The shape-shifting COVID-19 catastrophe and economic atrophy — What to do?

What a time to be alive! Just when you dare to believe that you have some idea of what’s going on, enough to even write about it, the bottom of your smug-little-45-year-young-world drops out, and the situation becomes increasingly fluid, rendering ideas about possible solutions today, irrelevant and even ridiculous tomorrow. And because of such extreme Major Lazer/Method Studios-type shape-shifting, the policy responses being formulated now based on our best guesstimations of what could be, are almost entirely experimental.

For a genuinely benevolent policymaker, what could possibly be more exciting, but at the same time, more terrifying? Mistakes will be made, and there will be unintended and unanticipated consequences of current policy (in)action. But “The future doesn’t belong to the fainthearted; it belongs to the brave” (Ronald Reagan), so we must forgive upfront our truly brave and genuine Leaders for their inevitable mistakes now. But for those extra special politicians who’ve reliably made ‘mistakes’ all along, expect nothing better from them now. Forgive them not their consistent transgressions, now or at the polling booth. They know who they are.

We must forgive upfront our truly brave and genuine Leaders for their inevitable mistakes now

This crisis represents an inflection point pregnant with opportunity for the kind of deep and lasting transformation humanity needs. But a plague of hangry people, suffocating Governments, and sudden-stop-syndromed private sector, collectively create economic atrophy likely to spiral towards chronic and accelerated socio-economic deterioration in the Caribbean. The overdependence on tourism / financial services / oil and gas across the region, makes diversification critical to our survival, but this takes time. In the meantime, managing the risk of overexposure to any one sector requires provisioning for the inevitable rainy day. But what can we do to survive now?

Soft currencies and high import dependence mean that we can’t just print away our problems. But what if we borrowed big and secured about a year of runway for public and private sector payroll, or a Universal Basic Income? This may mean borrowing say 25–40% of GDP via a 15–20 year local currency sinkable bond, issued in small denominations to encourage as wide as possible participation, especially from small investors, which reduces the risk that this instrument will be restructured in a default/restructure scenario.

This approach could ease the pressure on foreign exchange reserves and the exchange rate, versus printing. The commercial banks are best placed to lend the appropriate portion of these funds to businesses which were operating well before the sudden-stop, in order to maintain their payroll. The sinking fund will be credited with the businesses’ repayment for these loans. This kind of spending is important, but as the IMF’s MD said, “Spend, but keep your receipts.”

Economist and leading advisor on the Caribbean

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