July 25, 2013
An article in The Guardian described the global financial crisis as beginning with a “seizure” in the global banking system. Five years into the crisis, the Eurozone is stumbling. Greece, dependent on shipping and tourism, was crushed. The government dug into its coffers and, unwisely, spent heavily to maintain the economy. The result? The country’s debt burden increased. As of this year, Greece has defaulted twice on its loans, and the country has borrowed over €200 billion from the troika, a coalition of the International Monetary Fund (IMF), European Commission (EC) and the European Central Bank (ECB). The austerity measures force-fed to Greece should have slowed economic output by 5.5% between 2009 and 2012, and should have increased unemployment to 15%. In real figures, the country has lost 17 per cent of its gross domestic output, and unemployment stands at 25%, with 59% youth unemployment.
Similarities to CARICOM?
That scenario, from growth to collapse, is not dissimilar to the realities of many Caribbean countries since the independence years. Like Greece, the region has continuously flirted with risky (and in our case unsustainable) growth strategies: bananas, sugar, tourism, financial services (read tax havens, and in America’s backyard, no less) and even shady foreign direct investment a la Allen Stanford. Even more alarming is the fact that CARICOM countries have depended on the generosity of the Chavezocracy in Venezuela for its fuel needs. With the venerated leader deceased and the future of the Venezuelan people in question, the Petrocaribe agreement may come under fire. The result? A fuel crisis that could cripple Caribbean economies.
Enter the IMF?
The problem with that is simple, and troubling. Since the Latin American debt crisis of the 1980s, the IMF has applied more or less the same formula to every situation: privatize, stabilize, and liberalize. The harsh austerity measures imposed on Latin America were expected to spur growth and reverse the damage, but the IMF had to apologize for its missteps when the opposite occurred. After that apology, the Fund went on to impose even harsher conditionalities during the Asian crisis, enforcing procylical policies that were contrary to the conditions that created the growth in East Asia to begin with. At the end, the Fund admitted that it had made a mistake in its projections. And now, after imposing similar austerity measures on Greece, the Fund is again presenting an admission of fault. Truly, this inspires no confidence in its policies. According to the article, the IMF’s lead negotiator in the bailout talks has admitted that if he were in the same situation he would have repeated the course of action. Hardly an apologetic stance to take.
The terrifying part is the situation surrounding the resurgence of the IMF in the Caribbean. During the independence crises countries had to be vetted by the IMF before they could receive funding from other lending institutions. In recent IMF documents, the Fund has acknowledged its role as a medium between borrowers and lenders, and the resurgence of the practice is a signal of trouble. Another signal is that as donors and lenders move on, the Fund will increasingly become the “lender of first resort” in the region.
A number of Caribbean countries have gone into default and have had to restructure their loans. Additionally, seven (eight with the addition of Grenada) CARICOM countries have either received or are currently receiving financial assistance from the Fund. According to Eric Sabo of Bloomberg, without faster growth, repeat defaults are an inevitability. Sabo also contends that debt reduction is out of reach, citing higher interest rates and economic contraction. As CARICOM countries consult with financial institutions like the IMF, it is important to note that it will be difficult, if not impossible, to recover from the possible negative implications of any measure given the region’s circumstances. If there is any doubt as to the validity of this statement, one need look no further than Haiti, Guyana or Jamaica. While the Asian tigers and the Latin American countries have to a large extent returned to their previous levels of economic growth, the same might not be said for the Caribbean. A weak integration model, an established unwillingness to make difficult (and smart) policy decisions, and the absence of strong supporting institutions stack heavily against the region.
The stage is eerily similar to that of Greece, and given the history of the Fund, its response will be no different than it has always been: austerity. The lesson for the region? Austerity kills. According to an article from David Stuckler and Sanjay Basu, there has been a 200% increase in HIV cases in Greece, and incidences of suicide are rising. With high unemployment rates and sluggish economies, CARICOM must look at evasive manoeuvres that will stay the executioner’s axe: 17% contraction in GDP and 59% youth unemployment are statistics that just cannot be justified, regardless of the rhetoric.