The Tribune

EDITOR, The Tribune.

During the dedication of an oil refinery in Freeport, grand Bahama, in 1969, the late Sir Lynden Pindling declared, “in this city where, regrettably, almost anything goes, where promisingly, some economic opportunities have come to Bahamians, and Bahamians are nevertheless still the victim of an unbending social order which, if it now refuses to bend, must be broken.” The words of our first Prime Minister highlighted the systemic exclusion of Bahamians from the benefits of economic development, signaling a call for reform of the national economic order of that time. Today, Sir Lynden’s words resonate even more as we confront the inadequacies of the current global financial order, which fails to meet the needs of Small Island Developing States (SIDS) in the 21st century.

To fully understand our global financial order, one must understand its beginning, specifically the creation of Bretton Woods institutions such as the International Monetary Fund (IMF) and the World Bank. These institutions were established after World War II in 1944 to address the economic issues that contributed to that global catastrophe, such as protectionist policies and hyperinflation. The Bretton Woods institutions, the financial anchor underpinning the post-WWII, post-empire international order aimed to promote global peace among countries through economic integration. While theoretically designed to foster a more inclusive financial order, the practical application of this theory has often fallen short.

The IMF, for instance, promotes financial stability by providing its member countries with various financing facilities, ranging from extended credit facilities to standby ones. However, the IMF has faced criticism for its “one size fits all” approach. Critics have argued that this “one size fits all” approach from the IMF recognises all countries as having the same structural issues and that the solutions to these problems are neoliberal. Specific criticism allude to structural adjustment programs advocated by the IMF during various periods, such as the Latin American debt crisis in the 1980s.

SIDS economies, especially in the Caribbean, are particularly vulnerable to external economic shocks, endemic balance of payments issues, high costs of living, and limited sectoral diversification. Despite these challenges, many SIDS, such as The Bahamas, are classified by the World Bank as “high-income countries.” Additionally, SIDS like Barbados and Jamaica are classified as middle-income countries. These broad classifications prevent these nations from obtaining crucial funding. Though the IMF has introduced the Heavily indebted Poor Countries initiative (HiPC) to assist least-developed countries (LDCs) in debt alleviation, many SIDS still need to qualify for funding from this facility as they are not classified as LDCs, highlighting the structural disregard for SIDS’ economies.

Consider a scenario where a climate disaster or external economic shock adversely impacts a Caribbean SIDS. in such a case, the government may access a financing facility such as the rapid Financing instrument (rFi) from the IMF, which provides temporary, low-cost financial relief. in 2020, the IMF approved $250m for the Bahamian government under the rFi arrangement to combat the ongoing balance of payment issues brought upon by the double-edged sword of Hurricane Dorian. This catastrophic Category 5 hurricane caused widespread destruction and the COVID-19 pandemic which further exacerbated the economic challenges. However, while financing facilities provide short-term relief, countries like The Bahamas still grapple with endemic issues and remain at high risk of facing these disasters again.

What immediate steps must be taken? Alongside adopting the Multidimensional Vulnerability index (MVi), which captures the full range of vulnerabilities faced by SIDS, institutions like the IMF should establish a new financing facility tailored to and for SIDS’s climate and socioeconomic needs. While SIDS’ economies are not exact replicas of one another (i.e. the Jamaican economy heavily focuses on bauxite production while the Trinidadian economy is prioritizing oil), this financing facility can address the cyclical and structural challenges that SIDS face. Policymakers also should advocate for debt relief— an ‘economic jubilee year’ for SIDS. This concept involves forgiving or restructuring a significant portion of a country’s debt to allow them to achieve greater debt sustainability. Additionally, the global community must abandon the longstanding ‘gentleman’s agreement,’ a concept used to describe the informal practice of individuals, particularly men from Europe or north America, heading institutions like the IMF and World Bank. This global north, Eurocentric hegemony silences the voices of the predominantly non-white global South, especially SIDS.

Our global environment demands an international financial order reflecting 21st-century values, not values embedded in a 19th or 20th-century imperialist mindset. The urgency of the situation, which is not a matter for contemplation but immediate action, heightens calls for reforming the global financial order for SIDS. if these calls are not heard, then the order ceases to be broken.

LIAM MILLER

New Providence 

August 6 2024.