Regional Integration or Caribbean Catastrophe?

The economy of almost every Caricom country is now in recession.

Caribbean Development Bank President, Compton Bourne, recently observed that: “In seven of the thirteen Caricom countries, negative growth is projected for 2009, and in the other six cases, the growth rate, although positive, is projected to be slower in 2009 than in 2008”.{{more}}

As examples, the IMF expects negative growth rates in the Bahamas (-4.5%), Barbados (-3.5%) and Jamaica (-2.6%).

Even Trinidad and Tobago, with its gas and oil resources that make it a stronger economy than others, is not expected to see more than 1% growth this year.

The IMF has also said that member countries of the Organisation of Eastern Caribbean States (OECS) – will see a contraction of their economies by 21/2 percent in 2009.

There is no question that the financial crisis, which originated last year in the United States of America and the United Kingdom, particularly through poor regulation of the financial services sector, has adversely impacted the Caribbean.

There have been serious declines in revenues from the tourism industry – in some countries the decline has been as much as 30% year on year; remittances from the Caribbean Diaspora have reduced; and many large scale construction projects have halted because of a tightening of credit facilities.

Commodity prices are also dropping on the international market, and the two largest economies, Jamaica and Trinidad and Tobago, are feeling the impact: alumina production has been halted in Jamaica and many downstream activities in Trinidad’s energy sector have been temporarily closed.

Guyana and Suriname have also seen loss of employment and reduction in bauxite production, although the high price of gold on the world market is helpful to their gold mining operations and their economies.

The human face of all this in the Caricom area has been a marked increase in unemployment – particularly for vulnerable groups such as single mothers and unskilled workers- and an increase in poverty levels. But the accustomed quality of life for every income group has declined.

For some people, there is also fear of loss of insurance annuities and long-term savings, and a fear of loss of insurance coverage.

This latter fear has less to do with the global financial crisis than it has to do with the collapse of CL Financial Holdings, headquartered in Trinidad and Tobago, with an outreach across the majority of Caricom member states.

As the IMF has observed in relation to the members of the OECS, “Shocks emanating from the collapse of CL Financial Group have also increased the stress in the non-bank financial sector with knock-on effects to domestic banks”.

If these institutions are unable to meet their insurance coverage of mortgages and other lending by domestic banks, further problems might develop.

It has now been clearly established that the failure to act on the problems surrounding CL Financial Holdings and its related companies, even though they had been recognised by regulators in Trinidad, resided in inadequate enforcement powers.

In some other Caricom countries, regulation was either non-existent or the machinery was so poor it was ineffective.

This underscores the need for CARICOM-wide regulation of both the banking and non-banking sector as cross-border investments and transaction increase in the region.

The harmful effects of the global crisis and CL Financial Holdings served to exacerbate a difficult enough economic situation for most Caricom countries which are highly indebted and whose space for manoeuvrability was already severely constrained.

Ewart Williams, the Governor of the Trinidad and Tobago Central Bank, has pointed out that the debt burden for the entire region is alarmingly high. For instance, the debt burden in relation to GDP of St. Kitts and Nevis is 182%, Jamaica is 122%, Grenada and Guyana are 109 per cent, Barbados is 96%. Only Trinidad and Tobago has an acceptable debt to GDP ratio of 27%.

In today’s environment of extremely tight liquidity and fierce lending conditions, there is a grave threat to fiscal stability in the region as a whole.

Over the years, Caricom governments have been tardy in deepening the economic integration arrangements which could have helped to cushion their countries from the worse effects of the present global financial crisis, and the pan-CARICOM effects of CLICO’s financial problems.

In this regard, the desire expressed by the governments of Trinidad and Tobago and three members of the OECS to move forward the Caribbean integration agenda is nderstandable.

These governments are considering the establishment of an Economic Union by 2011 and a form of political integration by 2013.

Given their stated commitment that nothing emanating from their initiative “shall undermine the Caricom single market or the economic cohesion established by the Revised Treaty of Chaguaramas”, it is to be assumed that their objective is to act as a catalyst for other Caricom countries to accelerate the process of establishing the Single Market and Economy and addressing, in an effective way, the matter of governance of the community.

The global crisis has emphasized the lack of capacity in the member countries of the OECS to go it alone. Even an Economic Union of the OECS countries will not by itself help them to compete in a globalised world in which large regional economic blocs such as the European Union, ASEAN and Mercosur are being strengthened.

The hope must be that Trinidad and Tobago, with its wealth in oil and gas, will help to provide them with more economies of scale, greater efficiencies in operations and a greater ability to interact and negotiate with external groups.

Whether this particular initiative comes to fruition or not, it emphasises the recognition that individual Caricom countries cannot go it alone.

Some may argue that, given the current economic difficulties, now is not the right time to seek deeper integration. But, there could be no better time, for conditions are set to worsen. Far better to help ameliorate them now – and together – than to struggle even more when they reach catastrophe. It is now clear that the recession will linger in the Caribbean even after it ends in the US and Europe.

All CARICOM governments should collectively complete the arrangements for implementing the Caribbean Single Market and for bargaining collectively with international financial institutions, countries and regions as urgently as possible.

The European Union project has demonstrated the benefits to 27 nations – much larger than those in the Caribbean – of pooling their sovereignty in specifically agreed areas such as external trade arrangements, while maintaining individual sovereignty in others.

The Caribbean has the creative capacity to devise machinery that is just as effective. What is required is the political will.

The question is, will the will come before catastrophe?

(This commentary is an abridged version of a paper delivered at a Commonwealth Business Media Workshop in Trinidad on 3rd June, 2009)

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

(responses to: ronaldsanders29@hotmail.com)