Good governance is a major concern in the Caribbean. Indeed, the issue of corruption is an ongoing point of discussion in some countries and a topic that tends to arise during elections. This was amply evident during 2020 voting in the Dominican Republic, Guyana, Suriname, and Trinidad and Tobago. In each case, campaign narratives included citizens’ concerns over governance, which impact their day-to-day lives in the form of quality of public services, accountability of government finances, and law and order. While the need for better governance is an issue in the Caribbean, the region is hardly unique in dealing with such challenges. Caribbean governments are finding themselves increasingly brought into a broader international system of governance accountability. While at times this may be perceived as external interference, the creation of such a global accountability regime generally functions as a force for positive change, especially if it contributes to the creation of more robust civil societies.
The Caribbean is hardly unique in facing governance issues. According to the World Economic Forum, the global cost of corruption in 2018 was estimated to be $2.6 trillion. In recent years, international news has been rife with headlines of corruption in high places. In Malaysia, the 1MDB scandal helped bring down the government and put its former prime minister on trial for corruption. Moreover, in 2020 the U.S. investment bank, Goldman Sachs, reached a settlement of $3.9 billion with the Malaysian government for its part in the scandal. In Brazil, the 2010s were rocked by Operation Car Wash (Lava Jato), which revealed extensive money laundering and bribery involving the state-owned oil company, Petrobras. The ripples from that scandal ultimately sent one former president to prison, helped impeach another, ruined the reputation of one of the country’s largest and best-known companies, Odebrecht, and snared high-ranking political figures in other parts of Latin America. The United States also saw its share of public corruption. It is often forgotten but it was only in 1883 that the U.S. officially did away with the spoils system with the Pendleton Act. Even since then there have been many financial scandals—not necessarily involving the government—but nonetheless causing damage to the public faith, including the Savings and Loans scandal, Enron, and Bernie Madoff.
How corrupt is the Caribbean? In many ways this is a loaded question, something that no doubt makes many government officials roll their eyes in exasperation. Although the Caribbean does not have the same litany of massive multi-billion-dollar scandals spread across several national jurisdictions as in Malaysia and Brazil, it is fair to say that corruption exists.
In its 2019 survey of corruption in Latin America and the Caribbean, Transparency International’s main findings were: (i) corruption is on the rise; (ii) governments are not doing enough; (iii) presidents, prime ministers and parliamentarians are seen as the most corrupt; (iv) bribery is a regular occurrence for many; (v) sexual extortion is a major issue; (vi) political integrity is lacking, especially around elections; and (vii) despite fears of retaliation, citizens can make a difference. Countries in the survey representing the Caribbean included the Bahamas, Barbados, Dominican Republic, Guyana, and Jamaica. In these countries, Transparency International noted a sizable group of people who see government corruption as a big problem.
It is worth noting that, in the Caribbean, corruption is often in the eye of the beholder. Local practices may be perceived as normal, yet from the outside, can be seen as a form of corruption such as hiring family members or favoring certain companies for government contracts run by family members and friends. Other forms of corruption tend to be more blatant and easier to identify including the large-scale embezzlement of public funds, the laundering of those funds, the removal of honest officials who stand in the way, and the taking of bribes.
Most Caribbean countries have faced these issues—a situation probably not helped by the longevity of certain governments. In Cuba, which has seen only three leaders since 1959, a narrow elite exercise and monopolize political power, leaving much of the population feeling held back by an ineffective and corrupt state. Many Cubans have not used their ambition, talent, and entrepreneurial drive at home, but have left and contributed to the economies of the United States, Spain, or other parts of Latin America and the Caribbean. The same could be said about Guyana during the long years of Forbes Burnham (1964-1985), which incentivized many Guyanese to leave for North America, the United Kingdom, and other parts of the Caribbean.
As corruption has long been an issue, numerous databases and ratings systems exist to help governments, citizens groups, businesses, and investors quantify corruption levels. Transparency International provides corruption rankings for 198 jurisdictions. In this ranking, Caribbean countries generally fare well with a sprinkling of representation in the least corrupt grouping and the bulk in the middle—though Haiti is notable for being among the most corrupt countries. The Bahamas and Barbados are the most highly ranked, reflecting high levels of rule of law, transparency, functioning judiciaries, and low crime rates.
Large infrastructure needs have caused the region to increasingly consider the role of international rating agencies. Moody’s, Standard & Poor’s, and Fitch provide sovereign credit ratings, also known as sovereigns ratings, which help investors determine a country’s credit worthiness. Rating agencies look for robust anti-corruption measures and systems to control debt, external sustainability, and overall development prospects. This brings into play such variables as bureaucratic quality, investor protection, rule of law, government effectiveness and democratic accountability.
Another governance rating database is the World Bank’s Worldwide Governance Indicators (WGI). This covers a wide range of indicators related to governance and corruption. The World Bank’s program includes items such as “control of corruption” and “voice and accountability”. Under the first are considerations like corruption among public officers, public trust of politicians and transparency, accountability, and corruption in the public sector. Under “voice and accountability” are items such as press freedom, human rights, the role of the military in politics, and openness of the budget process.
Another part of the global accountability regime is ESG (Environmental, Social and Governance) standards. Private investors use ESG to gauge how a company or project meets these standards, either through green bonds or direct investment. ESG now accounts for billions of investment dollars and, in the post-COVID-19 environment, is projected to expand further. Moreover, many of the world’s leading companies—a number of them active in the Caribbean—are adopting ESG standards. According to a KPMG survey, 75 percent of the largest 100 companies across 49 countries indicated that they are employing ESG business models or incorporating aspects of sustainability approaches. This 2017 number indicates substantial growth from just 12 percent in 1993.
For Caribbean governments, ESG’s importance is abundantly clear. Investors may shy away from investing in companies operating in countries that have poor track records with environmental compliance, governance, and transparency. This is particularly critical for companies operating in the extractive industry sectors, which have encouraged the adoption of Blue Economic policies that tap the potential of the local ecosystems to add to a widening ESG investment menu. Considering the competition for international capital, this trend could provide Caribbean countries a wider platform to attract foreign and domestic investment.
There are other ways that Caribbean countries and territories are rated. These include organizations like the Organization for Economic Cooperation and Development (OECD), the Financial Action Task Force, and other multinational groups. These create “blacklists” and “greylists” for jurisdictions that are regarded as facilitating financial crimes or tax evasion. The European Union’s Economic and Financial Affairs Council maintains a list of “non-cooperative” jurisdictions for tax evasion. The last revision, in February 2020 included the following Caribbean countries: the Cayman Islands, Panama, Trinidad and Tobago, and the U.S. Virgin Islands. Jurisdictions that were previously on the EU blacklist were Aruba, Barbados, Belize, Bermuda, and Dominica, but they were removed as they worked with the EU to improve their tax compliance standards.
The stakes for the Caribbean are high in terms of governance, especially because the COVID-19 pandemic highly affected the region. The Caribbean already has a number of reasonably well-developed organizations, including CARICOM, the Caribbean Court of Justice, the Caribbean Development Bank, and Caribbean Financial Task Force. Although there are often complaints over their value, the region would be much poorer without these organizations. They provide important forums for discussion, technical expertise, and the creation of regional standards. Moreover, they reinforce ideas about the need for robust civil societies and their projects help promote civic organizations throughout the region.
Looking ahead, good governance and tackling corruption are important to the Caribbean. This comes in many shapes and forms, but for governments in the region to deliver the package of goods their citizens expect—law and order, functioning public utilities, and working healthcare and educational systems—there has to be a commitment to maintaining systems that promote the public good. This means not just having laws on the books, but enforcing them. At the same time, Caribbean governments have to be aware that as citizens hold them to a higher standard, they are also being held to international standards. Accountability to both domestic and international constituencies may add to an already long list of pressures, but the results are more inclusive and equitable societies—a goal to which all citizens can aspire. American sociologist E. Digby Baltzell stated the importance of accountability best when he said, “The downfall of every civilization comes, not from the moral corruption of the common man, but rather from the moral complacency of common man in high places.”
Scott B. MacDonald is the chief economist at Smith’s Research & Gradings. Prior to that, he was the head of research at MC Asset Management LLC, a wholly owned subsidiary of Mitsubishi Corporation (2012–2015); head of credit and economic research at Aladdin Capital Management in Stamford, Connecticut (2000–2011); chief economist for KWR International (1999–2000); director of sovereign research at Donaldson, Lufkin & Jenrette (1994–1998); sovereign risk analyst and director at Credit Suisse (1992–1994); and an international economic adviser in the Office of the Comptroller of the Currency in Washington, D.C. (1988–1992).
He is the author or editor of 18 books and numerous articles on economic affairs, covering events in the Caribbean, Latin America, Europe, Asia, and North America. He holds a Ph.D. in political science from the University of Connecticut, an M.A. in Asian studies from the University of London’s School of Oriental and African Studies, and a B.A. in history and political science from Trinity College in Hartford, Connecticut. He has been an adjunct professor of political science at the University of Connecticut and is on the Board of Directors for El Centro Hispano, a nonprofit organization whose mission is to assist, support, and strengthen Hispanic families in Westchester County, New York.