The economic crisis in the Caribbean is set to get worse rather than better.

Four years ago in a book entitled, ‘Crumbled Small’, I wrote: “Small states of the Commonwealth Caribbean are in crisis. There is need for urgent action at the domestic, regional and international levels to spare them from sinking into widespread poverty and becoming client-states of larger nations upon whom they could become economically reliant”.{{more}}

Little action was taken to tackle the difficulties that faced Caribbean countries which, even then, were highly-indebted, plagued by the effects of drug trafficking, subject to devastation by increasing and stronger hurricanes, losing their preferential markets for key commodities, and, for the most part, graduated from concessionary financing from international financial institutions. Then, as now, they were also extremely vulnerable to the fortunes of their main trading partners in North America and Europe especially in tourism.

Since 2005, the situation has worsened. The national debt of each country has increased, except in Guyana which enjoyed large write-offs of debt when it was classified as a Highly Indebted Poor Country. In almost all others, except Trinidad and Tobago and Barbados, debt has increased to a point where servicing it has become difficult. Worryingly, a significant portion of governments’ debt is to financial institutions in their own countries. This pattern of borrowing could also now threaten the banking system if governments find it difficult to service the debt on schedule.

The problems surrounding CLICO and British American Insurance, which caused financial interventions by both the governments of Trinidad and Tobago and Barbados, may not yet be over. Almost every country in the Caribbean Community and Common market (CARICOM) has been affected by what appears to be a substantial shortfall between the assets and liabilities of these two companies. CLICO’s regulators say that the Trinidad government will have to spend about US$1 billion over the next 2 years to protect policyholders. Even greater fragilities may yet appear with far-reaching consequences for the smaller countries of the region.

The events surrounding CLICO and British American clearly occurred because of either poor regulation and supervision or inadequate machinery for implementing corrective measures. While it may be closing the stable door after the horse has bolted, CARICOM countries should now strengthen regulation of all financial institutions at both national and pan-CARICOM levels to guard against repetitions.

There is no reason why CARICOM countries should not establish a pan-CARICOM regulator for cross-border transactions. After all, in the wake of a G20 Summit in London in April and after the Organisation for Economic Cooperation and Development (OECD) published a new list of co-operative and non-cooperative jurisdictions for providing tax information on request, every Caribbean country that was on the so-called “grey list” (that is countries that have to do more to be regarded as fully co-operative with the OECD), pledged that they will comply.

Compliance requires them to sign Tax Information Exchange Agreements (TIEA’s) with at least 12 OECD countries, show a readiness to sign more of them, and passing OECD criteria for effectiveness in implementation. Of necessity, this compliance requires heavy expenditure in either negotiating at least 12 agreements or merely signing the OECD model blindly. In any event, new legislation will have to be enacted in each jurisdiction.

And since they chose not to resist the OECD in any way but to comply fully with its requirements, they will have to do so or suffer the consequences. OECD Secretary-General, Angel Gurría, has already said, “The OECD, tasked with a mandate to monitor their performance, will be watching like a hawk”.

So if CARICOM governments are willing to be watched “like a hawk” by the OECD, they should be able to hawkishly watch the cross-border transactions within their own economic space in a collective way.

The problems surrounding CLICO and British American have exacerbated the effects of the current global financial crisis which also had its origin in poor regulation in the United States and Europe. Those effects include a huge downturn in tourist spending in the Caribbean, a major reduction in remittances from the Caribbean Diaspora, a diminution in investment in Caribbean economies and a drying-up of credit from the international commercial market.

This situation is unlikely to change in a hurry. As the Prime Minister of Jamaica, Bruce Golding, pointed out in a parliamentary debate on the Jamaica Budget on May 5th, “We delude ourselves if we think that after the recession has ended the world will return to what it was before. Banks are going to be more cautious in their lending, demanding more collateral and greater ability to repay, investors more contemplative in their investments. It is not going to be business as usual”.

Against this background, CARICOM governments could do well to bolster their economies and their capacity for dealing with the international community by completing the arrangements for implementing the Caribbean Single Market and for bargaining collectively with international financial institutions, countries and regions.

For instance, two of the International and Multilateral financial institutions claim to have funds that could be made available to the private sector in the region for development projects that are also commercially viable. It would be helpful if CARICOM governments could provide a team of experts with the specific task of assisting the private sector to devise viable projects and present them to the financial institutions for funding.

It would be of added benefit if some of these projects could integrate production in more than one CARICOM country to spread the benefits of employment and revenues throughout the region.

At the G20 Summit, it was announced that $1.1 trillion will be provided to the International Monetary Fund (IMF) to help ease the current dire economic circumstances that grip most countries around the world. It is doubtful that half of that sum will actually be delivered. But, even if only half is delivered, CARICOM countries ought to be exploring collectively with the IMF how they might access some of that money for projects that could be distributed throughout its member states without the usual onerous and harsh IMF conditions.

Also, even though the language of the G20 Communiqué was hazy, it did undertake to boost the resources of the Inter-American Development Bank. CARICOM governments should also be investigating collectively how they could secure funds to build sustainable infrastructure and open new areas of production in the context of the Caribbean Single Market.

The crisis that CARICOM countries face requires national action, but it also demands regional cohesion. There is no time to spare.

Sir Ronald Saunders is a business consultant and former Caribbean diplomat.

(responses to: ronaldsanders29@hotmail.com)