By Kimberly Ramkhalawan
February 24, 2023
kramkhalawan@caribmagplus.com
In what is being hailed as a David-Goliath moment for small island developing states, the Bridgetown Initiative seeks to chart a new pathway for how SIDS negotiate financing with global financing agencies while facing the challenges brought on by climate change and their attempts at fortifying their resiliency against its onslaught.
Leading the way in providing this blueprint is Barbados, and while its Prime Minister, Mia Amor Mottley, has been the voice at forefront at international forums and stages, its Professor Avinash Persaud, Chair of the CARICOM Commission on the Economy, who dares explain the framework from which this proposal for financing can work toward the betterment of the region.
Persaud was the focus of this year’s 60th anniversary of the Sir Arthur Lewis Distinguished Lecture series at the Cave Hill Campus, UWI, Barbados, where he urged his listeners to look at the Bridgetown Initiative as a new way of thinking toward progress from where the European way of thinking caused us to stall here in the region to spurning the “next ‘policy entrepreneurs’, it being “an idea that solves a problem, that captures the ‘zeitgeist’ and creates a Kairos moment”.
He commenced by painting this picture using all three terms, Kairos being the right moments such as now, brought on with the pandemic which forces change among nations and financial institutions. A change he says was forced upon with the growth of cryptocurrency and the idea of it taking over the world without any state regulations, and it being decentralized money.
After the financial crisis ten years ago where it was seen that governments were owned by big banks, when nations were bailed out and austerity measures imposed on them, the zeitgeist that came about he says was anti-government, anti-establishment. However, he says the Kairos moment lies with cryptocurrencies which was experienced following the lockdowns.
Policy entrepreneur, came about from looking at international financing institutions and their economists, which was overrun with complexity which had arisen from legal teams taking over the drafting of policies and regulation, which was summed up in Macro-prudential regulation. This group of entrepreneurs launched a campaign to simplify these policies and shift the burdens away from countries already dealt with the big stick of rigid rules, bogged down with enormous interest rates based on their credit ratings.
But the agitation which creates the Kairos moment comes with what he calls the new political economy of ideation for economics.
To him, Bridgetown means a system that allows for the “the next time a major hurricane hits, or sea levels rise where homes and communities are destroyed, countries can build back quicker, and more robust, because there will be international grants for loss and damage”. While “there will be cheap and unconditional loans available to the country” as its seeks to bounce back, recover, so that each natural disaster does not trigger a new financial crisis. “Investments into climate resilience to reduce these losses and damages in the future, more robust sea defenses, flood and drain water retention will be brought forward and made more affordable since the debt to pay for it will be fifty years or more and at a quarter of the cost of borrowing”.
He says there happens to be a false discourse on public debt, where its viewed as something bad. However, in quoting the late Barbadian Prime Minister Errol Barrow, he says it’s a means of public transformation, investments that brings a better future. The issue Professor Persaud says “is not in debt, but affordable and sustained debt” and explains as shifting “reconstruction money from debt to grants, and lowering the costs of investing in resilience toward climate change, so that its impacts will not drown them in unaffordable debt” but giving the room to do the things that countries also need to do, such as development in health and education.
In zeroing into the issue that has long plagued SIDS and prevented them from negotiating better terms and conditions for such financing, Professor Persaud says explained that it has long been about nations using tax dollars collected for paying interests on loans that go with the long list of rules, terms and conditions international financing agencies have often placed on small island states. Something which has been nothing but unjust, when loans given to these smaller islands come at a hefty interest rate, as compared to larger developed nations.
To boot, conditions which have sustained areas like ‘anti-money laundering, counter financing of terrorism, taxation of MNCs, debt management, standards he says are forever changing along with a host of negative lists of uncooperative jurisdictions facing sanctions’ often results in the faulting of these non-important states on minor technical details, from which they are black listed where it is difficult to get removed once there.
But why would big agencies like the IDB, IMF and World Bank agree to this initiative, Professor Persaud believes what “it requires is a coalition in which smaller countries get them to vote for it. Why? Because there is a lot that can be done in the way your institutions are owned and run, a lot more than can be done without them having to write a cheque, lending twice or three times more. Limiting it to also loss and damage financing, where $100bn ask can be given even with new taxes. An agenda a global coalition can agree with, that has substantial resource transfers involved, but not the taxpayers in rich countries have to sign off”.
He believes this “will attract those who want to get something meaningfully done soon”.
During the questions and answers session, Barbados’ Ambassador to the Caribbean Community (CARICOM), David Comissiong, questioned how the current proposal works to which the professor replied it being a “plan to push for private investment $2T in investment in developing countries, with the rich countries rechanneling $500B worth in Special drawing rights into a trust which will then match monies with other savings to invest in developing countries, bringing down the cost of capital”. He says there is a need for a tool to drive investment into developing countries otherwise the target will not be met. Special drawing rights he explains are not taxpayer dollars, but claims on international central bank reserves, where money is borrowed against this amount in a cheap manner and invest in projects.
But what about when those in richer countries try to justify the high cost of capital due to risks being to high in developing states, Persaud turns it around to say it has a lot to do with the global currency markets, with the way in which international capital markets work. And as to what is his thinking for catalyzing the private capital around the world? The professor says private savings will only come to things this sector can make money from, which he says is climate mitigation rooted in energy, agriculture and transport transformation, but through a lowered cost of capital. By seeding this money, He says the private sector wont do real resilience projects like flood defenses, sea level rising, and where the development bank monies come in, while raising taxes will what will fund loss and damage.
We need money for loss and damage today, resilience, but three quarters of the monies in the Bridgetown Initiative he says goes to mitigation.
The problem still remains the treatment of debt, and while he says most of regional debt stems from private creditor debt, with some also being government debt, it’s a matter of how default debt is viewed. From this perspective, Professor Persaud says Barbados took the decision to ‘do it once and do it hard’, as put by Prime Minister Mottley, after he met with Bryan Wyntor, then Governor of the Bank of Jamaica on the plans, who also advised on how much should be defaulted.
And while many countries fall prey to not defaulting enough, he says that stems from fear of the fund, the IMF, and the conditionality of the fund, part of which he attributes to as changing the international architecture by reducing the fear, so that the fund makes it clear and understood how the approach is along with the uncertainty of the programme, along with time to prepare.
He warns that nations need to go in this prepared, with a plan of their own, and not fall into the trap of the institution’s plans.
In essence, Persaud says Bridgetown is climate, debt and development policy, along with foreign policy.
Giving a bit of insight into his background, Professor Persaud comes from a family of intellectuals, his father being an economist of Guyanese origin, that moved to Barbados to join academia at its UWI campus.
Professor Persaud holds a wealth of experience in the financial sector, including his work with JP Morgan, where he got insight into such policies. This experience he has successfully married with the academic rigour that can be applied into practical governing policies.
Talk of this initiative first being put forward in Barbados can be traced to September 2022, when the IMF agreed on some $293m in new financing for Barbados, including $183m via a new trust fund created to help vulnerable middle-income and island countries. It marked the first of its kind under the Resilience and Sustainability Trust approved by the IMF board earlier that year.