In the last Sunday Express, the esteemed retired university professor, Selwyn Ryan, wrote a column that was headlined “The Caribbean in a fast-changing world,” in which he referred to a meeting that some “older academicians” held in early October in Mona, the location of the Jamaica branch of the University of the West Indies.
The meeting aimed to do an audit of sorts of where the English-speaking Caribbean was “after 50 years of effort” and the mood of the meeting, Ryan reported, “was neither buoyant nor optimistic.”
Professor Ryan noted the impact on the region of drug-related crime and murders, the fall in global oil prices and the possible impact on PetroCaribe and the Ebola threat, before adding: “Whatever investment there existed in the pipelines to and from the region will more than likely remain sticky and lacking in confidence. To be brutal, almost all Caribbean economies and political systems are in a state of incipient political and economic collapse. Dare we be optimistic?”
Later in the column, Ryan stated: “Of interest is the fact that some countries, St Kitts and Nevis in particular, have sought to sell State-owned lands, mainly to the Chinese, to pay off their debts. These “Citizenship-by-Investment” are (sic) said to be a new “El Dorado,” but are not sustainable. One can however expect attempts to close those back doors and also to change land use patterns to the disadvantage of native citizens.”
Now, since I described St Kitts and Nevis as the “Caribbean’s new El Dorado” in the headline of an article that I sent from the International Monetary Fund forum on the region, which was held in Montego Bay, Jamaica late last month, one assumes that Professor Ryan was referring to my contribution, which was published in the Sunday BG on October 26.
If he was referencing the contribution, one is, of course, honoured that someone as distinguished and relevant as the professor would do so.
Ryan raises some important issues:
1) The first is whether what St Kitts and Nevis is attempting to do with respect to the Citizenship by Invitation initiative and the debt-for-land swap (which, as far as one is aware, are separate programmes) is sustainable.
As far as I am concerned, it is not. But I am in the camp of those who believe that no economic system is sustainable. In my own lifetime, we have witnessed the Japanese economy being referred to as a miracle and Ireland being described as the Celtic Tiger.
Neither Japan nor Ireland has been able to sustain their miraculous growth rates, with Japan suffering for two decades from stagnant growth and Ireland being forced to implement a programme of financial support that was funded by the European Union (EU) and the International Monetary Fund (IMF).
It is the nature of economic systems that they rise and fall: the Roman and British empires are good examples. And while there are some who two decades ago referred to the 20th century as the American century, the power and dominance of the United States is not what it used to be (although there is no telling how shale oil and gas is going to change that picture).
The Chinese economy has grown by leaps and bounds in the last 20 years, but the live issue is if the air can be released from the Chinese bubble slowly or whether that process will be “nasty, brutish and short.”
Even a country like Singapore—which some may argue comes closest to having a “sustainable” economy—has experienced four periods of economic downturn during which employment saw a sustained decline, according to a report from that country’s Ministry of Trade and Industry: “These were the 1984/1985 recession, the 1998 recession arising from the Asian Financial Crisis, the 2001 recession due to the dot.com bust, as well as the recent recession in 2008/2009 caused by the Global Financial Crisis.”
Given the extraordinary and growing linkages of the global economy, and my suspicion that booms and busts are an inherent part of capitalism, it would appear that economic sustainability is a myth.
2) The question is whether what is being done in St Kitts and Nevis is sustainable.
Before answering that, it is necessary to recap the nation’s achievements as in 2010 it had a debt-to-GDP ratio and a fiscal deficit of 159 per cent and 7.6 per cent respectively. In July this year, the twin-island nation’s statistics include a debt-to-GDP ratio of 103 per cent and a fiscal surplus of 12.3 per cent.
St Kitts and Nevis was able to achieve this feat because of its Citizenship-by-Investment initiative and by swapping its debt for land. As a result, it exited the IMF structural adjustment loan after the stipulated three-year period.
If the country continues the debt-for-land swap, it will be able to further reduce its indebtedness, according to the IMF’s review of the structural adjustment loan in July: “St. Kitts transferred 27 percent of GDP in lands to a domestic creditor, extinguishing a corresponding amount of debt, contributing to a reduction in the debt-to-GDP ratio from 137.3 per cent at end-2012 to 103.1 per cent at end-2013.
“Additional land transfers in 2014, by both the Nevis Island Administration and the Federal Government, up to the equivalent of 11 per cent of GDP, is expected to lower the debt ratio to 86.2 per cent by year-end.”
The issue of sustainability was raised by Judith Gold, who is the IMF’s representative to St Kitts and Nevis, in an interview when she said: “Like T&T’s oil and gas funds, the inflows from the Citizenship-by Invitation provide more fiscal space and comfort, but they also represent the risk that some industries could become uncompetitive, which was the case with Trinidad’s agriculture sector, for example.
“There is also a question of sustainability, because right now these programmes are very popular and the advanced economies are happy to tolerate them, but we don’t know what the future holds and the advanced countries may clamp down on these programmes.”
So, the likelihood is that a sovereign country cannot continue indefinitely selling its citizenship (passports) to foreigners.
But the point must be made it was a brilliant move by the St Kitts and Nevis government to revamp its Citizenship-by-Invitation initiative to make it a source of windfall revenue, to the point where senior IMF official Alejandro Werner used the phrase Dutch Disease and St Kitts and Nevis in the same sentence.
And the fact that Dr Denzil Douglas, who was in Trinidad on Tuesday for the Ebola meeting of Caricom heads of government, had the foresight to swap land acquired from the unsustainable sugar industry for the nation’s debt was also a courageous masterstroke.
Those in St Kitts and Nevis who are making the argument about the country selling out its birthright to foreigners (I am sure that argument is being made) need to consider the quality of their birthright if they were living in a country with a debt-to-GDP ratio of 160 per cent and a fiscal deficit of 7.6 per cent.
Statistics like those generally mean higher taxes and reduced spending by governments in the future—both of which tend to have extremely negative impacts on quality of life in these parts—as anyone who has lived in Jamaica for the last decade knows.
Would the people of St Kitts and Nevis rather live with their State owning former sugar lands and maintaining high debt and high taxes or would they prefer to trade some of the land to lower their debt with the prospect of reduced taxes and an improved quality of life in the future?
The St Kitts and Nevis experiment proves what countries in this region can achieve if they have innovative and strong leaders who are willing to take controversial and unpopular decisions for the good of the citizens of their countries.
The real question for St Kitts and Nevis is whether, facing an election, the government there will save the windfall for a rainy day...or spend it.
