Caribbean being forcefully weaned off aid and on to the financial markets

Wednesday, September 19, 2012

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As the amount of aid declines in real terms and the empathy for developing countries contracts, developed countries have sought to reduce aid allocated to so-called middle-income developing countries. The desire to shed these countries has been intensified by the global financial crisis and the debt and fiscal crises of several developed countries.

From what we can see, only embarrassment and the desperate need of the global poor existing on $2 per day prevents most developed countries from terminating all aid except that designated for humanitarian purposes. Governments in developed countries are facing escalating pressure for resources previously designated for foreign aid to be used instead for domestic needs.

Developed countries have been cutting back on aid in all forms including non-monetary aid, such as preferential trade arrangements for all except the "least developed countries". With the fiscal crisis in most developed countries this idea is garnering increasing support among policy-makers and indeed in the public.

The middle-income countries of the Caribbean constitute a special case because their relatively high per capita income masks the problems which are inherent to small developing economies. These problems which are structural in character are manifested in vulnerability to external events and the concomitant volatility of economic growth. For example, small island states such as Antigua-Barbuda and St Lucia are almost entirely dependent on tourism which is an industry susceptible to the whims and fancies of the affluent, as well as nature's tantrums.

Countries graduate from concessional borrowing from the World Bank when annual per capita income exceeds US$6,725 (the main but not the only criteria). Antigua, Barbados and The Bahamas have been graduated by the World Bank. In the Inter-American Development Bank (IDB), the United States either abstains or votes against loans for Barbados and The Bahamas.

Now the European Union which is in a quagmire of debt and internecine political squabbles, is actively contemplating shedding the middle-income developing countries. This follows their unburdening themselves of the preferential trade arrangements for sugar and bananas.

No doubt, the Caribbean will mount a diplomatic demarche to forestall the reduction in foreign aid through further graduation. If this is successful it is likely to be only a temporary reprieve. For the time being, there is Chinese aid and PetroCaribe but the middle-income countries of the Caribbean must reconcile themselves to being forcefully weaned off aid and on to the international and local financial markets.




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