CARIBBEAN economies continue to falter, posting marginal gains in 2010. That was the finding of the IMF’s Regional Economic Outlook for the Western Hemisphere which was released earlier this week.

Speaking at the launch of the Regional Economic Outlook, held at the Bank of Jamaica’s downtown headquarters on Wednesday, The IMF’s Senior Advisor for the Western Hemisphere Department, Gilbert Terrier, declared that growth in the Latin American and Caribbean (LAC) region would come in at an impressive 5.7 per cent this year, slowing to 4.5 per cent in 2011. Looking at just the Caribbean, the picture is somewhat bleak with no growth this year but expected to improve by two per cent in 2011.

Terrier attributes the Caribbean’s lacklustre performance to weak import demand from the more advanced economies, slow recovery in remittances and subdued tourism flows.

The Report reads: “After declining by more than three per cent in 2009, real GDP for the Caribbean as a whole is projected to post only marginal gains in 2010. The tourism sector in the Caribbean is expanding very slowly, in line with the tepid recovery in employment conditions in advanced economies. During the first half of 2010, tourist arrivals in the Caribbean increased by an average of 3.5 per cent compared with the same period last year. This was led by increased arrivals from the United States and Canada, against continued declines from Europe.

“The recovery of tourism, however, has been uneven. Smaller islands in the region have experienced a sharper and more prolonged decline in tourist arrivals than some of the larger islands. A closer look at the data suggests that destinations that significantly reduced hotel prices following the crisis experienced milder declines in arrivals. Though many factors are likely at play, downward price rigidities could help explain these intraregional differences.

“For example, hotels in the Dominican Republic and Jamaica lowered prices more than other countries and did not experience a decline in the number of tourist arrivals. In contrast, hotels in the Bahamas and Barbados were more reluctant to reduce prices and their tourist arrivals fell.”

Terrier went on to say that over the last 40 years, the Caribbean has grown by only 2.2 per cent while Latin America grew by 3.4 per cent. The Caribbean’s GDP per capita relative to that of Latin America’s has also declined. Taking a look at the Caribbean’s productivity compared to other regions in the world the picture is equally not a good one. Of the 30 most indebted countries in the world, Caribbean countries make up 15 of them.

The Report notes: “Boosting competitiveness and growth over the medium term remains a key policy challenge. For the whole region, improving productivity will require sustained structural reforms, including enhancing the role of the tourism sector. Labour markets will need to be more flexible to allow the region to better react to external shocks.”

Because of the Caribbean’s over-reliance on the US economy, it is highly exposed to its employment conditions which have a huge impact on the region. Already the United States is reporting unemployment figures of 14 per cent and the UK has announced that it will be axing half-a-million public sector jobs. This no doubt will have a negative impact on economies that rely upon remittances, not to mention reduce tourist arrivals.

“With no space to adopt countercyclical policies, the region would have to adjust to a more negative scenario by focusing any expenditure on protecting the poorest households,” surmised the Report.

For almost half-a-century, the Caribbean has refused to diversify its economies and look to infrastructural projects and internal demand. Instead it has chosen to rely primarily on the vagaries of tourism and remittances which are inextricably linked to advanced economies now going into decline. There are some notable cases that go against the grain. Deputy Governor of the Central Bank of Trinidad & Tobago Dr Shelton Nicholls noted that one size does not fit all. He pointed out that in the 1960s Trinidad grew by three per cent and in the 1990s by seven to nine per cent. An oil and gas province, it has used revenues from energy commodities to diversify and put in place impressive social and infrastructural programmes.

“It is important to have a mixed economy with export activity being the key because there is very little internal generation because of the size of most of the islands. It is also vital to strengthen fiscal frameworks. There is now a shift in global demand and the Caribbean must begin to look to Latin America, China and India as it seeks new trading arrangements,” said Dr Nicholls.

Head of the Department of Economics at UWI-Mona, Dr Damien King, said the findings on the region highlight a number of dark and disturbing truths.

“What Mr Terrier has convinced us is that while over the last 30 years, Latin America has not done too badly (growth of approximately five per cent over the last five years) the Caribbean in every respect has shown itself to be deficient. It suffered a greater contraction in the global financial crisis and it has been growing more slowly than other regions. So what is the Caribbean’s problem and what can we do better?

The growth problem is not endemic to the region but, rather, it is institutional. When you look at the structural characteristics of the Caribbean islands you see a number of advantages that should propel it to a better growth performance. The English-speaking Caribbean is, by definition, English speaking. It speaks the language of international commerce. It inherited British colonial institutions that should also give it an advantage in promoting economic growth. The islands are small, which should also give it a macroeonomic advantage (one can get to any major urban centre within an hour). Then there is the fact that the region is geographically close to the largest and richest market in the world.

By and large these factors should have given it a better economic performance. The Achilles heel of many Caribbean countries is institutional weakness at the centre, political and state weaknesses. The evidence of that is widespread. Look at the state of the region’s infrastructure, the weaknesses are obvious, particularly in Suriname, Guyana and Jamaica. Another example of institutional weaknesses at the centre is the inability for many Caribbean governments — and Jamaica is the most egregious violator in this regard — is to exercise full control over its territory. There are parts of the country where the state dare not enter (such as Tivoli Gardens).”

Dr King also pointed to the Caribbean’s failure with the regional project that is CARICOM and the CSME.

“That is not a failure of vision; the vision was present from 1965. That vision was that there should be a free space for the movement of capital, labour, services and that there should be a harmonisation of laws and regulations. The truth is we have none of that,” said Dr King.