Private investment the cure for borrowing
It seems that not a day passes that there is not a grand announcement by some Caribbean government of borrowing from external sources.
The sources include bonds subscribed to by local and foreign commercial entities, bilateral development assistance agencies and international financial institutions, in particular the World Bank, the Inter-American Development Bank and the International Monetary Fund (IMF).
Every episode of borrowing is hailed as a sign of confidence in the economy and a vindication of the government's economic management. Yet, the Caribbean is one of the most heavily indebted regions of the world. Several countries have had to restructure the debt and this has not always been as orderly and amicable as Jamaica's debt exchange.
Belize and St Kitts had protracted debt renegotiations which, in the end, caused more reputational damage than long term debt relief. Grenada suffered the indignity of being taken to the US courts for non-payment of debt owed to the Government of Taiwan.
With the debt/GDP ratio over 70 per cent in several Caribbean countries, above what conventional economic wisdom regards as sustainable, these countries should be reducing debt levels not continuing to borrow. Regardless of how concessional the terms of loans, regional governments must cast away their addiction for borrowing.
All loans have to be repaid at some time in the future. Caribbean governments need to go to economic management "rehabilitation" and stop mortgaging the future of our children. Instead of more foreign loans we need to focus on mobilising and encouraging more private investments, both from the indigenous private sector and foreign investors - whether as portfolio investment or foreign direct investment.
The tourism sector provides a lucid illustration of what should be done. Tourism is a viable industry that has grown steadily throughout the Caribbean and has demonstrated that it is capable of being internationally competitive as one of the world's fastest growing sectors. It exhibits substantial potential for attracting local and foreign private investment.
In that respect, we wonder if Barbados is doing the right thing in announcing that it will borrow funds from China to re-establish the once famous Sam Lord's Castle.
We also ask whether Prime Minister Gaston Browne of Antigua and Barbuda is using his best option in informing the IMF that the country will be opting out of the current agreement before its full duration and that he had initiated discussions with the Venezuelan Government to pay off the Fund.
An example of what might be possible. A member of the ruling family of Emirate of Sharjah, United Arab Emirates, recently signed an agreement for a 134-room hotel project in St Kitts, which should be completed by the end of 2015.
Antigua and Barbuda has signed off on a Memorandum of Agreement (MOA) for the development of a US$120 million tourism resort at Morris Bay with an investor from the United Arab Emirates.
Instead of asking why, ask why not. Why not Chinese foreign direct investment in tourism instead of borrowing money to build roads? This would not add to debt but would be increased capacity to earn foreign exchange. In addition, Chinese-owned hotels would open up the largest market for tourism in the world.
Borrowing is addictive. Private foreign investment is the cure.