Dangerous economic situation in region

The decision by the rating agency Standard & Poor’s (S&P) this week to further downgrade the long-term, foreign currency sovereign credit rating of Belize, a member of Caricom, is symptomatic of the deep and dangerous financial malaise that many Caribbean nations have got themselves into as a result of the global economic slowdown.

S&P downgraded Belize because the administration of Prime Minister Dean Barrow signalled on Tuesday that the Central American nation “simply cannot afford” to service the US$46 million interest coupon due on Monday on the country’s accumulated US$544 million foreign debt “given the financing shortfalls and other challenges we face.”

If Belize does not come up with the interest payment by the close of business on Monday, there is absolutely no doubt that S&P will deem the nation to have selectively defaulted on its debt—the full scarlet letter “D” for default coming 30 days later on September 19 when the grace period on the interest payment expires.

The implications of a full default by Belize are potentially massive as it would mean that no foreign bank would open a letter of credit for any business there, which will very quickly lead to the drying up of the country’s oil imports and the disappearance of basic imports from the shelves of supermarkets and groceries in Belmopan and throughout the country.

This will mean that the country will be challenged to continue generating electricity and water and, therefore, in all likelihood Belize will become an area of darkness...a dry area of darkness. If there is no proper arrangement by the Belize Government to make the US$46 million payment between Monday and September 19, the country is also likely to face a debilitating, but entirely predictable, run on the deposits held in commercial banks in the nation.

The consequences of this are massive capital flight followed by the actual flight of humans along with complete economic paralysis, massive retrenchment and social upheaval leading to the total breakdown of law and order, which may encourage the full-fledged transition of Belize into a narco-state or the attempt by forces of dissent to stage a coup d’etat.

The economic state that Belize finds itself in is the most dire in Caricom, only because of the imminence of a US-dollar interest payment. But the truth is there are a number of countries in the region that are in as bad a shape as Belize and the possibility that other countries may follow Belize in defaulting on their debt obligations is very real.

Given the importance of the Caricom market to T&T’s manufacturers and the importance of the manufacturers to the continued employment of thousands of local workers in this country, it could easily be argued that it is in T&T’s best economic interests for it to be part of the solution to the economic problems that ail the region.

The attitude of Prime Minister Kamla Persad-Bissessar in July 2010—that the Caribbean must not look upon T&T as an ATM machine—must surely have given way by now to the enlightened self-interest that requires a speedy and holistic response from Port-of-Spain. In the current circumstances, it may not be acceptable or even prudent for T&T to write a cheque to be deposited in the Central Bank in Belmopan.

The basis of the first response by the Government here must be to establish how bad the economic situation in Caricom is at present, how bad it is likely to get if the slowdown in Europe and the US continues into next year and the potential impact of further slippage by Caricom on the T&T economy. Fortunately for this government and this region, there is someone who is ideally placed to embark on the kind of fact-finding mission to Belize, in the first instance, and then to other economic hot spots in Caricom that is required.

Having spent ten years as the Governor of T&T’s Central Bank and 31 years at the International Monetary Fund, where he led missions to countries in worse financial trouble that Belize, it must be in T&T’s enlightened self-interest to engage the services of Ewart Williams as a fact-finder and dispenser of advice for our economically troubled neighbours.