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Sunday, June 25, 2006 

Financing Caribbean Development
Sir Ronald Sanders
Sunday, June 25, 2006

Banks are not institutions that normally attract praise for their good work. But the Caribbean Development Bank (CDB) is an exception. The CDB was born in stormy circumstances in January 1970 after considerable debate and rancour among governments of the Caribbean.
The smaller Leeward and Windward Islands had laid down, as conditions for joining the Caribbean Free Trade Association (CARIFTA) in 1968, the creation of the Bank and their priority access to its funding. They had also argued for its headquarters to be located in St Vincent.

CARIFTA was an economic integration grouping of the Leeward and Windward Islands with Belize, Barbados, Guyana, Jamaica, and Trinidad and Tobago. It was the predecessor organisation of the present Caribbean Community (CARICOM).

Jamaica had also wanted the CDB's headquarters, and the then Minister of Finance, Edward Seaga, had pushed strongly for it. In the end, and as a compromise, the Bank was established in Barbados, but the first article of its charter specifically required it to have 'special and urgent regard to the needs of the less developed members of the region'.

Over time, the Bank has built up a meaningful relationship with its borrowing member countries, although in its early years it was severely criticised by governments of the less developed countries.

The leaders of some of these countries, at the time, felt that all that was necessary to get funding was a letter of request to the CDB's president, and they were impatient with the necessity for projects to be evaluated for their viability.

Yet, it is the CDB's professionalism in adhering to the rules of project appraisal and evaluation that has allowed it to become respected and to attract financing from larger institutions, such as the World Bank, for on-lending to its borrowing countries.The Bank raises funds through the issuance of debt securities to institutional and retail investors as well as lines of credit from international financial institutions.
Had the CDB not insisted on sticking to international best practices in evaluating and approving loans, it would have not won the confidence of larger financial institutions and would have long since collapsed. And the development of its borrowing countries, who have been the beneficiaries of its operations, would have been retarded.

From its inception in 1970 to the end of 2005, the CDB has contributed US$2.6 billion to improving the lives of its 17 Caribbean borrowing member countries.

On the face of it, US$2.6 billion among 17 countries may not seem significant, but these small countries have a combined population of only five million people stretching from Belize in Central America, through the chain of Caribbean islands to Guyana in South America.

And the loans, equity and grants have been made in crucial areas among which are roads, transportation - air and sea transport; rehabilitation after disasters caused by hurricanes; education; and low-income housing.

Sticking to its obligation to give special and urgent regard to the needs of the LDCs' over the period 1990 to 2005 the CDB has provided US$1,194.1 million or 57% of total disbursements to these countries. The LDCs also received 71% of disbursements from the Bank's special operations.

It is difficult for many of these countries to access financing directly from larger institutions such as the World Bank and the Inter-American Development Bank. For, while the sums involved are fairly large in relation to their economies, they are small in comparison with the portfolio of loans and equity funding required for huge projects in far larger countries.

But the amount of time and resources necessary to conclude a transaction for a large project is almost the same for a small one. Therefore, funding small projects is an expensive exercise both for the lender and the borrowing country, and the large financial institutions have shied away from it.

Consequently, a smaller development bank dedicated to the needs of small countries is crucially important to the countries of the Caribbean, and if the CDB did not exist today, it would have had to be created.

As an example of the importance of the Bank to its borrowing countries, after the devastation of Grenada by Hurricane Ivan in 2004 and the further damage by Hurricane Emily in 2005, the CDB played a major role in financing the country's rehabilitation.

Restoration of water and electricity to affected areas was immediately financed by the Bank, which is also funding suitable housing for low-income households, the replacement of damaged bridges, and the improvement of roads.

Jamaica and Guyana, two of the so-called More Developed Countries (MDCs), also benefited from the Bank's lending in 2005. US$54.1 million was provided to Jamaica to continue construction of a coastal highway, and Guyana received US$5.6 million under the Highly Indebted Poor Countries initiative.

Beyond the loans, equity, and grants that it has made available to individual Caribbean countries, the Bank has also provided support to regional initiatives that may not have materialised otherwise. For instance, the CDB raised the US$100 million necessary to finance the Caribbean Court of Justice (CCJ).

The CCJ is the court of original jurisdiction for disputes between signatory countries of the revised CARICOM Treaty and is now the Court of final appeal for Barbados and Guyana. If constitutional changes are accepted by a referendum in each of the other CARICOM countries, the CCJ will replace the British Privy Council as the final appellate body for those countries as well.

Apart from the CCJ, the CDB also provides assistance to the Caribbean Regional Negotiating Machinery (CRNM), the group that undertakes the region's technical trade negotiations with other countries and regions and within the World Trade Organisation.

The Bank has also played a central role in the formulation of the Regional Development Fund whose establishment came to be a key condition of the Leeward and Windward Islands of CARICOM joining the Caribbean Single Market, which was started by Barbados, Belize, Guyana, Jamaica, Suriname and Trinidad and Tobago in January this year.

The CDB proves that, once Caribbean institutions adhere to international standards and best practices, they can gain international respect while fulfilling their obligations to the countries for whose benefit they were established. Sir Ronald Sanders is a business executive and former Caribbean diplomat who publishes widely on Small States in the global community.

Responses to: ronaldsanders29@hotmail.com

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