Economist suggests ‘micro-bonds’ build resilience

Maintaining a healthy buffer of foreign exchange reserves will be critical to the Caribbean’s economic recovery, said a senior economist as he urged Barbados and the region to issue “micro-bonds” as a new form of financing.

The recommendations came out of the Central Bank of Barbados’ 40th annual review seminar on Tuesday on the topic The Impact of COVID-19 in the Region: Current Challenges, Future Outlook and Policy Recommendation.

Dr Justin Ram, co-founder and Chief Executive Officer of GSEC and Justin Ram Advisory, said: “We really need to consider some type of micro bonds approach that can convert to equity.

“Why do I say micro bonds? Because it is time the ordinary citizen has an opportunity to invest in a debt instrument at first but then has a convertibility clause later on that converts it into equity.”

The senior economist, the former head of research at the Caribbean Development Bank, said this could be done through a digital platform that would allow for the ease of trading of the securities “where anyone can go onto their phone and sell their security, receive the liquidity in their bank account easily”.

“I think we need to move towards an equity stake type of economy now because of this whole need for us to build an inclusive economic and social movement moving forward, and of course in a climate resilient way,” he said.

Central Bank Governor Cleviston Haynes said while there has been stabilization of the economy through several far-reaching changes in economic policies, debt restructuring, tax system reformation, and structural reforms to enhance efficiency and competitiveness, the COVID-19 pandemic threatened to “debilitate our economic fortunes”.

Highlighting the undermining of the tourism sector and the possibility of a double-digit decline in economic activity this year with loss of jobs and incomes, Haynes acknowledged that Government has had to introduce counter cyclical economic policies to safeguard the economic health of businesses, individuals and the nation.

Haynes said: “This approach deviates from what our traditional policies have been in times of stress in the past and reflects not only the severity of the problem but also our capacity to respond.

“We cannot therefore emphasise enough the importance of building and maintaining economic buffers that allow for flexibility in economic management on occasions such as this. This is especially important given the risks we face from climatic events, volatile commodity prices, blacklisting by foreign countries or groups of countries.”

Deputy Governor of the Central Bank of Barbados Alwyn Jordan noted that the COVID-19 pandemic had the tendency to drive up debt and exacerbate poverty.

He suggested that regional central banks continue to adopt “an accommodated policy stance” by coordinating efforts, maintaining a low interest rate environment, and ensuring stability of the financial system.

Jordan said: “Communication is also essential to central banks in this environment. The focus should be on providing the public with the most up-to-date and accurate information as well as the bank’s outlook for the economy and the future direction of monetary policy. Uninformed speculation can cause panic in the public.

“External reserves buffers are also important to mitigate the effect of the accommodated measures on the external sector. We note that regional central banks entered the pandemic period with high levels of external reserves which have grown for the most part despite the loss in earnings from the main export sectors.

“This trend may not persist over the near term, hence the need to support reserve balances until the economies return to their pre COVID-19 levels, and this in some instances may mean additional external borrowing.”

The panellists also stressed the need for digital transformation, building resilience in several areas and improving the ease of doing business.

Dr Ram said it was important that countries continue to put measures in place to respond to climate change and limit the impact.

He also called on regional leaders to pay attention to social justice and gender equality, and focus on “good levels of human development”, improving data collection and implementation.

He said: “So I think in the wake of COVID-19 we can no longer focus only on competitiveness. There needs to be sustained inclusive growth whereby we are also focusing on competitiveness and equal opportunity but how we build back in a climate smart way.”

He said he did not believe the current financial model should be used to solve the region’s challenges.

Dr Ram said: “As I look at the financial architecture as it stands now finance currently penalises vulnerability via higher interest rates.

“What we need now is actually finance that is provided at as low a cost as possible but can share in the rewards of resilience over time.

“We need finance that recognizes that resilience building is costly at first but brings tremendous long-term rewards and avoided costs, so we have to turn this financial model on its head if we are going to build back better.”
marlonmadden@barbadostoday.bb