The Caribbean’s Trampled Tour Itinerary
Caribbean stock exchanges sputtered into 2014 on dubious debt and tourism results, as that industry representing one-third of GDP was urged by a recent Inter-American Development Bank report to diversify into Central and South American target markets as with direct flight outreach in Brazil. Jamaica and Barbados with respective government debt/output ratios of 140 percent and 90 percent were placed in the high-risk category, with The Bahamas and Trinidad and Tobago considered at medium danger. To supplement Jamaica’s IMF program the IDB is offering $150 million in policy loans, as Q3 growth last year was just 0.5 percent. The local dollar was down 15 percent against the US unit as business confidence plunged to a decade low. A new natural gas plant should ease electricity costs and the island is positioning as a logistics hub for Panama Canal activity. International reserves at barely above $1 billion do not cover short-term liabilities, and domestic bond issuance has been stymied since last February’s swap with the benchmark 90-day Treasury bill yield up 2 percent to 7.5 percent. Financial sector liquidity has been squeezed as interest payments take one-third of official revenue despite strong primary budget surpluses. Unemployment is over 15 percent and 40 percent for youth who can turn to crime in despair, with the annual homicide rate ahead 10 percent. Hospitality and remittances provide 15 percent of GDP, and 2013’s two million stopover visitors were a record, as cruise ship volume increased, despite 60 percent reliance on US arrivals and environmental destruction in its wake. In Trinidad and Tobago by comparison tourism’s contribution is one-quarter the size, with oil and gas production the main economic driver although it has been flat the past two years with North American shale finds and fracking cutting demand and offshore platforms under maintenance. Inflation has come down to 5 percent, and a successful $500 million 10-year sovereign bond placement in December buoyed equities as well with the MSCI frontier index gaining 15 percent for the year versus Jamaica’s negative result. The opposition party won recent municipal elections and may concentrate on unseating the coalition as the island slips further in the World Bank’s Doing Business standings with law and order a major irritant.
Barbados has long been in recession and the 40-year old currency peg is fragile with the 10 percent of GDP current account gap and reserves enough for less than two months’ imports. The fiscal deficit is equal to the external imbalance and the government will lay off thousands of public workers and cut wages 10 percent in a consolidation effort designed to salvage debt sustainability. Domestic state and private institutions hold 70 percent of the total but the servicing burden spawned an S&P downgrade to “BB-minus” as the IMF moved to provide technical adjustment assistance that may presage greater involvement in the region’s wayward trip.
