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Caribbean Development Bank in a time of crisis

Dr Gene Leon does not go by his given name, Hyginus. Yet, he has a scholarly mien worthy of the Roman author of Caesar Augustus’ time, after whom he was obviously named. When Dr Leon takes over on May 1 as president of the Caribbean Development Bank (CDB), succeeding Jamaica’s Dr William Warren Smith, he will need his scholarship, creative thinking, and a good dose of hard work to steer the bank through choppy waters, while meeting the demands of its borrowing members.

They will be requesting more loans, which means that the CDB, in difficult conditions, is likely to be scouting for additional capital to meet these needs. The upside is that Dr Leon is a practising development economist with vast experience in crisis management as an official at the International Monetary Fund (IMF). Moreover, he will not be starting from scratch. For the past year, notwithstanding that they were only a year into the bank’s latest four-year strategic plan, Dr Smith and staff have had to adjust to the exigencies of the Covid-19 pandemic.

Nonetheless, there are people who will question whether Dr Leon’s most obvious strength, the experience he brings from the Fund, makes him a right fit for the bank at this critical juncture. Time will tell. But clearly, the heads of government and finance ministers who appointed him believe he is.

Even before the pandemic, the region’s economies were not in great shape. The Caribbean is the most heavily indebted region in the world. On average, the debt of the CDB’s 19 borrowing members is over 60 per cent of gross domestic product (GDP). At the end of 2019, Barbados’ was nearly 130 per cent of GDP. Jamaica’s was 97.4 per cent. Growth averaged one per cent.

Last year, with the onset of the pandemic, regional economies, the world’s most dependent on tourism, tanked, plummeting more than five per cent – and worse in some countries. Several had to seek urgent bailouts from the IMF. The CDB itself also approved over US$210 million in emergency loans for its borrowers, while putting aside another US$25 million for social sector, agriculture and small business support.

Debt relief

But as Caribbean Community leaders have been telling anyone who listens, rebuilding regional economies hamstrung by debt, and facing existential threats from global warming, will require more resources than can be generated internally. They have talked of debt relief and Marshall Plan-type programmes.

In its 2020-2024 strategy, the CDB highlighted the strangulating impact of debt on Caribbean economies. “This high debt burden,” the bank said, “has negative feedback loops for growth by limiting critical investment spending required to support growth, and thereby compromises long-term growth prospects.”

Low growth

Indeed, in a region where up to a fifth of the population of some countries live in poverty, low growth has contributed to big slippages in their human development indices over the decade to 2019. The CDB made attacking these challenges the focus of its 2020-24 strategic plan, noting that the region’s investment needs to “outstrip the capacity of any single development partner”.

“The implications of this scenario of large development needs alongside onerous debt burden is that countries will have to be judicious in their formulation of PSIPs (public- sector investment programmes) and seek to tap resources that add greater development value than they do to debt accumulation,” the CDB said. “In this context, financial and TA (technical assistance) being provided by CDB and similar development partners are expected to be the preferred choice of development funding being accessed by BMCs (borrowing member countries).”

In the pre-Covid-19 environment, the CDB projected that in normal circumstances, its approvals would move from US$209 million in 2020 to US$254 million in 2024. In a more optimistic scenario, those numbers would be US$230 million and US$279 million, respectively. Circumstances obviously changed. It will now be up to Dr Leon, a St Lucian national, to oversee not only shifts in the CDB’s medium-term plans, but, if required, its overarching vision.

The situation demands, we believe, that the CDB be afforded a louder technical and intellectual voice in support of the logic of integration to the Caribbean’s economic survival and development. In that respect, the bank would burnish its own legacy and expand on what was understood earlier on by the likes of Sir Arthur Lewis and William Demas.

But for the CDB – the agreement for whose establishment was signed in Kingston in 1969 – to be transformational in this era, it has to have full support, and engagement, of Jamaica, CARICOM’s most significant political entity and whose 17.31 per cent makes it, with Trinidad and Tobago, the major borrowing member shareholder. Further, Dr Leon is a known quantity in Jamaica, where, for several years, he was the IMF resident representative, most crucially, at the start of Jamaica’s economic reform project. (Reprinted from Jamaica Gleaner)

Thoughts and views expressed in guest editorials do not necessarily reflect the opinion of Observer NewsCo, its management or staff.

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