History of the Caribbean Debt Crisis
The recent COVID-19 pandemic is only one of many factors that have exacerbated the Caribbean debt crisis for the last several years. While many people flock to these countries for their pristine beaches and blue waters, this makes their economies highly dependent on tourism. Therefore, if there is an unanticipated and precipitous decline in the tourism industry, a cascading domino effect follows, causing other industries in these nations suffer as a result. There is precedent for this, as the aforementioned countries suffered when tourism declined following the 9/11 terrorist attacks and are now declining because of the novel coronavirus pandemic.
However, tourism dependency is not the only factor that has contributed to the debt crisis in this region of the world. Many Caribbean nations are small in comparison to other global economies and may lack significant natural resources. This makes their exports undiversified and highly sensitive to external economic factors. This is to say nothing of the fact that the Caribbean is an area that is more susceptible to natural disasters, such as hurricanes.
Some Caribbean countries had government debts that exceeded 100% of their gross domestic product – even prior to the current crisis. This debt has steadily grown over time until now reaching unprecedented levels. Some countries remain mired in the fallout from the global financial crisis beginning in 2006 and others continue to struggle with a stagnant financial services industry. A lack of fiscal discipline may also be to blame for this mounting debt as deficits were allowed to widen year after year.
While the Caribbean’s debt has been restructured three times since the 1980s, the latest crisis may cripple these countries permanently.
How the Pandemic Has Exacerbated the Caribbean Debt Crisis
The COVID-19 pandemic has hit Caribbean countries particularly hard since many of their economies are dependent on the tourism industry. According to Bloomberg, current estimates predict that tourism will decline by 60% to 70% from April to December 2020, compared to their previous rates in 2019. With travel at a near standstill, these countries are experiencing extreme difficulty in propelling their economies.
For example, Antigua has recently experienced a loss of 20,000 jobs, comprising half of its workforce. Its government may further be unable to pay 12,000 of its public employees. In a time where countries are being forced to make greater investments in healthcare (including on personnel) to combat the virus, there are fewer individuals earning an income (and thus, paying taxes) and governments are being forced to cut spending in the public sector. Meanwhile, these nations have little to no foreign money trickling in.
Similarly, Aruba’s leaders estimate that it will lose approximately 25% of its workforce due to declines in the country’s tourism industry.
Jamaica’s Tourism Minister, Edmund Bartlett reports that there were no arrivals for Montego Bay’s airport, no arrivals for Kingston’s airport and no hotel guests, according to recent tourism statistics. The country has already lost 300,000 jobs due to airport closures and lockdowns in the country.
Another 300,000 people in the region have lost jobs in the transportation industries that support tourism and farmers who have no one to whom to sell their crops.
Leaders report that the pandemic has only exacerbated economies that had already been adversely affected by recent hurricanes. Today, the Caribbean’s debt load has risen to approximately $80 billion USD.
The Economic Effect of Uncertainty
Caribbean leaders like Dangui Oduber, Aruba’s Tourism Minister, are dismayed by the lack of assistance they are receiving from the global community. Oduber says that his nation and others’ per capita income makes it seem that they have more money than they really do, especially considering that 80% of the revenue in some countries may soon be wiped out due to the lack of tourism.
Some leaders are asking for their debt payments to various entities, including Washington-based financial institutions, be written off in fear that their countries may be bankrupt in only a few months. As Caribbean leaders question their own future, so do investors. The bonds for many Caribbean countries are currently rated BBB+, or worse due to their precarious financial position. Some rating agencies have said that several Caribbean countries are non-investment grade. Foreign investors worry whether the countries will be able to pay their debt. Aruba’s Oduber, for example, says that his government may have to divert/redeploy some of their monetary reserves for social services rather than in service of foreign debt if social distancing is necessary for the next two years because the country does not have sufficient savings to service its debt.
Current Response to the Caribbean Debt Crisis
While there have been examples of “bailouts” to various businesses in different nations and to struggling countries on the African sub-continent, the Caribbean leaders’ requests for aid are largely going ignored. For the moment, it seems that foreign aid may not be forthcoming to sovereign nations saddled with increasing debt loads.
Caribbean leaders are therefore asking for financing from the International Monetary Fund. Haiti was the only Caribbean country to benefit from aid from the International Monetary Fund. Larger nations such as Jamaica and the Dominican Republic tend to have larger surpluses to combat the economic crisis, but their leaders report that they also need substantial economic aid due to the pandemic and economic crisis in their countries.
However, not all hope is lost. Some Caribbean countries have warm relationships with other nations that may provide them with loans to help them weather the current economic storm. They are looking to international partners and also hoping to use their 15-member Caribbean Community regional bloc to give them one voice on discussing topics related to the economic impact of the coronavirus and how leaders may be able to address these issues.
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