Caribbean Still Facing Challenges to Spur Economic Recovery, IFC Says

Martin Spicer, regional director for Latin America and the Caribbean of the International Finance Corporation, tells Bloomberg Línea what steps the Caribbean needs to take to spur its economic recovery

La gente disfruta de la playa de Mambo al sur de Willemstad, Curazao, en el Caribe holandés. Fotógrafo: Daniel Slim/AFP/Getty Images
September 02, 2022 | 01:41 PM

Santo Domingo — The countries of Latin America and the Caribbean face a complex economic and social panorama, as the strong inflationary pressures that had buffeted the region as a result of the pandemic have been intensified by the war between Russia and Ukraine.

The situation has led to changes in monetary policies and increased volatility in the financial markets, which has in turn generated difficulties in accessing financing. In addition to these factors, there are other latent problems in the region.

The challenges vary from one sub-region to another, however.

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In an exclusive interview with Bloomberg Línea, Martin Spicer, regional director for Latin America and the Caribbean of the World Bank’s International Financial Corporation (IFC), pointed out three main challenges that the Caribbean faces on the road to economic recovery, and also highlighted the IFC’s work to support countries in this development.

Access to financing

Strengthening social inclusion is crucial for economic recovery in the region, Spicer said, pointing out that access to credit is one of the most pressing challenges for micro, small and medium-sized enterprises (MSMEs) in the region, particularly women-owned enterprises, either because they have no credit history, or they do not have the necessary collateral, making it difficult for them to access formal credit.

Spicer added that the financial sector is well positioned to support and help expand financing to such groups, with innovative solutions targeting MSMEs and companies run by women, so that they can invest, create jobs and, as they recover from the pandemic, improve their resilience and continue to operate.

“The IFC has worked with banks and micro-finance institutions in the region with successful approaches that are helping to bridge the financing gap,” Spicer told Bloomberg Línea. “We found that one of the main causes of this problem is that many banks are primarily focused on corporate banking and in some cases there is a lack of knowledge of the MSME and women’s market, so they don’t always have the capacity to properly assess risks. There is also a combination of cultural barriers and the misperception that women’s businesses are less profitable,” he said.

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He added that SMEs and female entrepreneurs represent an important business opportunity for financial institutions.

In the same vein, he said that a challenge for the Caribbean, related to the limited supply of financing for SMEs, are the legal and regulatory frameworks, which require specific assets, such as land or buildings, as collateral for banks to lend.

“If we align these policies with international practices, the region could unlock access to a wide range of credit products, help small businesses thrive, and encourage the formalization of enterprises,” he said.

The IFC is working with the Eastern Caribbean Central Bank (ECCB) to help lay the groundwork for a common framework for secured transactions and collateral registries that will allow SME owners to use movable assets as collateral when seeking financing.

“These include machinery, crops or accounts receivable, for example. This could have a dramatic impact on the Caribbean’s economic development and strengthen its financial stability,” Spicer said.

Infrastructure

Another of the challenges the Caribbean faces is infrastructure, Spicer said, underscoring the need to invest in improving infrastructure to develop tourism and to improve public services to citizens. This includes transportation and roads, health services, clean energy sources, and water and waste management.

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“A lack of adequate digital infrastructure, and limited access to digital services, are also hindering development and exacerbating inequalities, particularly for people in rural areas,” Spicer said. “Imagine how this connectivity gap has impacted children’s education, access to financial or health services during the pandemic, or the ability to work from home in the last two years. Investing in the Caribbean’s digital transformation can help overcome decades-long development challenges, including social inequality.”

In Jamaica, IFC collaborated with Rock Connect, a consulting project to provide market intelligence for the construction of its network, which among other things seeks to accelerate the provision of broadband in the country.

Spicer pointed out that, public-private partnerships (PPPs), these infrastructure gaps can be addressed without compromising governments’ fiscal space. In addition, PPPs are a viable alternative for attracting private sector financing and expertise.

Countries such as Jamaica, St. Lucia, Trinidad and Tobago and, more recently, Barbados, have taken steps in this direction, he said, and the IFC has a track record in the region with PPPs.

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Climate change

Both due to the Caribbean’s geographical position and infrastructure, climate change is another threat to the region, and which could increase poverty rates, Spicer said.

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The region suffers disproportionately from the impacts of natural disasters and the costs they entail, both in terms of lost assets and lost consumption.

Globally, weather events are estimated to cause nearly $200 billion in damages during the 2020s.

“We need policies and regulations that can make way for the development of a portfolio of viable and bankable projects, prioritizing climate adaptation and resilience,” Spicer said.

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He affirmed that the development of ‘green’ projects opens the door to investments with both a social and environmental impact, and which the IFC has helped launch in Colombia and the Dominican Republic.

Spicer said the IFC is also starting to compile a Building Resilience Index (BRI) aimed at helping the region cope with the growing human and economic cost of climate events.

He emphasized that the Caribbean is one of the most-exposed regions to extreme weather events and the cost of rebuilding is increasingly high. In 2017, Hurricane Maria cost Dominica about 200% of its GDP.

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“The reason countries have been slow to implement these types of practices is the lack of data to assess the costs and benefits. This is what IFC’s BRI aims to do: provide information that can help developers, financial institutions, insurers and governments assess and improve resilience in the construction industry,” Spicer explained.

“The IFC is partnering with a local bank in the Dominican Republic to test the program and explore opportunities to improve resilience in new and existing homes and buildings,” he said.

He anticipated that ‘blue’ financing is another area that may become the next frontier for Caribbean economic growth.

“The Caribbean Sea supports the economies of more than 30 coastal and small island countries and territories and more than 40 million people. Just as we did with green bonds and green loans, the IFC is now looking to scale ‘blue’ finance around the world. With it, the region’s countries have the potential to help diversify their economies, create jobs and leverage beach tourism with a more sustainable model that can double current revenues in the sector,” he said.

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