The party's over for the Caribbean's spendthrift governments
Friday, August 27, 2004
LONDON, England: The people of Belize found
out this month that their country's state pension fund had shelled out $3m to
cover debt guarantees to a company owned by a former government minister.
Seven ministers - more than half the cabinet - resigned, to demand the firing
of the finance minister, Ralph Fonseca.
However, according to a report by the
Economist, Said Musa, the prime minister, took over the finance portfolio
himself, brought the rebels back into the cabinet and gave Mr Fonseca an odd
mixture of new responsibilities: home affairs, investment and overseeing a
proposed $225m bond issue.
Since Mr Musa took office in 1998, public
debt has increased from 41% of GDP to 93%, much of it borrowed at commercial
rates.
Belize's politicians are not the only
Caribbean spendthrifts, says the Economist. In proportion to the size of their
economies, all 14 of the independent countries in the Caribbean Community
(CARICOM) are among the 30 most heavily indebted emerging-economy governments.
Seven, including Belize, are in the top
ten). The sums involved would be small change to, say, Argentina. The public
debt of St Kitts & Nevis is less than $600m—but that is 160% of its GDP.
Except in the case of the bluest-chip borrowers, economists worry when public
debt goes much above 50% of GDP. Across
CARICOM, fiscal deficits have ballooned since the late 1990s. Antigua's public
debt soared to 114% of GDP. In Jamaica, interest payments already eat up over
half of government revenue. Even well-managed Barbados was downgraded this
month by Standard & Poor's, a credit-rating agency, because of its rising
debt.
Ratna Sahay, of the IMF's Western Hemisphere
Department, concluded in a recent paper that a continuation of current
policies would endanger the Caribbean's macroeconomic stability. Merely to
stabilise public debt at its current levels will require aggressive fiscal
tightening in several countries. Antigua has begun a painful clean-up: the new
government is mulling new taxes.
To make matters worse, the Caribbean's
record of economic growth has been mediocre. On average, its economies have
expanded by 2.5% a year from 1980-2003—a little bit more than those of Latin
America but less than the average for small island states, according to the
IMF.
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