dominica, Grenada, Martinique, St Lucia, St Vincent & the Grenada and Trinidad and Tobago.

The ABC Islands form the three western-most islands of the Leeward Antilles in the Caribbean Sea and include Aruba, Bonaire and Curacao.

Due to the common history shared, countries such as Belize, Guyana, French Guiana and Suriname are grouped as Caribbean countries although they are located on the Central and South American mainland respectively.

The Caribbean during the early 14, 15, 16, 17, 18 and 19 century was an economic power house for England and Europe. It was a massive chess war between the British, French, Dutch, Spanish, Portuguese, etc, as they fought war to gain majority control of the region prospering from a profitable Trans-Atlantic Slave trade with their African partners where cane sugar among other commodity were as profitable and vital as today’s global oil trade.

Economic Shift and change common practices

During the 18 and 19 century, there was considerable pressure place on British monarchy to end the practice of Slavery as it was seen as barbaric and inhumane. These pressures translated into abolition of Slavery in the Caribbean and recognition of rights of people from African ancestry in the region. This soon led to struggle for Independence among many islands and the gradual shift from Agricultural base economies. As countries gain their independence it led to further shift from Agricultural base economies of these islands as it was seen by many islanders as synonymous to Slavery. By the late 1990’s the Caribbean witness a loss of preferential and protectionist policies to access European and US markets to sell their goods which I believe was the final nail in the coffin for the remaining Agricultural base economies. As these relatively new countries strive to secure a future for their citizens Tourism soon led the economies of these islands as the main foreign revenue earner and commerce among these islands.

Points to Note

While many of these small islands went for Independence, some remain under their colonial monarchy such as the British, French, Dutch and became overseas territory of USA. It is important to note, that citizens from these islands has significant advantage as they can rely on numerous programs offered by their mother countries to its citizens. In times of disaster, it’s only then many islanders ponder the merits of Independence as these government simply cannot cope and their leaders themselves are seeking help while the nation is largely left to fend for itself. It is this story that show the incredible resilience of Caribbean people as they rebuild from disaster to disaster.

Caribbean Debt Crisis

I am still of the belief that intellects and governments in the Caribbean are trying to find the right mix of fiscal, monetary and structural measures that can boost and diversify their economies. Due to its heavy reliance on Tourism, any shocks or contraction in the world economy particular the USA is quickly felt in the Caribbean. Added to this ever growing list of challenges, the Caribbean is prone to a host of natural disaster which quickly erase the progress that these islands make. I also strongly believe that the lack of capital markets within the region and the knee-jerk response of these governments to borrow on these international commercial markets at ridiculous interest (as high as 12 to 15%) is the chief of this vicious cycle. IMF and World Bank policies further compound the problem as these vulnerable small island economies cannot negotiate better rates base on GDP classification among other things.

In the face of these natural disasters, Caribbean leaders are left to deal with a tricky Brexit negotiation, President Trump’s protectionist policies and major shift to nationalist policies by many developed countries. Interestingly, China is quickly filling the void by providing financing to many infrastructure projects but its benefits isn’t translating on the ground as the Chinese led consortium often win bids to these projects and massive popping of Chinese businesses around the region is putting local business out of business as islanders simply cannot compete with a ‘never-ending’ buyout of businesses. While this may bring in finances to the government, I believe this would negatively impact the country as islanders are displace and become ‘plantation workers’ owning very little if any of the asset in the country.

Based on data coming from the IMF/World Bank countries within the Caribbean has been growing at an anemic rate of 2%. In its latest publication the IMF expect the Caribbean to continue to grow at a sluggish pace in 2017 and beyond, which does not give most of these countries the means of dealing with their high debt burden.

In the case of a country like Grenada, it suffered some 93% damage as a result of Hurricane Ivan in 2004 which directly impacted its abilities to meet its debt obligation. It is important to note, this country debt gradual build up as a result borrowing to meet a number of infrastructure project among other things which was totally destroyed by the Hurricane. The country then went unto the international market to borrow again to rebuild. If a Hurricane were to hit a country like Grenada again, what financial future can it really secure for its citizens at its current debt/GDP ratio? Luckily enough Grenada had, Trinidad and Tobago that quickly came to its rescue with the government of Trinidad and Tobago shouldering some financial commitments. Grenada is again under the IMF going through a Structural Readjustment Program, and we await to see how the government navigate when that program is over. Without any financial architecture within the region and lack of capital markets I suspect it would be business as usual.

Generally speaking public debt/GDP ratios over 50-60% are considered high and close to the debt tipping point. Most of these Caribbean countries have long gone past these levels. In some cases, for every dollar a country earns, some 90+ cents goes toward paying debt. It is important to note, that these payments are primarily payments base on interest incurred on the loan.
Further compounding the problem of debt in the face of natural disasters eight Caribbean countries are in the tipping range of debt in the range of 60 to 90% of GDP. These countries include Bahamas, Belize, Dominica, St Kitts & Nevis, St Lucia, St Vincent & the Grenadines and Trinidad and Tobago. Providing that oil prices remain above US45/barrel, I expect Trinidad and Tobago to easily navigate itself. Trinidad and Tobago is one of the success stories in the Caribbean, its economy while facing several challenges is light years ahead of most Caribbean countries. With destruction in the Bahamas, St Kitts & Nevis, and Dominica one can hope that its creditors show mercy as defaults become their anthem.

Four other countries are already classified as severe with Grenada as mention earlier under IMF Structural Readjustment Program. The four countries include Antigua & Barbuda, Barbados, Grenada and Jamaica as their debt to GDP ratio is beyond 90%.

Of the list of countries mention, Antigua and Barbuda sustained significant damage as a result of Hurricane Irma with Barbuda being declared ‘uninhabitable’.

Former Governor of the Eastern Caribbean Central Bank the late Sir Dwight Veneer highlighted the role of Natural Disaster play in this current debt crisis “every year we have a hurricane season, which can destroy the country’s GDP. In some countries, it can also lead to high debt levels. Their infrastructure is destroyed before they paid for it, so they borrow again. Then it is destroyed a second, and sometimes even a third time”.

Another problem highlighted by Former Prime Minister of Jamaica, is that of fiscal slippage. He said “Every year for many years, we have been spending more than we earn. Every year, we have to borrow to make up the difference, so, each year, the debt gets bigger and bigger and each year we have to set aside more money to pay the interest on that debt… For the last 10 years, all of the taxes we collect have had to be used to service that debt. So, before we can pay one teacher or nurse or policeman, before we can patch one pothole, before we can put one bottle of medicine in our hospitals or provide one school lunch for a needy child, we have to borrow more money, piling up the debt even further and the cost of servicing that debt even higher”.

These challenges are common to all Caribbean countries and can be pronounce as a result of this Hurricane season. The question I continue to ask? Why borrowing is significantly more expensive for these small island countries? The IMF/World Bank must be aware of this issue and have failed to guide policies to address this problem. The swamp of commercial loan financing must be drained as these lenders continue to cause unnecessary hardship as governments to force into austerity measures. With the new administration in the White House, Caribbean government must continue to lament their case as the Caribbean is one of the few region where the United States still enjoy a significant trade surplus. Former President Obama did little to address the problem and we only hope that the present administration would give it some consideration or muscle their hands to cause some change at the policy level.

During these discussion I did not mention the Dutch, French, American or British dependent territory islands which sustain significant damage as a result of Hurricane Harvey, Irma, and Maria. These islands are far better equipped to deal with their debt crisis and natural disasters. It is important to note, that they do provide a lot of work to national from varying Caribbean countries so the impact of this Hurricane season would be widespread as jobs would be lost and business incur significant loss. In the case of the Dutch, French and British, their mother countries have all made pledges to rebuild but we await to see what would happen on the ground. Puerto Rico faces a rough road ahead but they have the American Congress that can make things happen. Caribbean countries are also face with the problem of De-risking/ De-Banking as large financial institution terminate financial services that are offered in the region. This is probably the biggest joke but these are what financial institution are pushing for as they see this region as not being profitable. This is one of the areas I believe we can easily solve with cryptocurrency and blockchain technology but that is another post.

From the information presented, it is quite clear that it cannot be business as usual. We cannot have leaders bawling as much as citizens for help while in many cases they cannot offer any assistance. If a country could file for bankruptcy, I suspect these natural disaster may be a silver lining for some of these islands.

I hope you are now edified of some of the issues facing the Caribbean. While this may be a more complex issue we can pinpoint these external borrowing as aiding and continuing a vicious cycle in a region that is prone to natural disaster and whose economies are heavily reliant on Tourism.

I welcome your upvotes and resteem and you can share some possible solution and the role that cryptocurrency and blockchain technology can play alleviating some of these problems.

Sources

https://ftalphaville.ft.com/2016/02/23/2154020/the-caribbeans-silent-debt-crisis/
http://www.ccmf-uwi.org/files/publications/conference/2016/2_1-Williams-p.pdf
http://www.caribbeanislands.com/
https://www.imf.org/en/News/Articles/2017/05/18/NA190517Latin-America-and-the-Caribbean-Bouncing-Back-from-Recession

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