As Venezuela declines, and the Caribbean struggles to achieve energy security, China and other nations are stepping up to become key players in the region. The United States, however, has inadvertently handicapped itself from using its newest landmark development mechanism to support its regional partners in the Caribbean.
In October 2018, the US Congress took a major step forward in enhancing U.S. international development assistance when it passed the Better Utilization of Investments Leading to Development Act of 2018, better known as the BUILD Act. The BUILD Act allocates $60 billion in funding to facilitate and de-risk private investment in low-income developing countries in support of both global development and US strategic objectives.
The BUILD Act’s passage was rightly cheered, with one analysis calling it “the most important piece of U.S. soft power legislation in more than a decade.” The BUILD Act, however, inadvertently leaves the Caribbean out in the cold. This situation, likely unintentional, can be easily remedied with a better understanding of the problem.{mosads}
The BUILD Act, wisely, authorizes the United States International Development Finance Corporation (USIDFC) to work within “lower-income” and “lower-middle-income” countries, with “upper-middle-income” countries prohibited except in cases where a presidential waiver is granted. The president may grant a waiver where both a clear national interest can be demonstrated and a proposed project would clearly benefit low-income populations. The problem, however, is that the BUILD Act’s definitions of lower- and lower-middle-income countries rely on World Bank classifications based on Gross National Income (GNI) per capita (i.e. total national income divided by total population). This measurement, while clear and widely available, disadvantages small countries with modest population sizes.
An example illustrates why: Indonesia had a population of over 260 million as of 2017. According to the World Bank, Indonesia has a GNI per capita of $3,540 when dividing the country’s national income by its total population. This places the country in the bracket of a lower-middle-income economy and, therefore, immediately eligible under the BUILD Act. Jamaica, on the other hand, has a population of just 2.8 million, but a GNI per capita of $4,750 — placing Jamaica in the upper-middle-income bracket and thus requiring a special waiver to qualify for the BUILD Act. However, both Indonesia and Jamaica struggle with under-development and poverty, with recent data suggesting that Jamaica’s population below the poverty line (an estimated 17.1 percent) is higher than Indonesia’s (an estimated 10.9 percent). In other words, the economic and development needs of small countries with small populations may not be accurately reflected in the metric that the BUILD Act is based on. As a result, only one country in the Caribbean — Haiti — qualifies for the BUILD Act with no additional waivers.
Development needs in the Caribbean, however, are significant and will likely accelerate as Venezuela declines and sustainability and resilience challenges intensify in the coming years. Many of these nations depend on fluctuating commodities (e.g., Trinidad and Tobago) or seasonal tourism (e.g., Dominica and Grenada), now facing multi-pronged risks from climate change, for their economic livelihood. Moreover, most of the Caribbean nations are islands facing geographic and market barriers to scaling up small, often localized economies. Accumulated national debts are often high due to considerable import dependences for goods and especially energy (e.g., fuel oil), and as a result creditworthiness is low.
The Caribbean’s problems are substantial, but ones for which USIDFC will be well-suited to provide policy and financing solutions where the private sector is currently wary to tread.{mossecondads}
Fortunately, the exclusion of most of the Caribbean from the BUILD Act can be resolved with a modest change. Legislators should consider amending the BUILD Act, or any implementing guidance for the institutionalization of the USIDFC, to include a blanket exemption for the Caribbean from additional waivers. The region’s 26 small-island economies merit eligible status based on demonstrated need and the importance of the region as a whole to U.S. economic and regional security interests. This is the easiest and most straightforward solution to the problem.
While reconsidering the GNI per capita metric altogether and searching for a new metric for BUILD may be tempting, this solution could create as many problems as it solves. Given the relatively small number of countries disadvantaged by the GNI per capita metric, the problem does not merit a total rewrite of the rules — but merely a tweak.
The BUILD Act has the potential to dramatically improve the United States’ overseas development presence and put federal funds to good use supporting economic development and bolstering strategic partnerships overseas. It would be a shame to leave the Caribbean out almost entirely on a quirk of statistics, which does not accurately portray the region’s needs and untapped potential.
The BUILD Act can be greatly improved with a modest renovation. Given wide bipartisan support for US partnership with the Caribbean, Congress should act now.
Andrea Clabough is an Associate at Goldwyn Global Strategies, LLC, where she researches and writes on a range of energy policy issues and focuses on oil and gas, renewables, power generation and geopolitics.
David L. Goldwyn is president of Goldwyn Global Strategies, LLC, an international energy advisory consultancy and serves as chairman of the Atlantic Council Global Energy Center Energy Advisory Group.