SANTIAGO, Chile (CMC) — Barbados Prime Minister Mia Mottley has told the Sixth Caribbean Development Roundtable of the UN Economic Commission for Latin America and the Caribbean (ECLAC) that middle-income countries need fair and predictable access to non-market finance based on their vulnerability.
She told the virtual conference that Latin America and the Caribbean region was stuck in a middle-income country trap and that middle-income countries of mid-to-small size were even more dependent on the global economy than the poorest or the largest.
“So we are acutely vulnerable to systemic global shocks. But being middle-income countries and mid-to-small size, we do not have the tools that large, developed countries have to respond to these shocks — shocks we did not cause. We cannot engage in quantitative easing or a massive fiscal stimulus…
“We do not have an international system of private financial flows that can diversify our risks and smooth out these turbulences. The system today, provides liquidity when it is needed and takes it away when it is not. For too many of us, it is not fit for purpose, which is why we need fair and predictable access to non-market finance on the basis of our acute vulnerability,” she told the conference.
Mottley said that the international financial system is broken and suggested that the systemic problem could not be corrected with ad hoc fixes and one-off concessions, as she insisted that a systemic solution was needed.
“For too long the Caribbean has been absent from the debate on the international monetary system’s reform. We have ourselves to blame and we need to get back there. It will be reformed, and unless we are in the room, participating in the debate, making the case, brokering compromise, the opportunity for meaningful reform that works for middle-income countries will be missed…
“Almost all reforms to the financial and international systems have been forged in the heat of a crisis…. We burden under this crisis, struggle to survive, but we must not neglect this moment to fashion a better system for all,” she added.
Mottley, Barbados’ first woman head of Government, stressed the importance of the Liquidity and Resilience Facility solution, saying it could lower the cost of funding infrastructure projects by up to two percentage points, which would then have a meaningful impact on countries’ ability to afford needed infrastructure investment.
“The Resilience and Liquidity Facility is a facility limited to high-quality asset managers to repo bonds, that finance resilience infrastructure. It will allow the issuers of these bonds to benefit from a significantly lower cost of capital.
“We could begin this facility today by establishing an independent agency with a credit line with multilateral development banks to borrow cash against a large pool of middle-income country bonds that finance resilience,” she added.
During the conference, heads of state, ministers and high-level authorities of more than 25 Caribbean countries, together with officials from international and multilateral organisations, underscored the importance of implementing urgent solutions in support of financing for the development of the nations of that subregion in the era of the novel coronavirus pandemic and beyond.
ECLAC said that the conference was called to take stock of the progress made so far in persuading the international community to provide the necessary financial support to the subregion and to discuss those strategies that will lead the Caribbean from vulnerability to resilient development and from economic peril to recovery and dynamic growth.
In his address, St Vincent and the Grenadines Finance, Economic and Planning Minister Camillo Gonsalves, who chaired the deliberations, noted that dialogue between Caribbean countries is crucial, especially in the current times of pandemic, since it is urgent to find specific solutions for the innumerable problems that affect them.
“We need immediate and innovative responses to this regional calamity. Our language should be debt relief, debt relief, swap, and suspension. Six months after the pandemic, COVID-19 has amplified the vulnerabilities of our countries, which are not only facing liquidity problems, but also financial solvency.
“Our solution must be to navigate together to find meaningful policies that allow us to face the enormous economic and social challenges that lie ahead,” Gonsalves said.
ECLAC Executive Secretary Alicia Bárcena said that there are no more urgent times than the current one to consider what the next steps for the Caribbean will be to face the pressing debt and liquidity challenges suffered by many countries, and which have been aggravated by COVID-19.
“Never before has the Caribbean suffered a blow with such a general impact on the subregion. After the collapse of tourism and its domino effect in multiple other sectors, governments have been forced to provide support to workers and small businesses, in prohibitive circumstances, due to the high burden of servicing the public debt.
“That is why ECLAC has been actively participating in the negotiations for the financing for development initiative so that it includes the most vulnerable middle-income countries, such as the Caribbean,” she said.
The British Virgin Islands Premier and Minister of Finance Andrew A Fahie said that in an eventual recovery from COVID-19 around the world, investments in the medium and long term will be needed for the global economy to return to a path of healthy growth and people can live better lives.
ECLAC presented an overview of the economic situation in the Caribbean and its financing needs for development.
It noted that the economic impact of the COVID-19 pandemic on the economies of the subregion has been severe, as subregional gross domestic product (GDP) growth is projected to contract -6.9 per cent in 2020 (excluding Guyana).
In addition, unemployment rates are expected to increase — after having fallen 2.9 percentage points in the last five years — and the levels of public debt of the countries to grow, which were already at 67.6 per cent of GDP in 2019.
To mitigate the impacts of the pandemic in the Caribbean, Bárcena said that ECLAC has made a series of proposals and recommendations, including a special treatment for the Caribbean to access concessional financing, with debt cancellation, without conditionalities and access to improved DSSI (bring private creditors) and regional development banks.
It is also urging the issuance and relocation of special drawing rights, the negotiation with bilateral creditors, including the Paris Club, the establishment of a resilience fund for the Caribbean, and the involvement of the Green Climate Fund in the ECLAC initiative on the debt swap.
“We need an urgent reform of the international financial architecture. Financial stability must be seen as a global public good and liquidity must be reconnected with the real economy.
“The eligibility criteria for middle-income countries and small island developing states should also be revised to include indicators of vulnerability. ECLAC will continue to advocate for greater financial support to build resilience in the small island states of the Caribbean,” Bárcena said.