SOME small Caribbean countries are in danger of acquiring the reputation as failed pariah states.
States are regarded as failed for three reasons:
First, they have shown themselves to be incapable of successfully performing the first task of a state, which is to keep law and order within the national borders of their territories.
Second, they are incapable of protecting their populations from external aggression and invasion, as is evident in the uncontrolled penetration of transnational crime and drug trafficking.
Third, they are not able to achieve self-reliant sustainable economic development.
Their foreign policy is usually to seek external assistance from Taiwan to Venezuela, dependent on foreign aid, lobbying for special trade arrangements and pleading for debt cancellation.
They are pariah states because they default on their debt-servicing and sell economic citizenship to persons of dubious reputation, providing safe haven to questionable off-shore financial institutions active in drug production and transshipment. In addition, like in many other countries, there is corruption, tax evasion and human trafficking.
Now, some of our small Caribbean countries are doing further reputational damage by defaulting on servicing their debt. The list of defaulting states includes Belize and Grenada, who have made a fundamental error in strategy by following Greece.
They failed to appreciate that Greece could default because they, given the need for viability of the Euro and the political unity of the European Union (EU), matter to the EU.
When a small Caribbean state defaults it does not matter to anyone, it does not threaten any financial institution and the markets cannot afford to be merciful because it sets a precedent that perennial bad debtors would seek to emulate.
When a small Caribbean state defaults it gives up the already limited leverage which is the threat of default, thereby weakening its bargaining position. To default is to give up any possibility of bargaining with creditors. After the default, creditors let these small states sweat, then the financial institutions and consultants charge exorbitant fees to arrange a restructuring of the debt which, when accomplished, involves a new higher interest rate and a long repayment schedule and maybe a small write-down of the debt.
Meanwhile, the prime minister and the finance minister (if they are not one and the same person) and the financial secretary and governor of the central bank, are forced to do the diplomatic rounds in Washington, DC; New York; and London, making earnest, if not credible, pleadings of their inability to pay because of the global economic crisis.
They express their contriteness and willingness not to do this again if they get a fresh start. They pledge to accomplish what they have never done, which is to practise proper fiscal management and accept all technical advice from the International Monetary Fund.
Default is not a workable negotiating strategy for small states because the actuality of default affects no government, financial institution or financial market. Whereas all lending countries know they must beware of Greeks bearing debt, the only people affected by a default by Belize and Grenada are Belizians and Grenadians.