By David Jessop
All Caribbean governments are faced with a conundrum: how to stimulate growth at a time when they know they have little option but to cut public expenditure, reduce their indebtedness and introduce tough austerity measures.
To try to encourage a debate on the most effective policy responses, the International Monetary Fund (IMF) recently organised a meeting in Trinidad that brought together Prime Ministers, Ministers, Central Bank Governors and senior figures from around the region. Their focus was on the nature of the reforms needed to return the region to growth.
Reading the conference papers – most of which are available online from the IMF - it is clear that there was a consensus that real economic recovery in small states such as those in the Caribbean will mainly depend on two primary forces: the global impetus that will come from renewed growth in emerging economies like China, Brazil and India; and a return to prosperity in the region’s main tourism feeder markets of Europe and North America.
Even then, there was a sense that the Caribbean’s painfully slow economic recovery could be harmed by surging food prices, the continuing crisis in the Eurozone, and the global economic shock that would follow any serious conflict in the Middle East,. There was also an acceptance that, if the region is ever to prosper, it has to undertake reforms that make it more self-reliant as well as internationally competitive in the goods and services that it sells.
In an interesting statistically supported keynote address, Victor Bulmer Thomas, Emeritus Professor at London University, suggested what was needed urgently was a greater focus on long term strategy and consensus. He pointed out that in Caricom in particular, since 2004, well before the recession hit, the export to GDP ratio had been falling consistently. In other words the region was failing to benefit from its exports and ceasing to be competitive. He suggested that the only viable way forward was though the growth of competitive services led exports and suggested that what was needed was a Caribbean task force to identify which non-traditional service exports stand the best chance of success in the next 10 to 20 years.
Professor Bulmer Thomas also suggested that even then, significant export led growth was only likely to occur if the single market were expanded to cover the whole region and there was the aggressive pursuit of the sales of goods and services in emerging markets.
The conference came up with a number of policy recommendations. It was agreed that
‘decisive reforms’ were needed to boost competitiveness and to encourage private sector investment. It was accepted that there was a need to encourage the lowering of the relative cost between domestic and foreign goods and services if exports were to grow and the external current account deficits were to be reduced. There was recognition too that the reforms needed to achieve this would be challenging in the short term, but offered important long term gains.
Reducing deficits despite the associated pain was what was required. Such policies could be enhanced by lowering current spending to make room for capital expenditure; reducing the level of tax waivers and concessions; and enhancing debt management.
The meeting proposed initiatives to minimise systemic risk arising out of greater financial interconnectedness and the substantial presence of international banks in the region. A collaborative approach was required.
One welcome observation was that central to any reform should be recognition that protecting the poor and vulnerable in Caribbean society was essential to preserve social cohesion.
However, as with almost every significant policy dialogue in the Caribbean the participants seem to have left unspoken the most pressing questions of all: is there the will to deliver; are there the mechanisms to deliver this; and is there the political commitment to see through the tough short term decisions needed for long term gain?
Above all, the meeting, like so many others that take place in the region, failed to address the key question of how to achieve and sustain a national interest approach.
In his opening remarks to the conference, Professor Bulmer Thomas pointed out that it is easy to ignore the long-run, which he described as anything more than five years ahead. “The concerns of politicians and policy-makers are usually much shorter and the immediate priorities always seem more important. Yet the most successful countries in economic terms are almost invariably those that have adopted a long-term strategy on a consensual basis and stuck to it”, he said.
In this context it is useful to ask why other small nations as different as Mauritius, Iceland, and Ireland, despite their internal differences, have been able, when the need arises, to agree that it is in the interest of all that recovery takes place, and have been able to change direction, accept hardship, and deliver a well-executed recovery.
While the Caribbean is of course for the most part at a lower level of development and has much greater social inequity, much of what is being achieved in small nations elsewhere has been delivered through the creation of a national consensus and an acceptance of the need for longer term thinking.
To achieve almost all of what was proposed in Trinidad requires a commonly agreed approach and the adoption of long term policy objectives that government and opposition politicians and social partners are committed to. What unfortunately militates against this across the Caribbean is the tribal nature of politics, animosity between the public and private sector and any sense of a commitment to the national interest that can outlive more than one government.
Without this is seems unlikely that much of what was proposed will ever happen and that year on year many smaller nations in Caricom in particular, will become ever less competitive, more dependent on outside largesse and ultimately unstable.
This is not intended to be negative but to wonder out loud why it has proved to be so difficult to develop effective social partnerships in the region; and why the more likely Government ‘policy’ response to the impending crisis may be to try to sit it out in the hope that eventual global recovery slows for a while, the region’s downward economic slide.
David Jessop is the Director of the Caribbean Council and can be contacted at firstname.lastname@example.org
Previous columns can be found at www.caribbean-council.org
September 14th, 2012