Editorial | CARICOM strategy for global economic support
Christine Lagarde, the former managing director of the International Monetary Fund (IMF), has told the story of how, prior to Jamaica’s 2013 agreement with the IMF, she faced a flurry of calls from members of the US Congress, urging her to get the deal done. Those approaches were primarily from the members of the Congressional Black Caucus, who had connections to Jamaica. Their implicit message was for an agreement that gave Jamaica a fighting chance of success.
Hitherto, as Peter Phillips, finance minister at the time, has publicly indicated, the IMF was playing extreme hardball, forcing Jamaica to seek help. Jamaica, in effect, had reprised a strategy used in similar circumstances three and a half decades earlier when Michael Manley called for help from his friend, the Canadian prime minister, Pierre Trudeau, to have a hostile IMF negotiate a less arduous agreement with Jamaica.
This story is relevant in the context of the recent call by leaders of the Caribbean Community (CARICOM) for global support for the recovery of regional economies battered by the COVID-19 pandemic. Their proposals include that the IMF enhance the capacity to borrow more of the Fund’s money and for terms of reference to be changed so that so-called middle-income countries like those in the Caribbean are eligible for softer loans and grants from other multilateral countries’ financial institutions.
“Heads of government called for a new special drawing rights (SDRs) allocation by the International Monetary Fund as well as the refinancing of COVID-19-related debt into long-term, low-interest instruments,” the communiqué from their October 29 virtual summit reported. “They also urged the early development and use of a universal vulnerability index to determine countries’ eligibility for development assistance.”
HIGHLY INDEBTED REGION
The latter suggestion, variously articulated, has long been on the agenda of CARICOM, whose members are mostly above the threshold for soft-loan and debt-forgiveness initiatives, despite the Caribbean being the most highly indebted region of the world. Its debt-to-GDP ratio is over 70 per cent. In some countries, including Barbados and Jamaica, whose ratio has recently trended upwards again in the face of the crisis, it is above 100 per cent.
Indeed, as the CARICOM leaders pointed out, the situation could worsen. Not only is the region highly indebted, it is also among the world’s most tourism-dependent. Its economies fall in a group of countries whose prospects the IMF, in its World Economic Outlook, published in October, said was “particularly bleak,” given the global travel bans and “consumers’ fear contagion,” even when the pandemic appeared to have been contained . “The economies of the Caribbean, for example,” it said.
The IMF has projected that the region’s economies will decline by 5.7 per cent this year before beginning to show modest recovery in 2021. The Economic Commission for Latin America and Caribbean estimated a slump of 7.9 per cent. Some countries expect even worse. Jamaica, for example, says its decline will be as much as 12 per cent. Against this backdrop, the CARICOM leaders warned that the pandemic would “exacerbate already high deficits and debt” at a time when rebuilding will demand significant amounts of capital, thereby requiring “a multifaceted financing plan”.
G20 leaders at November’s Saudi-hosted virtual summit spoke in generalities about addressing the “debt vulnerabilities in low-income countries due to the pandemic” and of their support for initiatives by the IMF and the World Bank to support countries stressed by the global fallout from the coronavirus, but there were no specific offerings for countries that fall in the category of the majority of CARICOM’s members. In any event, the region has reason to be sceptical of these broad declarations. After the 2008 financial collapse and recession, there were statements about tackling the Caribbean’s indebtedness. Nothing happened.
This time, the Caribbean must be more aggressive in pursuing the initiatives that CARICOM has placed on the agenda. These must be backed by political action, beyond reasonable arguments in international fora. The region has a template in Jamaica’s playbook of 1977 and 2013. They must keep in mind that the United States is the most influential member of the IMF.
The IMF has already provided over 70 countries with COVID-19-related loans through its Rapid Credit Facility and Rapid Financing Instrument. Jamaica, for instance, has received US$500 million, or around 3.3 per cent of GDP. Regional leaders, however, do not believe that these initiatives are sufficient for what is needed if recovery is not to lag. Increasing their allocation of SDRs – to which the ability to borrow from the Fund is indexed – is, therefore, important. So, too, is removing impediments to borrowing more, and more cheaply, from the World Bank and its subsidiaries.
Simultaneously, while arguing their case at the IMF and World Bank meetings and at the United Nations and its agencies, CARICOM must target Joe Biden’s incoming administration in the United States, working with people in it who are of the region’s diaspora. Kamala Harris’ Jamaican connection, insofar as possible, should be exploited. There are others.
The region has friends in Congress. CARICOM’s ambassadors in Washington should be leaning on them to reach out to Mr Biden and his earmarked Treasury Secretary, Janet Yellen, to embrace the region’s agenda. West Indians in the United States must be urged to write and call their Congressional representatives to press the case, reminding them that every vote, including those of Caribbean immigrants, counts. The region’s diplomats in London must be mandated to do the same with Boris Johnson’s government in the UK, as well as call on friends and diaspora members in the Commons and in the House of Lords. West Indians should be encouraged to engage their MPs on the matter. The same should happen in Canada. There must be, too, a conversation with China.