Many Central American and the Caribbean countries have similar characteristics. (1) They have small economies that are very open to international trade and they are heavily exposed to exogenous economic-financial shocks and natural disasters (e.g. hurricanes, earthquakes). (2) In the smaller Caribbean countries, financial sectors are typically quite large, translating into potentially huge contingent government liabilities. (3) Economic growth has stagnated over the past decade, at least in many non-commodity-exporting economies. (4) Many economies are facing high and rising public debt. Not surprisingly, 9 out of the 15 sovereign bond defaults/ restructurings that occurRed globally since 2003 affected countries in/ bordering on the Caribbean. Two countries have even gained the doubtful distinction of double-defaulters (Belize and Jamaica).
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| Source: Moody's |
Economies relying on tourism and financial services have fared poorly due to deteriorating terms-of-trade, compared to commodity exporters (Guyana, Suriname, T&T, only Belize excepted). This is a concern, not least because the financial situation in many energy-importing economies in the region would be far worse if Petrocaribe did not exist. The Petrocaribe programme sponsored by Venezuela sells many Caribbean economies oil at a very significant discount. Members include: Antigua and Barbuda, the Bahamas, Belize, Cuba, Dominica, Dominican Republic, Grenada, Guyana, Haiti, Guatemala, Honduras, Jamaica, Nicaragua, St. Lucia, St. Kitts and Nevis, Sant Vincent and Grenadines, Suriname and Venezuela.
Political change in Venezuela (aka the end of Petrocaribe) would risk causing a severe regional financial crisis. Combined with governance challenges (The Economist talks of “failed states” in Central America) and limited political and financial support for the region (neither Mexico nor the US are particularly interested), Central America and the Caribbean will remain the region to watch in terms of future sovereign debt crises.