2020-04-01 Bloomberg Markets Magazine

(Jacob Rumans) #1

five years. That’s equivalent to almost 15% of the economy that
otherwise would go to debt payments. After the moratorium, pay-
ments would resume, including on accrued interest.
That sort of breathing space could preserve the ability of
Barbados and other tiny nations to respond to ever-more-frequent
disasters. Hurricanes have caused more than $212 billion in losses
and damages in the Caribbean since 1980, according to the Center
for Disaster Management and Risk Reduction Technology in
Karlsruhe, Germany.
The region is strewn with examples of the link between disaster
and debt. The Bahamas, 1,400 miles northwest of Barbados, is
borrowing as much as $300 million to deal with 2019’s Hurricane
Dorian, the worst in its history. In 2017, Hurricane Maria crippled
Puerto Rico’s ability to pay down the more than $70 billion in debt
owed by the U.S. commonwealth at the time. Again and again, natural
disasters have held back economic growth and, coupled with fiscal
mismanagement, pushed countries into untenable situations.
Caribbean countries have restructured debt more than a
dozen times in the past 20 years. “We live in such a bad neighbor-
hood in terms of our vulnerabilities,” says Monica La Bennett, a
vice president of the Bridgetown-based Caribbean Development
Bank. “Governments, multilateral institutions, and the financial
markets are recognizing that this is now a new normal, and so these
clauses have become more important as part of the armory these
countries can put in place.”

MOTTLEY HAS LIVED under the specter of a natural catastrophe for
all her life. At the decaying three-story concrete government head-
quarters in the capital, she recalls how two decades ago, when she
was minister of education, she warned that a bad storm could set
back the country, once one of the most prosperous in the eastern
Caribbean because of a thriving tourism industry and its offshore
banking businesses. “The gains of development you thought you
had are immediately whittled away in hours,” she says.
The 166-square-mile pear-shaped island sits closer to South

America than the U.S. That’s put it outside the main Atlantic hur-
ricane belt, sparing it so many times that locals quip, “God is Bajan.”
And it can look that way. Across from Mottley’s offices, sailboats
bob in the clear waters of a horseshoe-shaped bay while cruise ships
the size of office buildings dock in the distance.
But Barbados is small, flat, and vulnerable. Most of the pop-
ulation lives near the coast. Some Bajans live in rickety wooden
homes known as chattel houses, their design dating to days when
sugar plantations dominated the island and many residents were
former slaves. “Nature—and what it brings with it—was our
greatest threat,” Mottley says.
In conversation, Mottley, who earned a law degree from the
London School of Economics and Political Science in 1986, switches
fluidly from climate science to international finance to economic
policy. She wears polygonal glasses that contrast with a round face,
and an occasional smile reveals a gap between her front teeth.
Mottley’s immersion in Barbadian politics began early. Her
grandfather was Bridgetown’s first mayor. Her father served as
consul general in New York, where Mottley studied at the United
Nations International School. She entered politics before turning
30, becoming one of the youngest education ministers in the coun-
try’s history. She rose to become leader of the then-minority
Barbados Labour Party in 2013.
By 2017 she was already hatching a plan to turn the country
around. The economy had stopped growing a decade or so earlier,
infrastructure was in such disrepair that sewage leaked into the
sea, and the country’s debt-to-gross domestic product ratio was
surpassed only by Japan and Greece.
The economy of the former British colony depends mas-
sively on tourism, so when the financial crisis came along, it
ravaged international travel. Growth contracted and didn’t return
until 2015. The travel and tourism industry supports more than
a third of the nation’s $5 billion GDP. In recent years, the number
of foreign visitors has risen to more than 1.5 million annually. The
coronavirus pandemic has hit the island hard. Tourists canceled
thousands of hotel reservations in March, according to the
Barbados Hotel & Tourism Association, even as cruise lines
dropped voyages to the Caribbean, including Barbados, where
some 800,000 passengers normally disembark each year.
The year before the 2018 election, as leader of the oppo-
sition, Mottley recruited a team of advisers that included Avinash
Persaud, a native Barbadian, who’d spent years abroad as an
investment banker at global heavyweights including State Street
Corp. and JPMorgan Chase & Co., winning recognition for his
work on risk modeling.
As Mottley’s team settled down to work, Persaud and the
others couldn’t ignore what was going on around the region. The
2017 Atlantic hurricane season brought 10 of them, plus a handful
of tropical storms that wreaked havoc in the U.S., the Caribbean,
and Central America. Hurricanes Irma and Maria, Category 5 mon-
sters, formed within days of each other, severely damaging Caribbean
and Atlantic islands and the U.S. mainland. Irma destroyed tiny
Barbuda. Maria left almost 3,000 dead in Puerto Rico. “It was just
a horrific year,” Persaud says. “It led to a complete rethinking.’’
Mottley was already familiar with debt clauses that could
afford protection against storms. The idea was actually born in
neighboring Grenada, a tiny island whose major exports are
nutmeg, mace, and newly minted doctors from its medical school.

Stormy Weather
Barbados real GDP, year-over-year change

General government gross debt
as a share of GDP




  1. 9 %







VOLUME 29 / ISSUE 2 67
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