At the 54th annual monetary studies conference held earlier this month at the Bank of Jamaica (BOJ), Minister of Finance and the Public Service, Dr Nigel Clarke brimmed with toxic positivity as he spoke about the suite of products the Government had put in place for the funding of emergency costs associated with natural disasters.
He gloated about the billions of dollars available in the natural disaster and contingency funds; he bragged about the billions in contingent claims that would be made on the IDB in the event of a natural disaster; and he preened himself on his fantastical prototype, the catastrophe bond, that he, the pioneer, had conceived with his own brilliant statistical mind. (I will say more about the catastrophe bond at another time) But because the Caribbean Catastrophe Risk Insurance Facility was not his brainchild, he mentioned, as if en passant, that it only provided "limited coverage for earthquakes and excess rainfall."
Despite the hubris, the delusional praises he often heaps on himself for the model "jobs-without-growth", poverty-generating economy he has created, the international reserves he has fattened, the fiscal surplus he has generated and the public debt he has reduced, the minister knows, more than anyone else, how highly vulnerable to, and woefully underprepared for natural disasters Jamaica, a small island developing state, is.
Notably, the minister had precious little to say about mitigation measures and spending on climate adaptation. Because it is his blinkered obsession with debt reduction, more than anything else, which has left Jamaica, in his words, "at the mercy of donors in the event of a natural disaster." For, given the terrible state of the island's infrastructure, and the inadequacy of funds being spent to improve it, as soon as a little rain falls, the place gets flooded; drought soon follows; and then water is locked off. It is a continuous cycle of dogma, bad policy and incompetence.
Jamaica has been in the midst of a grave ecological crisis for some time now, to which our feckless Government has paid scant attention. According to the IMF, Jamaica's vulnerability to natural disasters places it in the top 20 countries globally. The country has experienced about 40 disasters between 1950 and 2017, averaging about a disaster a year. Sixty per cent of those were hurricanes and storms, and about a quarter of floods and droughts.
Apart from the COVID-19 global pandemic, which exposed and exacerbated many weaknesses, for which the country was ill-prepared but yet saved the worst, and an extended drought between 2022 and 2023, there has not been a major natural disaster for the entire life of the current administration.
There has not been a major earthquake since 1907, even though the country is in a major fault zone â€” a gentle reminder of which came two weeks ago. There are concerns about the quality of housing, including luxury housing, and road infrastructure and both the Government and the Opposition agree that public health needs a comprehensive overhaul. Public services, including emergency and rapid response services, are inadequate and not properly funded. And each year, quite a bit of the capital budget goes unspent; the "savings" used to reduce public debt. The COVID-19 pandemic should have been a wake up call to start fixing our physical and social infrastructure, instead Dr Clarke, unperturbed, continues to race full speed ahead towards his debt reduction goal.
It is said that Jamaicans are a God-blessed people. Some swear to the efficacy of prayers. And the nation's leaders professing to be "devout Christians", have proceeded on the basis of good faith and little works. Truth be told, the minister was jerked out of his complacency to show a little interest in the climate by the tremor which occurred two days before his speech and which had a noticeable impact on his ministry.
Yet, the sector of the Jamaican political economy where the risk from natural disaster is greatest and the state of unpreparedness most pronounced, if not clearly visible, is the domineering yet shaky financial sector over which Dr Clarke, the best finance minister the world has ever known, rules omnisciently. Or think he does.
Leaving aside the damage to lives and property, a major natural disaster would have a severe negative impact on the unstable financial system, a defining feature of which is its overexposure to the household sector (63 per cent of loan portfolios; the balance spread across distribution, tourism and foreign residents). This at a time of increased market risks as interest rates continue to rise.
In the event of a major natural disaster, households would have difficulties paying back loans, as interest rates would rise even further and capital and liquidity would dry up due to a flight to safety (where possible). To say nothing of the impact on the NIR, foreign exchange flows, already anaemic growth, the fiscal balance, the huge trade deficit, tourism income and public debt. With a shortage of liquidity, the BOJ would have to open the spigot.
Dr Clarke would have to run wid it. Supply bottlenecks, and the murky activities of profiteering hoarders and price gougers would mean hyper-inflation. But what if the physical and transition mechanisms of the financial system (you know the buildings, cash in transit, ABM, telecommunications and internet) were damaged? It would be chaotic. To put it plainly, the unstable financial system is not prepared for a major natural disaster.
The BoJ having recognised that "climate-related risks could translate into financial risks which would be material to its mandate of maintaining financial system stability", says it "has advanced plans towards the incorporation of climate related financial risks (CRFR) into its oversight framework." Translated, that means the bank is not ready. In fact it is grossly underprepared. And it admits as much.
Climate change considerations are not incorporated into disclosure requirements for financial institutions and nor are these institutions stress-tested in accordance with climate-change criteria. The BoJ's climate risk project, which only began last December, has little developed supervisory and regulatory capacity to assess and mitigate against climate risks. In addition to bracing itself for deeper and more frequent financial crises, as the governor has suggested, the BoJ should fortify itself for more frequent and more destructive natural (and man made) disasters.
At the same time, morally hazardous, margin-gathering, arbitrage peddling, obsessed-with-profits, predatory banks and other financial institutions should spend more time and money identifying, measuring, managing and mitigating against CRFR. The BoJ, the remit of which goes beyond "inflation fighting", must insist on it.
Dr Clarke tells us that, "we have to incorporate considerations of climate change into financial policy, into financial-sector policy and even into fiscal policy, and Jamaica is well positioned in that regard." He is in denial. He knows we are in a bad position, even though he won't admit it. What he does admit, since it is not his direct responsibility, even though he, as finance minister, has not been providing all the funds needed, is that the national adaptation plan, a critical tool to advance the country's climate change agenda, is yet to be finalised.
The main risks to the Jamaican financial system, identified by the 2018 IMF financial system stability report, are from "natural disasters, the tightening of global financial conditions, and the possible reversal of fiscal discipline driven by reform fatigue." One has already materialised while another is looming. It would be a huge misfortune for Jamaica, if its unprepared financial system were to be afflicted with all three at the same time.
Isn't it about time that the minister and the governor pull out their fingers? The earthquake has warned them and told them to.
Ambassador Emeritus Audley Rodriques served as Jamaica's senior diplomat to Venezuela, Kuwait, and South Africa.