In the present crisis national social partnerships have value
A few days ago something quite extraordinary happened.
The German government, as they have many times before, went to the financial markets. Their intention was to raise money to cover some of their future funding requirements through a ten year US$6 billion sovereign bond issue. To their concern they failed to raise the full sum, and in so doing suggested to an ever more nervous world that even strong and mature economies are now struggling to attract buyers for their bonds.
If this is so, trouble lies ahead for all governments in 2009 if as estimates suggest global demand for sovereign borrowings of this kind rises to US$3,000 billion – three times more than in 2008.
Put another way, if nations like Germany and it is said others in Europe like the Netherlands, Spain and Belgium are experiencing similar difficulties, much smaller nations in the Caribbean are likely to find that credit markets are closed.
In this respect documents produced by the credit ratings agencies confirm the likely difficulties that Caribbean nations and companies will face in seeking new money from the markets. Experts at Standard and Poors for instance recently expressed the view that the outlook was weak for a wide range of emerging markets including the Dominican Republic and noted the agency’s decision to downgrade its sovereign ratings to negative for the Bahamas, El Salvador, Jamaica and Venezuela.
In the Caribbean this problem may rapidly become the most challenging of all as nations from Barbados to Belize fail to renew maturing financing arrangements against a background of slowing economic growth, growing unemployment and diminishing tax revenues.
How small nations extricate themselves from this situation seems to point to the door of the World Bank and the multilateral financial institutions
In the real world this is likely to lead to some very difficult national economic choices for Caribbean governments, the need for much greater responsibility on the part of opposition parties and in all probability a growing emphasis on finding medium-term solutions that are national rather than regional.
Trinidad and Venezuela, the two nations that have been able to use their oil and gas wealth to foster a deepening of the regional process are both indicating significant changes in their economic approach as the collapse in global energy prices impacts negatively on their domestic budgets and their hitherto regional largesse.
Venezuela is not ruling out a devaluation, is reportedly starting to slow the delivery of oil, delay the implementation of some of its hemispheric projects and reassess its regional commitments while maintaining the PetroCaribe arrangement. And for its part Trinidad has announced that it may cut, or even halt, its US$78M annual contribution to the Caricom Development Fund due to the global financial crisis.
While Barbados and some OECS states may see the global crisis as heightening the need for closer regional integration with Trinidad, the absence of any full regional summit meeting to try to determine policy responses to the global recession of the kind held recently by Central American states seems more to suggest that in the Caribbean an ‘every nation for itself’ policy now applies.
Notably in this context Jamaica’s Prime Minister is one of the few regional heads to have recognised the importance of rapidly taking a position of national leadership. In mid-December he announced a range of measures aimed at ensuring the stability of the island’s financial system. But more importantly he began to try to identify longer term solutions.
He made clear that having dealt with the potential crisis facing the financial sector it was essential to try to find ways to address the fears of workers about employment and find new ways to stimulate the growth of small businesses and investment in order to create new opportunity.
“We don’t have,” he said, “the luxury that wealthy countries have to pump huge sums of money to stimulate the economy… We didn’t inherit any surpluses to allow us to make money run. We have been running fiscal deficits for many years. We are burdened with huge debts − one trillion dollars worth. But we must do what we can. We must provide leadership and it is our job to navigate our way through this storm.”
Mr Golding’s solution is to try to address the longer term implications of the economic crisis and recovery through the creation of a strong social consensus among the principal stakeholders in the economy: the government, the private sector, the trades unions and the opposition. He suggests that by constructing a social partnership involving all actors it might be possible through a national coalition to put Jamaica on the right path back to prosperity.
Looked at historically social partnerships have emerged as a means for countries to cope with harsh economic circumstances. Their success has depended on a number of factors. Firstly they need to be sustainable, for instance involving, as in Ireland, a stand-alone continuity body accepted by government and opposition, able to foster small incremental steps forward. Another common theme has been government’s acknowledgement that it can no longer act alone but must secure the support of workers and employers and be willing to its share authority. And of great importance has been finding home-grown solutions rather than imposed or copied models and the full involvement of key partners guided by clear, realistic goals.
In the coming weeks the Caribbean Policy Research Institute will elaborate on these and many other specific points when it publishes a discussion document on a establishing a social partnership in Jamaica.
The worsening economic crisis suggests that where relevant or possible the idea of Caribbean national social partnerships potentially has value and that the ideas behind the approach now being encouraged by Jamaica’s Prime Minister may be worth exploring elsewhere in the region.
Previous columns can be found at www.caribbean-council.org