September 26, 2017 Jwala Rambarran 1Comment

“So far we have lost all what money can buy and replace. My greatest fear for the morning is that we will wake to news of serious physical injury and possible deaths as a result of likely landslides triggered by persistent rains… I am honestly not preoccupied with physical damage at this time, because it is devastating – indeed, mind boggling.” Mr. Roosevelt Skerrit, Prime Minister, Dominica, September 19th, 2017.

 

September 2017

When Hurricane Irma, one of the most ferocious storms on record, made landfall on tiny Barbuda on September 6th, in less than eighteen hours, it decimated the charming tourist haven. Two weeks later, when Hurricane Maria, the fastest intensifying hurricane in history, smashed into Dominica, it caused widespread devastation and damage overnight.

The citizens of these two islands will be haunted by the monstrous fury of these two powerful hurricanes for a very long time to come. The loss of human life is the deepest tragedy. Lives lost, families mourn, and survivors are left to say goodbye to their loved ones, even while trying to find shelter, food, water and medical care and worrying about how to rebuild their own lives.

It’s September 2017 and six powerful hurricanes have so far swept across the Atlantic Ocean in rapid succession. Two Category 5 hurricanes – Irma and Maria – made landfall in the Caribbean. The region is experiencing the effects of climate change and tragically many have already paid with their lives.

As an economist living and working in the Caribbean, I ponder the future of Barbuda and Dominica, two small island states, vulnerable not just to hurricanes because of their geographic location, but to the slightest economic shocks, owing to their already fragile economies. Hurricanes Irma and Maria have set economic development of these two islands back by at least ten years.

 

Initial estimates suggest it would cost Barbuda around US$250 million or more than 15% of the country’s GDP to rebuild after Hurricane Irma made the tiny island barely habitable. For the first time in 300 years, no one is living on Barbuda which just three weeks ago was a popular tourism destination.

Dominica has been slowly recovering from the brutality of Tropical Storm Erica which hit two years ago and wiped out US$465 million or 90% of its GDP. The Nature Island of the Caribbean, noted for its unexploited, multi-layered rainforest, now has to rebuild again after Hurricane Maria struck even harder.

Financing reconstruction is an overwhelming burden for small states. This is no mere exaggeration. Grenada provides a riveting example of the long road ahead when it comes to reconstruction and recovery efforts in the aftermath of a monstrous hurricane.

My assessment of at least a decade-long economic recovery journey for Barbuda and Dominica sadly comes from what I saw happen with Grenada when Hurricane Ivan hit in 2004.

Grenada is like a ghost of hurricane future for Barbuda and Dominica, and while Grenada found itself economically haunted for more than a decade by Hurricane Ivan, it is my hope, this will not be the case for Barbuda and Dominica.

 

September 2004

On the morning of September 8th 2004, it became quite clear Grenada did not have the capacity to help itself cope with the sheer scope and scale of the devastation inflicted by Hurricane Ivan.

Tourism and agriculture, Grenada’s two major sources of foreign exchange earnings, were virtually obliterated overnight, with entire nutmeg plantations wiped out. About 90% of the island’s homes were damaged or destroyed. Nearly all schools, hospitals and businesses were damaged. Total losses were estimated at around US$900 million, double Grenada’s GDP.

The government’s financial situation became extremely difficult. Much of the country’s tax base had disappeared even as the government had to increase public spending on unexpected infrastructure repairs and to protect vulnerable social groups. It was hard pressed to pay wages and salaries to public servants. Limits on overdraft facilities with commercial banks were quickly reached.

At an already extremely high level of 130% of GDP before Hurricane Ivan struck, Grenada’s public debt quickly became unsustainable and the government could not continue normal servicing of its debt. It defaulted on its debt. Arrears on payments to creditors began to mount.

Grenada would have no choice but enter into successive IMF-supported programs from 2006, as it sought to restore fiscal sustainability, strengthen growth prospects, and conclude sovereign debt restructuring agreements with its major creditors to reduce the country’s heavy debt burden.

Some thirteen years after the catastrophic impact of Hurricane Ivan, the Spice Isle only now appears to be turning a corner towards more sustainable growth.

 

October 2017

Like Grenada, both Barbuda and Dominica require immediate and substantial financial support from the international community over the next decade to prevent their existing economic troubles from deepening into a humanitarian crisis. The lives of over 75,000 persons are at stake.

This is why I believe Caribbean Heads of Government should urgently call for the international community to hold a donors’ conference for Barbuda and Dominica. Such a donors’ meeting organized with the involvement of the IMF and the World Bank would discuss the current situation, prospects and financing needs of both countries. It’s here Brazil and Canada can play a pivotal role.

Caribbean Heads of Government should request Nancy Horsman, the IMF Executive Director for Canada, and Alexandre Tombini, the IMF Executive Director for Brazil, to jointly spearhead this donors’ meeting.

These two IMF Executive Directors together represent the collective interests of Caribbean countries in the Fund and are acutely aware of the region’s challenges of low growth, high debt, natural disasters and climate change.

Timing, as they say, is everything. Ideally, the donors’ conference should be held on the margins of the upcoming annual meetings of the IMF/World Bank, which will take place on October 10-15th 2017.

This would give sufficient lead time for the World Bank to do an initial needs assessment of both Barbuda and Dominica.

It’s also one of the few occasions when finance ministers, central bank governors, heads of multilateral financial institutions and other donor agencies will all be in same place at the same time, allowing for a quicker and more coordinated response.

It’s also important to keep the international media spotlight on Barbuda and Dominica. Donors have competing priorities and it’s quite easy for the spotlight to move onto other countries such as Bangladesh, which needs massive international assistance to feed and shelter the Rohingya refugees who have fled Myanmar, or even elsewhere.

However, given the almost irrefutable link between climate change and this year’s extremely active and violent Atlantic hurricane season, the Prime Minister of Antigua and Barbuda, Gaston Browne, made perhaps one of the most convincing arguments to the 72nd United Nations General Assembly last week as to why the international community must help the Caribbean in its time of need:

“….and, that [climate change] is a man-made phenomenon, whose manufacture is attributable to those nations, that consume 80 per cent or more of the world’s primary energy, emitting dangerous levels of pollution into the atmosphere. All 14 Caribbean Community countries together produce less than 0.1 per cent of global emissions. We are the least of the polluters, but the largest of the casualties. The unfairness, injustice and inequality are painfully obvious.”

The bottom line is continued donor support for Barbuda and Dominica is one of the better options to help these two countries break free from the hurricane-induced debt trap and to recover faster and better than Grenada did from Hurricane Ivan. That way they can face the next hurricane from an economically stronger position.

In light of the widespread scale of devastation and the heavy debt burdens of Barbuda and Dominica (both around 90% of GDP), I believe there is a strong persuasive case for donors to mostly finance the reconstruction by grants, rather than through loans or more borrowing.

It is encouraging that Barbuda and Dominica are starting to receive grant support from regional and bilateral donors such as the Caribbean Development Bank and the UK’s Department for International Development.

I would advise the authorities in Barbuda and Dominica to set up an independent, dedicated agency to coordinate national recovery efforts. Grenada had established an Agency for Reconstruction and Development and this went a long way towards reassuring the international donor community that their disbursements would be channeled transparently and efficiently to the right people, in the right places, and at the right times.

Hurricane Ivan took a tragic toll on tiny Grenada and given the financial fragility of Barbuda and Dominica, Caribbean leaders have a chance to rally around these two countries now in a way that was not done for Grenada back in 2004.

While Caribbean countries may not have the funds to give to their neighbors to rebuild, actively pushing for the international donors’ meeting can be just as useful in helping the long-term recovery of these two small island states, as giving the monies themselves.

 

September 2018

I have almost no doubt scientifically that climate change has played and will continue to play a major part in the frequency and ferocity of hurricanes in the Caribbean region.

The formation of six strong hurricanes across the Atlantic Ocean in quick succession within the month of September demonstrates climate change is not an event in some distant future, but it’s a clear and present threat to small island states in the Caribbean.

Rising sea levels, hotter temperatures, and increasing hurricane intensity threaten economies and households throughout the region. Looking ahead and planning for these Category 5 hurricanes in the Caribbean must now go beyond stocking up on canned food and batteries.

Prime Minister Browne hit the nail on the head about the impact of climate change and the Caribbean in his speech to the UN last week. While the exact costs of climate change are still being debated, several studies have found the impact will be highly significant in the Caribbean.

One comprehensive study “The Caribbean and Climate Change: The Costs of Inaction” was done by Tufts University in 2008. The study found that, if no action is taken on climate change for just three categories – increased hurricane damage, loss of tourism revenue, and infrastructure damage – it would cost the Caribbean some US$22 billion annually by 2050, which represents a whopping one-third of the region’s current GDP.

Even as the people of Barbuda, Dominica and other hurricane-hit islands in the Caribbean seek to bring back some degree of normalcy to their lives, it is important to have a plan in place to rapidly mobilize humanitarian and financial resources for another deadly natural disaster, which we know, unfortunately, will happen again.

The next Atlantic hurricane season could pose severe challenges for Barbuda and Dominica since many houses, schools and other buildings will still be under reconstruction. What will the next hurricane season bring for the Caribbean? Will September 2018 make or break the region? Who will be hit and how will they cope?

For recognizing, what may take place come next hurricane season, I commend the Secretary-General of the Commonwealth Secretariat, Patricia Scotland, for agreeing to put together a task force of specialists from across the Commonwealth to develop a cohesive contingency plan to mobilize resources in the wake of hurricanes and other natural disasters.

I suggest the task force also examine the scope for Caribbean and other small states to obtain faster access to natural disaster funding from the IMF and World Bank Group through less complex and administratively simpler application procedures. After Tropical Storm Erika hit Dominica in August 2015, it took the IMF three months to provide emergency financial assistance to Dominica under its Rapid Credit Facility.

It’s evident Caribbean and other small and vulnerable states must explore new and creative ways to raise additional finance for building greater resilience to natural disasters and climate change.

For instance, debt relief has become a tried and tested mechanism for delivering rapid and predictable development finance to small states and other developing countries.

Faster, broader and deeper debt relief under the IMF/World Bank’s enhanced Heavily Indebted Poor Countries (HIPC) Initiative has provided over US$75 billion in debt service relief over time to 36 low-income countries, mostly in Africa. Both Guyana and Haiti have benefited tremendously from debt relief provided under the enhanced HIPC Initiative. Debt relief could play a similar role in the fight against climate change.

I believe innovative financing mechanisms such as debt for climate swaps could help small states in the Caribbean reduce their onerous debt levels as well as fund their costly climate adaptation programs, putting the freed resources from debt servicing into a Climate Resilience Fund.

The good news is that the Seychelles – a small island state in the Western Indian Ocean – is already operating a successful debt for climate swap. In 2015, Seychelles secured a pioneering debt for climate swap with its Paris Club group of creditors and with South Africa.

The deal, done in conjunction with the Nature Conservancy, an international environmental NGO, redirected some US$30 million of Seychelles’ current debt payments to fund the creation of the second largest marine protected area in the Indian Ocean.

Seychelles’ debt swap boasts many firsts. It is the first debt swap aimed at climate change and ocean conservation. It’s the first to include private sector investments. Private organizations like the Leonardo DiCaprio Foundation supported the deal.

It is the first time the Paris Club has supported a debt swap, partly due to the leadership of the French government, and a first for the Government of South Africa, making for yet another first, a South-South debt swap.

The Seychelles debt swap provides an innovative model which the United Nations, the Commonwealth Secretariat, the IMF and the World Bank Group could all use to help finance recovery and reconstruction efforts in countries such as Barbuda and Dominica, which are highly vulnerable to the double threat of heavy public debt and climate change.

So Brazil, Canada and even the Seychelles could lessen the suffering of thousands in the Caribbean and help them better weather the storms ahead, as the Caribbean pays the heavy price for climate change.

(I extend my deepest sympathies to the families of all those across the Caribbean who lost their lives during this 2017 Atlantic hurricane season, and join in solidarity with the survivors who now face the daunting task of rebuilding).

One thought on “How Brazil and Canada Can Help the Caribbean Weather the Storms Ahead

  1. A really good read. Your suggestions, if adhered to, can make the recovery process less burdensome and easier to accomplish. Caribbean leaders must think outside the box. They must take on board, your proposals. The hurricane season will be a recurring nightmare. Engineering solutions will always be limited. Who can build to withstand Category 5 hurricanes. New and innovative thinking is needed here. I like the Seychelles initiative.

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