“Like many other countries, our path towards sustainable development has been hindered by years of low growth, crippling national debt and high unemployment, which have been exacerbated by our vulnerability to natural hazards and other exogenous shocks,” Jamaican Prime Minister Andrew Holness told the Assembly’s annual debate.
Highly indebted middle income countries (HIMIC) like Jamaica are poised for economic transition with relatively high levels of health and education attainment, he said. However, in a climate of historically low economic growth, this potential is gravely threatened, ironically, by having to choose between debt repayment and catalytic growth spending, he added.
“For Jamaica, there is no choice. Jamaica must, and we are, repaying our debt,” he said. The consequence of this is that there are no resources available for the Government to make the kinds of public investments that can stimulate economic activity. In addition, spending on critical issues such as security, the absence of which negatively impacts growth, is compromised.
In these circumstances, developing countries would ordinarily be able to tap into development assistance that can be used for growth inducing countercyclical investment in infrastructure, which in turn strengthens debt repayment capacity, he said. However, arbitrary classification on the basis of gross domestic gross domestic product (GDP) per capita precludes HIMIC from accessing such resources.
Reforms do not immediately kick-start the growth cycle. Instead, new investment needs to follow, of a scale and velocity that is difficult to undertake without the full engagement of international development institutions, he said.
This creates the prospect for the so-called “HIMIC trap,” a situation where countries are at the cusp of transitioning but are stalled with a risk of reversal, Mr Holness explained.
He stressed the need to review this broad categorization of countries as this per capita GDP measure in isolation fails to fully and accurately capture added vulnerabilities, and levels of indebtedness.
He also spotlighted the need to effectively address the emerging crisis of the withdrawal of correspondent banking services to certain financial institutions in the Caribbean. “De-risking threatens our economies. This trend hinders our participation in the global financial system and in international trade,” he said, noting that trade represents about 70 per cent of the Jamaican economy and, as such, de-risking measures threaten its integration and economic viability.
He encouraged international partners to establish principles that ensure inclusive development strategies based on a country’s ability to engage in a vibrant, dynamic international trading system.
Similarly, Gaston Alphonso Browne, Prime Minister of Antigua and Barbuda, said that along with climate change and lingering indebtedness, Caribbean islands face yet another existential threat from the withdrawal by global banks of correspondent banking relations to their financial institutions.
In the global campaign against money-laundering and terrorist financing, very strict penalties have been imposed on banks by regulatory bodies in North America and Europe for any infringement of the stringent regulations.
“In this environment, where even the slightest infraction could expose a bank to a fine of hundreds of millions of dollars, many have chosen to withdraw essential correspondent banking relations from financial institutions in the Caribbean, Central America and Africa,” he explained, adding: “They call this process de-risking. I call it economic destruction.”
Mr. Brown said while this trend is prevalent in a few regions, it will spread with global consequences unless checked by collective action.
“We would be severed form the world’s trading system, unable to pay for basic services we purchase, or to receive payments for gods and services we sell to other countries,” he explained, stressing that this “growing cancer” would likely lead to economic collapse, poverty and high crime in small countries and worse still, would force underground the financial transactions that are being regulated by law enforcement agencies, creating huge opportunities for money laundering and terrorist financing.
“This would undermine the very global, multilateral cooperation that is required to fight these scourges,” he said, and noted that of all the terrorist financing and money laundering cases that have been prosecuted, not a single one of them involved Caribbean financial institutions.
For his part, Timothy Harris, Prime Minster of St. Kitts and Nevis said the trend has led Caribbean and other small island States to being further marginalized in the global financial system.
Already, in the Caribbean, as of the first half of this year, some 16 banks across five countries have lost all or some of their correspondent banking relationships, putting the financial lifeline of these countries at great risk.
“In our tourism-dependent economies, where remittances factor greatly in national development, such actions threaten to derail progress, undermine trade, direct foreign investment and repatriation of business profits,” he explained.
He also echoed the region’s call on the G7, G20 and the international financial institutions to reevaluate the methodologies used to assess how and whether a country qualifies for concessional support or access to certain types of international funds.
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