David Jessop is the Executive Director of the Caribbean Council for Europe
On December 3 the President of the Caribbean Develop-ment Bank (CDB), Dr Compton Bourne, issued a stark warning. In what is probably the first authoritative Caribbean statement on the implications of the global financial crisis, he made clear that Caribbean governments, households and businesses all needed to develop strategies to address the negative effects of what may well be a deep and long recession.
In carefully worded and technical language he suggested to a conference on the global financial crisis that the Caribbean was far from immune. There was a need, he said, to look beyond the short-term impact on the region. Governments, he said, needed to reduce expenditure in ways that least touched capital investment and social programmes while finding ways, if existing debt permitted, to finance new capital programmes in order to sustain or promote economic growth.
In the case of the private sector he suggested that debt should be reduced to control interest costs. In an implicit warning that some Caribbean companies might fail, he said that a squeeze on profit margins may have to be accepted in an effort to maintain sales at a level sufficient to cover operating costs.
In addition he indirectly addressed the Caribbean public. Using language that in plain English means reduce your household expenditure and debt if you have any uncertainty about your job, he said: “Households also have to engage in precautionary behaviour, adjusting their expenditures to a higher level of income uncertainty and restructuring their asset liability portfolios, particularly through stricter control on consumer debt.”
The CDB President further suggested that the global economic crisis would have a serious negative effect on the performance of tourism and noted that job losses in the Caribbean diaspora will cause a substantial reduction in remittances. He also suggested that a contraction in Caribbean employment and incomes could potentially threaten the viability of some Caribbean banks and financial institutions that provide credits, through a deterioration in their domestic asset portfolios. He also cautioned governments against the attraction of seeking short-term financial accommodation from international financial institutions.
Governments, he warned, would be wise to operate on the assumption that fall-out from the financial meltdown would be substantial. He expected the current economic recession to be deep and the recovery period protracted.
Dr Bourne avoided being prescriptive, but his remedies were very much in line in a Caribbean context with those of leading financial figures in governments across the world suggesting that the region too is facing a severe economic contraction.
As if this were not enough it is also becoming clear that the Caribbean is facing new external challenges that have implications for the region’s ability to regenerate growth through trade in goods and services when the economic upturn eventually occurs.
In recent weeks there has been growing international pressure to curtail the activities of tax havens and moves to progressively tax travel aviation ostensibly for environmental reasons. But also emerging are more immediate threats in the shape of Europe’s apparent willingness to erode the remaining transitional protection the region has before the competitiveness enhancing programmes contained in the Economic Partnership Agreement (EPA) can be fully implemented.
Of these the most immediate and worrying is a new European trade arrangement with Central America. For the last two years Europe has been engaged in negotiating an association agreement with Central America. This process has been slow as there were political and other obstacles that had to be resolved. However, in the last few months the element of the negotiation that involves achieving an agreement similar to the EPA has progressed rapidly. By granting Central American bananas, sugar, ethanol, rum and other tropical products freer access to the EU market, this will result in the significant erosion of the value of the remaining preferences Cariforum nations have in Europe.
The importance of this arrangement is that it will set the scene for similar negotiations with Andean and Mercosur nations as well as bilateral negotiations with Peru and Colombia that are able to out-produce at lower cost almost everything that Cariforum nations can grow or manufacture.
Despite the language contained in the EPA on sensitive Caribbean products and preference erosion, there is no actual requirement that that the EC consult before it enters into any new trade agreement that reduces the value of what the Caribbean has.
Thus in February 2001 the unilaterally announced Everything but Arms Agreement (EBA) undercut the value of the June 2000 Cotonou Convention for the more developed ACP nations of the Caribbean; the EBA and the 2005 reform of Europe’s Common Agricultural Policy on sugar effectively set aside the EU/ACP sugar protocol; and successive European reforms of the EU banana market have terminally damaged many Caribbean producers.
In a not dissimilar way the association agreements now being negotiated with Latin nations threaten to marginalise the EPA and prematurely curtail the value of the Caribbean’s remaining transitional trade arrangements, raising new questions about the seriousness of Europe’s commitment to the region’s development through trade and investment.
As this is happening there are signs that the Doha Round at the World Trade Organisation (WTO) may again move forward in the new year in an attempt to try to breathe life into the world economy.
While it appears that the latest attempt by the organisation’s Director General Pascal Lamy to encourage member states to convene a ministerial meeting before Christmas has not succeeded there is a real possibility of movement early in the New Year the Doha Round at least in respect of agriculture and trade in goods.
What this suggests is that 2010 or 2011 there is the real possibility of a WTO multilateral agreement that progressively erodes tariffs on Caribbean products and begins to open Caribbean markets to all nations.
All of which is not to be alarmist but to suggest the scale of the economic challenge facing the region requires a singular focus on the implementation of strategies for survival before the region is overwhelmed by events beyond its control.
Previous columns can be found at www.caribbean-council.org
