The information on public indebtedness in Caricom revealed in the table which I presented last week, indicates that several Caricom countries have higher public debt-to-GDP ratios, than several of the beleaguered economies in the Eurozone area (particularly Portugal, Ireland, Italy, Greece and Spain, the so called PIIGS grouping). The six Caricom countries that form the Eastern Caribbean Currency Union (ECCU) are all among the fifteen most highly indebted developing countries and emerging markets in the world!
As the data in that table further reveal, three of the ECCU countries had public debt-to-GDP ratios, which at the end of 2011 exceeded 75 per cent, namely, St Kitts and Nevis (153 per cent), Grenada (87 per cent), and Antigua and Barbuda (76 per cent). It is worth pointing out here, the targeted level of public indebtedness established by the ECCU for its member states is 60 per cent.
For Caricom states as a whole, two others apart from St Kitts and Nevis had public debt-to-GDP ratios at the end of 2011 in excess of 100 per cent, namely, Jamaica (139 per cent) and Barbados (117 per cent). The IMF 2011 global database also reveals that four Caricom countries were among the dozen most highly indebted for the 171 countries listed in its rankings. Furthermore, eight of the 40 most highly indebted countries worldwide were Caricom states.
Updated information on Jamaica (Q3, 2012) reveals that it had an outstanding debt of US$18 billion, and that its interest payments on this huge public debt account for one-tenth of its GDP. This makes it, on a relative basis, perhaps the country with the highest burden of public debt payments in the world!
Caricom studies on debt
There is a formidable list of studies which have discussed sovereign debt and related issues in Caricom. Most of these writings have been led by a key set of international (Inter-American Development Bank (IDB), IMF and World Bank); regional (Caribbean Development Bank, (CDB), Caricom Secretariat, the Caribbean Centre for Monetary Studies, (CCMS) and the Economic Commission for Latin America and the Caribbean (ECLAC)); and local (national central banks) organisations. These studies have been prepared for either dedicated periodicals and publications, or special conferences and seminars.
Most of this literature has been produced periodically. The organisations treat with the region’s debt at prescribed intervals as part of their ongoing evaluation of the region’s broader economic and financial development. Additionally, the IFIs treat these studies as part of their empirical research required to provide active ongoing economic and financial surveillance, as well as institutionally required policy advice to the region’s governments.
Important parallels have been drawn in the literature between the current First World debt crisis and the earlier Third World debt crisis (TWDC). One example of this is that today’s preoccupation with Greece as the trigger state in the present First World debt crisis is similar to that played by Mexico at the start of the 1982 TWDC.
Another example is that, with the benefit of hindsight, it is clear the TWDC was in large measure fuelled by private banks which had come into possession of unprecedented windfall profits arising out of the 1970s boom in oil prices. It has been since revealed that these surpluses incentivized the private banks to make imprudent loans to sub-prime borrowers among Third World governments. The parallel is that today a similar process of imprudent lending is being captured in the cheap sub-prime home mortgages in the First World debt crisis.
A third example is that, 30 years ago when the TWDC erupted, syndicated loans played a major role, not only in enticing Third World governments to borrow but also private banks to lend. Today a similar situation is at work in the phenomenon known as the ‘securitisation of loans.’ This securitisation provides the groundwork for an improper mix of good and bad mortgages, to the point where the two cannot be distinguished in financial securities circulating today.
To conclude this week’s discussion I draw readers’ attention to a couple of results of a CDB evaluation of the outcomes, lessons, and issues, which have emerged out of Caricom’s public debt experiences (Durant, 2012)
Surprisingly, one of these results is that it took on average about 7½ years for regional states to come to an agreement about their debt defaults and the corrective measures to be employed. These measures usually involved international support mechanisms. This period of time may seem unduly long to some readers, but international studies involving a far wider range of countries reveal that, on average, the period of time taken is eight years. Readers may not be shocked by this observation, if they consider that the First World debt issues that have been with us since Q3, 2007 (that is, five years ago), today show no definite end in sight.
A second and equally disturbing observation in the CDB document is that Caribbean countries (like others in the developing world) have exited international debt relief procedures and programmes with worsened public debt-to-GDP ratios than when they entered them! This outcome has had an enormous adverse impact on the reputations of the official international organisations responsible for managing debt relief and debt restructuring, particularly the IMF. The international NGO movement generally supports debt cancellation as the only effective remedy for the TWDC (Jubilee Movement and Eurodad). Not surprisingly, they have made the most of this perverse outcome in their polemics with the IMF and other inter-governmental organisations.
Next week I shall offer observations on Guyana’s public debt situation, since the start of the TWDC in 1982.