Recognition of the crisis is not enough

Sunday, November 25, 2012

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Dr Kenny Anthony, prime minister of St Lucia and the current chairman of Caricom, recently discovered something the Caribbean people have known for many years.

"Our region is in the throes of the greatest crisis since Independence," he said. "The spectre of evolving into failed societies is no longer a subject of imagination. How our societies crawl out of this vicious vortex of persistent low growth, crippling debt, huge fiscal deficits, and high unemployment is the single most important question facing us at this time".

The crisis of the Caribbean has its roots in the lack of vision of our political leaders. The global economic crisis has compounded the situation, but it is not the cause of the dire circumstances in the region. Other small developing countries are achieving sustained economic growth. This is evident in a comparison of Singapore and Jamaica since the 1960s. Similarly revealing is a comparison of economic performance of Mauritius and St Kitts or Belize since the start of the global financial crisis in 2008.

The "low growth and high unemployment" that PM Anthony bemoans are directly related to the "crippling debt and huge fiscal deficits" to which he makes reference. Debt and budget deficits do not automatically occur because of adverse external circumstances, they are a direct result of bad policy decisions. Debt and deficits are not symptoms of crisis, they are self-inflicted wounds that contribute to the crisis. The Caribbean is not alone in this regard, as the same applies to Greece and the "fiscal cliff" in the United States.

Recognition of the crisis by our leaders and assorted academics is the prerequisite to finding solutions. What we need to hear from the leadership of the region is the specifics of a strategy to overcome the crisis and set the region on a path of sustainable economic development.

The first essential step in formulating a survival and transformation strategy is an objective analysis of the causes of the crisis and an identification of what can be done about the policies over which the governments have control. In small open economies, such as those in the Caribbean, governments have control of fiscal policy. They must use that control to ameliorate the impact of external events and stimulate economic growth from both national and foreign investment.

This responsible course of action was not followed, and therefore Caribbean countries are looking to external sources for help. Even countries like The Bahamas and Trinidad and Tobago are competing with Haiti and Guyana to borrow from multilateral financial institutions and China.

The more desperate countries have partially defaulted on their debt payment or have restructured their debt. Some are on a financial drip from the IMF or will have formal agreements with the IMF in the first half of next year. Several are planning on aid from Venezuela and China and calling on the international community to help.

If Caribbean governments are going to be successful in mobilising external financial assistance they have to show the multilateral financial institutions and donor countries that they are serious about economic management.

Once they have demonstrated their commitment to better fiscal management, the external sources of finance will be assured that assistance is not going to be regularly repeated exercise.




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