As the financial crisis has continued to grip the world economy in these last few months, the major powers have been meeting in various combinations – in the euro group, the wider EU group, the EU and the US, the Asians and the ASEAN group including China, and the NAFTA powers.
And as the crisis has touched the so-called emerging economies, with commodity prices being negatively affected, governments in Latin America have begun consultation, and have taken precautionary action, fearful that the experience of the recession of the 1980s that led to the ‘lost decade’ as far as their economic growth was concerned, could repeat itself. A persistent decline in commodity prices and commodity demand, both agricultural and mineral, could stymie the steady growth which their economies have experienced over more than a decade now. In turn it would stymie their determined attempts towards industrial and services diversification which countries like Brazil have made over the period.
Other emerging economies seem to be taking a measured response, involving limited precautionary measures. Indicating the changing balance of global economic relations, the London Economist has recently reminded us that “China has become the main engine of the world economy, accounting for one-third of global GDP growth in the first half of this year”; that China’s growth next year will come not so much from international trade but “entirely from domestic demand, as its trade surplus sinks,” and that the country “boasts the healthiest fiscal position of any big economy.” Yet, of course, China is obviously conscious of the extent to which her participation is actively needed by the Western powers in the resolution of the current crisis – particularly its monetary aspect.
Oddly enough, however, from a governmental perspective, a certain serenity seems to be reigning in the Caricom zone. No doubt governments have been studying the potential effects of the crisis on their own countries’ economies, not least the Government of Trinidad & Tobago economy whose foreign exchange reserves have benefited enormously from the rise in energy prices in the last few years. That country has pitched its budgetary projections on the basis of expenditure at an oil price of US$70, but in short measure has seen that level reached, and further descending into the 60s. On the other hand, it is well to note that in response to public concern that there should be a reduction in government spending, particularly on large construction projects, the Minister of Energy has reminded the population that the Trinidad and Tobago is, in this period, more a natural gas than a petroleum-based economy.
Governments in other parts of the region have been relieved to have been told by their central banks that with limited exceptions, the major proportions of their foreign exchange reserves have not been lodged in American and other banks substantially affected by the crisis. And they no doubt take comfort at the rapid fall in the price of oil, given the damaging consequences that the dramatic increases of the recent past have had for their own expenditures. The Government of Barbados has been quick to reduce the price at the pump as the global price has gone down. Other countries seem to have been happy to retain the high prices recently decreed, so that they can benefit for a while from a little windfall at the expense of the consumer. Their formal rationale is, of course, that it is more prudent to wait and see where oil prices are actually going to settle.
The tourism industry has sought to alert governments to the detrimental effect of the financial crisis on tourism arrivals – signalling in particular the narrow span of locations from which we in the Caribbean attract the bulk of our tourists – particularly the US and Britain. But governments would seem to take the view that there is little that can be done in the short run. The same would seem to apply to the important inflows from migrant remittances, where governments seem too constrained to wait-out the recession, as their nationals in foreign parts concentrate on holding the fort in their new homes.
Given this background of a general wait-and-see posture on the part of our governments, they appear, from a regional perspective, to be relatively quiescent in response to the crisis. It may be, of course, that caught by surprise like countries in other regions of the world, and conscious of their high dependence on external events, their immediate reaction is to hunker down to deal with the policy areas which they can directly influence. It may be too, that their seeming inability to take a regional, rather than a short-term, country perspective on the potential effects of the crisis is a function of the less than cooperative relationships among themselves which have resulted from their approach to the signing of the Economic Partnership Agreement with the European Union. And perhaps too, this has led to a certain sense of fatigue or listlessness about the benefits from adopting a regional approach at this time.
We hope that this is not so. No doubt, Caricom’s COTED will meet and deliberate on the crisis, as well as our finance ministers in due course. But is it likely that either of these will directly examine the implications of this crisis, and proceed to seek to map out a regional approach to meeting its medium-term challenges to us?
We note that both the IMF and the World Bank have been sprung into action in response to the crisis. Many of those who have thought in recent times that these institutions were losing their usefulness, and therefore their validity, in an era of alleged market self-regulation, have now hastily resurrected them, and directed their efforts predominantly at the Western countries in difficulty – from Iceland to Hungary to the Czech Republic. In that context it is incumbent on smaller countries like our own to begin to seek out appropriate alliances with other developing countries to ensure that we can obtain equal attention from the managers of these major institutions. For neither the limited funding available from the European Union to us in the immediate future, nor the Regional Development Fund mandated as part of the CSME arrangements, will suffice to do the two things that are necessary in the medium term: assist in stabilizing our economies in this period of financial and potentially real economic crisis, and assist us in the adjustment of our economies to changing global trade and production conditions implied in the mandate of the WTO.
Perhaps the time has come for our governments to mandate our Caribbean Development Bank to initiate work on the real and substantial requirements of establishing a Single Market and Economy, as envisioned in the report prepared by Professor Norman Girvan and others prior to the decision to proceed to the CSME. This must require indicating the possibilities for a resumption, or enhancement of regional production, so that more substantial intra-regional trading in goods and services can take place down the road. And secondly, in consequence of this, to establish the types of relationships with the international financial institutions, and alliances with countries – in particular selected emerging economies – which can assist us both in our regional economic reconfiguration and in stable adjustment to the new global economy.
We hope that the forthcoming consultation on the CSME, which the Government of Barbados has promised to summon, will move in this direction.
