Trade-dependent Caribbean nations are facing a fate worse than a fiscal consolidation, says Owen Arthur, economist and a former prime minister of Barbados, who also notes that recent changes in correspondent banking support to the Caribbean region pose a formidable challenge which could be addressed through economic union.

Speaking at the recent correspondent banking forum organised by CaPri in Kingston, Arthur said that Caribbean nations should revisit efforts to integrate the regional economy.

“The creation of a single regional market, involving the removal of barriers to the movement within the region of the flow of goods, services, capital and labour and the creation of new rights for the establishment of enterprise, was intended to be the first phase of the CSME,” Arthur reminded an audience of financial service professionals.

Arthur prefaced his call with the reminder that all Caribbean societies have been significantly and adversely affected by changes in International Trade Law which “have stripped them of the means by which they have traditionally protected domestic enterprises, and have required them to enter new reciprocal trade arrangements.

“Caribbean countries are arguably now in a more vulnerable condition than they have ever have been in their post-independent existence. As a class, they constantly have to make adjustments to accommodate far-reaching changes in the environment within which their development takes place.

“This has placed on them the responsibility of having to manage more complex transitions and transformations than any other group of nations. They have had, and will continue to have, to institute new arrangements by which to order their domestic affairs central to which is the sustained and coherent implementation of fiscal consolidation programmes to restore order to their public finances.”

Arthur stated that, in comparative terms, the challenges surrounding the management of current fiscal consolidation programmes in the Caribbean are modest relative to the difficult new circumstances that have, over the past two decades, affected their ability to successfully carry out cross-border transactions.

“The toll taken on traditional industries in manufacturing and agriculture has been severe. In addition, the ‘sunrise’ industries which have been designated to be engines to generate a substantial part of the growth for the future have themselves had to operate in an atmosphere of uncertainty by having to respond to extra-regional initiatives such as the OECD Harmful Tax Competition Initiative, and more recently the provisions contained in the USA Foreign Account Tax Compliance Act and the OECD Base Erosion and Profit Shifting Project,” Arthur noted.

The economist proposed that the creation of a single regional economy, as set out by the Girvan Plan of 2007, envisioned harmonised and coordinated regional actions … that could significantly “enhance the region’s ability to strengthen the economic and financial infrastructure in which the economy rests”.

He noted that the plan to move to the single economy included provisions for a Regional Financial Services Agreement and a Regional Investment Code, which, if brought into existence, would bring order to the regional financial sector.

Arthur stated, “The issue being grappled with concerning correspondent banking accentuates the need for the Caribbean to have in place mechanisms to allow response in a coherent and sustained manner, rather than a spasmodic way.” The single economy, he said, was a great cause to which the region must return.