A major focus of international economic relations at the moment is the initiative led by the British government to secure forgiveness of the foreign debt of the most heavily indebted poor developing countries. This initiative is particularly significant because it involves debt owed to the leading international financial institutions such as the IMF and World Bank, which before now have been precluded from writing off debt owed by member countries. The restriction is related to the terms of the charters of these institutions and has stood in the way of debt-relief measures for some of the poorest countries whose debt is mostly owed to the IMF, World Bank and African Development Bank.
It has taken a long campaign by political leaders of the Non-Aligned Movement starting from the late 1970s, who were thereafter joined by progressive politicians in Europe and North America as well as academicians and pop stars, to raise the consciousness of a large body of people to the plight of the affected countries. Our own Michael Manley was an early voice of influence in this campaign that was waged in all leading international organisations over the past three decades. The US government has been the main opponent of the proposals to implement debt relief by the international financial institutions for the most heavily indebted poor countries, as it has stoutly resisted modification of the restriction in the charters of these institutions. As the major shareholder in the IMF and World Bank, its opposition has been decisive even when a significant bloc of sympathetic voices in the US Congress have expressed interest in the proposals.
That the Bush Administration has now made concessions and is prepared to support the first steps in the direction of debt relief by the World Bank and the Fund reflects political deal-making and IOUs related to British support of the Iraq War. In particular, it represents in substantial terms a payback by President Bush for the determined and high-risk action by Prime Minister Tony Blair in the Iraq campaign which was denounced by most Britons and which almost cost the Labour Party the last election. As leader of the G-8 economic grouping of rich nations, Tony Blair has positioned himself to make a historic mark in the fight against poverty no doubt to redeem his personal reputation and that of his party.
Debt relief presents itself as a touchstone issue in popular consciousness in Britain, Continental Europe and Africa where pop stars including Bono and Bob Geldoff among others have led the mass campaign for debt forgiveness in recent times.
The worrying issue which now arises is whether the resources to finance the agreed debt relief programme will be deducted from the existing aid programmes of the USA and other major participating creditor countries. Should this be the approach, then the other assistance programmes for developing countries will be deprived of funding with serious negative consequences especially for those who will not benefit from the debt forgiveness initiative and who will at the same time suffer a cutback in financial assistance for critical development programmes. In the Caribbean, it is likely that Guyana will be a beneficiary of the initiative based on its very high debt to GDP ratio (172 per cent) and low per capita income. But it would be badly hurt if the forgiveness of debt should come at the cost of future assistance needed to tackle its serious socio-economic problems.
We have been so caught up with Jamaica's debt problems that very little has been said locally about the extent of the indebtedness of the English-speaking Caribbean countries. In the 1997-2003 period, the public debt to GDP ratio of these countries increased from 62 per cent to 85 per cent on average, placing the region among the highest debt-ridden areas. In recent months, both Belize and Grenada have suffered downgrades of their credit ratings because of their rising debt ratios. Up to the end of 2003, Antigua and Barbuda, Belize, Dominica, Grenada, Guyana, Jamaica, the Netherlands Antilles and St Kitts and Nevis were among the 10 most-indebted emerging market economies. This high indebtedness is therefore a major challenge for regional economies in the immediate period ahead.
The debt problems of Caribbean economies have come about largely because of the expansionary fiscal stance of the various governments in the 1995-2002 period. Most governments increased expenditures while avoiding measures to boost tax collections. Antigua and Barbuda, Dominica, Belize, Grenada, St Kitts and Nevis and Jamaica have been the worst cases. While Jamaica's debt to GDP ratio deteriorated from 103 per cent in 1997 to 142 per cent largely due to the financial-sector bailout, that for St Kitts and Nevis slipped from 86 per cent to 162 per cent, and Dominica has gone from 61 per cent to 127 per cent. Grenada's ratio also slid quite sharply from 42 per cent to 110.1 per cent and must have gone down further with the advent of the destruction caused by Hurricane Ivan.
The few exceptions to the growing list of highly indebted Caribbean economies include Barbados, Bahamas, Trinidad and Tobago and Suriname. The best performer has been Trinidad and Tobago, which achieved a decline in its ratio from 52 per cent in 1997 to 28 per cent in 2003.
Though the ratio for Barbados stood at 71.1 per cent in 2003, just slightly above the 1997 figure of 62 per cent, its internal debt ratio at 54.9 per cent was close to those for the high-debtor countries including Jamaica at 85.4 per cent and those for Antigua and St Kitts, which were 68.9 per cent and 75.4 per cent respectively. It will take a significant period of fiscal consolidation and more robust economic growth in Jamaica and other highly indebted countries to match the performance of Trinidad and Tobago in returning to a more sustainable level of public debt.