Abstract
Many Caribbean countries are either approaching or are in the process of celebrating their 50th independence anniversary. Thus, there could be no better time to assess the performance of these countries in all areas of their development since independence. What are their achievements, their challenges, their strengths and weaknesses? How do they stand in relation to their former colonizers and in relation to other countries that have had similar experiences? These are some of the questions that will no doubt give rise to heated debates and analyses within the next couple of years. It is against this backdrop that Michele Robinson’s work can be seen as an important contribution.
In the book, Assessment of Debt Restructuring Operations in Commonwealth Small States, Robinson’s aim is simple: she seeks to bring awareness to an issue that has serious implications for the small developing countries, that is, the issue of the growing debt burdens in the Commonwealth small states (CSS).
In highlighting the issue of debt sustainability in CSS, there could hardly be a better person than Michele Robinson. First, the author is a West Indian who was educated at the University of the West Indies at Mona, and subsequently went to Queen’s University in Canada. She brings to her undertaking 25 years of experience in debt management. She has done management consultant work in (and beyond) the region that comprises the focus of her analysis in this book. She has also worked with the Commonwealth Secretariat, the Inter-American Development Bank, and the World Bank. More importantly, she has worked with others in the field of debt management on a number of publications, including Public Sector Debt in the Caribbean: An Agenda for Reduction and Sustainability, commissioned by the Caribbean Development Bank in 2013. Her wealth of experience and knowledge adds to the book, which is also readable and informative with appropriate charts and graphs to paint a picture of the CSS’s debt problem.
Without the Introduction and Appendix, the book comprises merely 60 pages, interspersed with charts and graphs, making it possible to consume in one sitting. This, however, did not take away from the thorough treatment of the subject. After reading the book, one walks away with a sense of the urgent need to address the debt burden being faced by CSS, especially those in the Caribbean region. One also gets a bleak picture of the future development of the Caribbean owing to the fact the author argues that to reverse the debt problem in these states one of two things are needed or a combination of both: robust economic growth and debt reduction. Moreover, the author has noted elsewhere (Robinson, 2014) that the growth prospects of these countries are not encouraging because most of them are dependent on tourism and their projected growth rates are less than 2.0% annually.
The focus of Robinson’s work is on small states in the Commonwealth; six out of the seven countries that make up the focus of her work are located in the Caribbean region, and all of them are small islands, except for Belize, which is situated on the Central American mainland. All these states have a similar economic structure. Apart from Belize, all are primarily tourism countries that depend on the arrivals from Britain, Canada, and the USA to keep their economy afloat. Tourism is considered a peripheral economic activity because it essentially depends on the leisure demands of workers in advanced countries. As a result, the strength of these economies depends too much on the strength of the economies in these advanced countries. Belize is not necessarily tourism dependent, but its economy is largely undifferentiated; it depends on the export of a few primary, nonvalue-added commodities.
The unsophisticated nature of these countries’ economic structures, which is the result of the imposed, institutionalized role these countries were established to fulfill, makes these countries socioeconomically vulnerable. These vulnerabilities include political instability, ethnic conflicts, high poverty and unemployment rates, and high indebtedness. Robinson’s work deals explicitly with the high-indebtedness tendencies of these economies.
In terms of the debt profile of these countries, although most CSS in the Caribbean had debt-to-GDP ratios above the debt sustainability threshold, most CSS in Africa and the Pacific had ratios below the threshold. In addition, although debt-to-GDP ratio has fallen to almost 30% in Pacific states and 40% in sub-Saharan Africa, it rose by 20% over the same period in the Caribbean. And, although only one country from Africa and the Pacific region have had to undergo debt restructuring, several middle-income small states in the Caribbean have had to implement comprehensive debt restructuring operations. Robinson’s work, therefore, is essentially a work about the debt problem in the Caribbean small states. Her work becomes more important because the Caribbean region hardly ever gains the attention of international organizations.
Robinson highlights some important facts in the debt restructuring operations of these states. Of the seven countries that had to undergo debt restructuring between 2004 and 2013, two were forced to undertake a second debt exchange in 2013. According to the author, this points to the intractable nature of the debt problem in these states. Moreover, unlike CSS in the low-income category, middle-income countries’ debts are owed mostly to external and domestic private creditors. As a result, driven by fears that future access to capital would be jeopardized if they pursued initiatives to bring about nominal debt reductions, these countries have opted to pursue the route that would give them immediate liquidity relief without rectifying the problem in any substantial manner. This means that without robust economic growth, these states will again be faced with a need to restructure their debt sometime in the future. The author, however, argues that the ad hoc pattern of restructuring is symptomatic of more systemic issues that require more far-reaching and thoroughly thought-out solutions.
Also important to this discussion are the factors listed by the author as contributing causes to the debt crisis in the Caribbean. The author was careful to give a detailed list of the external and domestic factors that contributed to the debt problem in these countries. Among the external factors, she lists the 9/11 terrorist attacks and the slump in tourist arrivals from the main tourist markets in North America and Britain; the food and fuel crisis of 2007–2008; and the global financial crisis of 2008. Taken together, occurring in a very short period of time, these factors had a severe negative impact on the trade balances of these countries. To offset the negative impact of these crises, as expected, government expenditures increased sharply while revenues slumped. These factors point to the dangers of economies that fulfill peripheral roles in the wider world economy. They also force policy makers in the region to rethink their development policies. As bad as these crises were, however, they could not have compared with the damage created by natural disasters in these countries between 2000 and 2013. In 2004 alone, Hurricane Ivan devastated Grenada, resulting in damages equivalent to 200% of GDP. In 2005, another hurricane hit the country; the damages amounted to 20% of GDP. Other Caribbean CSS had experienced similar hurricanes and tropical storms that necessitated an increase in government expenditure to aid recovery efforts while negatively affecting production output. This combination of rising government expenditures and declining outputs placed these countries in very constrained fiscal situations. Another external factor was the dismantling by the EU of preferential treatment for produce in the region. Guaranteed preferential access to markets has always been a key institutional arrangement between former colonizers and former colonies. Best (1968) included it among the five institutional arrangement that kept former colonies dependent on their former colonizers. These arrangements, although economically advantageous in a limited way, were institutionally inimical to progress in the region, because they take away from Caribbean leaders the incentive to improvise and innovate. Now, with the removal of EU preferential markets, the region finds itself in a precarious situation, because many are still primary commodity producers and have failed to transform their economies in a manner that could ensure sustainable development in the long run. Along with these external factors, contingent liabilities, overambitious public investment projects, and interest expenditures are among some of the domestic factors listed by the author.
Robinson’s work highlights a critical problem facing countries in the Caribbean region especially, that is, the problem of high and unsustainable debt. Her work has greater importance because of its timeliness: the fact that it was published when many Caribbean countries are celebrating their 50th independence anniversary. Moreover, her empirical approach to presenting a profile of the debt situation in the Caribbean can be used as the basis of further in-depth analyses of the implications of this situation for the Caribbean’s future development.