The Caribbean in the time of Corona - Part 2

Commentary by Deodat Maharaj

12 April 2020

In my last commentary, I outlined the major challenges we face due to Covid-19. The global pandemic
has exposed new vulnerabilities and lays bare the susceptibilities we have as small island developing
states (SIDS). More specifically, I highlighted the likely impact on key sectors and sources of financing for
our Region including on tourism, remittances, and the probability of an increase in our already
unsustainable debt burden. While the immediate need is to jumpstart our economies and access
finance on terms that we can afford without worsening current debt levels, the future requires a
fundamental re-think of Caribbean economies emphasizing resilience above all else.

The Chair of CARICOM has demonstrated good leadership in calling for a meeting of CARICOM Prime
Ministers this week to discuss how the Region can address the scourge of coronavirus. I suggest finance
as a key agenda item if not already included. Whilst obtaining finance is vital, it should not lead to
further debt. Consequently, Prime Minister Mottley and her fellow leaders should formally propose a
debt for resilience swap instead of seeking a suspension of debt payments as is being called for in some
quarters.

Both the Commonwealth and the Economic Commission for Latin America and the Caribbean have
proposed a variant of a debt swap for climate action for our Region. In other words, instead of repaying
external debt, they have proposed an arrangement with external creditors for the equivalent amount
owed to be used locally for climate action without the need for repayment of the debt. This allows
investment in climate action whilst simultaneously relieving highly indebted Caribbean countries from
the burden of continued servicing their crippling debt burdens which increase with every natural
disaster in a constant disaster-debt cycle. I favour a one-time debt for resilience swap, which provides a
more holistic approach to building resilience and reducing our vulnerability against a wider range of
potential threats than only climate change.

Whereas, there has been little appetite on the issue of debt forgiveness in the recent past. The
coronavirus pandemic has once more seen the issue of debt in vulnerable developing countries come to
the forefront of the international agenda. The Caribbean has a unique opportunity to make its case and
work with key partners and others such as the Jubilee Networks which has had success in supporting
countries reduce their debt.

Another key issue is the current system of country classification for international financing. Caribbean
countries except for Haiti are largely classified either as middle- or high-income countries. This makes us
ineligible for grant or concessional financing from the international financial institutions. However, this
classification is flawed. With a single Category 4 or 5 hurricane, a generation of development gains can
be lost within hours- as has been repeatedly demonstrated in the Caribbean and other small island
development states. Those in the Pacific are still reeling after the devastation unleashed by Tropical
Cyclone Harold on countries like Fiji and Vanuatu just last week. These annual occurrences of natural
hazards provide powerful testimony on the inadequacy of a classification system where per capita
income plays such an important role. It does not account for the acute vulnerability of Caribbean
countries nor of those in the Pacific. Therefore, it is high time that vulnerability be included as a key
criterion in determining country classification. The Caribbean Development Bank and the
Commonwealth have both done pioneering work in this area. Policy work must now be translated into
an action agenda with the requisite political capital invested to achieve progress.

As noted previously, remittances or families from overseas sending money to families in the Caribbean
account for a considerable amount of financing injected in the region. However, the cost of remittances
continues to be unacceptably high. Precious dollars are being diverted into transaction costs instead of
going to poor families. The G20 and the international financing system have recognized the need to help
bring these costs down. However, progress has been mixed. According to the World Bank’s February
2020 survey on the prices of remittances, the percentage cost of sending US$500 from the United States
to Jamaica averages 6.42%. and 7.14% in the case of Guyana. While this does not seem costly at first
glance, when one looks at the total value of remittances going to Jamaica on an annual basis, which
stood at US$2.3 billion in 2019 and US$300 million for Guyana the same year, the amount of funds lost
is staggering, especially when considered over a ten-year period.

This issue amongst others was once more raised just last Friday when Jamaica together with Canada co-
convened a meeting which included the United Nations, the G20 group of countries and the
international financial institutions. This is a positive development and a sustained effort is now required
given the minimal progress made to date in reducing the transaction costs of remittances. Here also, a
greater investment of political capital by the Region is required since success in this area can result in an
almost immediate increase in financing flowing to the Caribbean.

To advance the issues mentioned in this commentary, it is about time that we upscale our voices and
use our votes at the UN and elsewhere in a more strategic manner. For example, we should not support
candidates for the UN Security Council, especially those who have influence in the OECD and
international financial institutions, unless we get concrete and specific commitments on these matters.

We should also team up with the other major SIDS region, the Pacific, to form an alliance focused on
financing for the next year. This gives us enhanced numbers and greater political clout with a
commensurate stronger position with the two major SIDS regions speaking as one. We should also
leverage on such an alliance to ensure that the Caribbean can benefit from the grant financing that will
be made available to “vulnerable countries” for addressing the catastrophe created by the coronavirus.
The Caribbean should not and cannot afford to be left out.

On the issues raised here, Prime Minister Mottley and her fellow leaders Prime Ministers should
establish a Caribbean Task Force for Leveraging Financing to take these matters forward. The remit of
such a High-Level Task Force will be to develop and implement an action agenda in key fora and in
partnership with others including the Pacific at the highest levels.

We have a unique opportunity. Let it not be a lost one.

Deodat Maharaj, a national of Trinidad and Tobago is a former Deputy Secretary General of the
Commonwealth and ex staff of the United Nations. He can be contacted at: deodatmaharaj@gmail.com