CARIBBEAN ECONOMIES WILL CONTINUE TO FEEL PAIN

Washington, October 11 (Jamaica Observer)-The economies of the Caribbean region will endure a prolonged recovery from the global recession as it has been identified as one of the most affected areas of the downturn which began in late 2007.

Some observers believe that the Caribbean is too dependent on tourism and that its economies are too inextricably linked to the United States thus exacerbating the contagion effect.

Speaking with Caribbean Business Report from the IMF headquarters in Washington DC, division chief in the IMF's Research Department Petya Koeva Brooks said: "The Caribbean unfortunately was one of the regions that suffered a lot during the crisis and there are a number of reasons for this. The main one being its close links to advanced economies because of its dependence on tourism. Another reason is that there was just not enough room for fiscal policies to respond and provide stimulus given the high levels of debt.

"We are expecting the recovery in the Caribbean to be sluggish. In Barbados for this year we are still expecting negative growth of minus 0.5 per cent and a gradual pickup in activity to a growth rate of three per cent in 2011.

In Jamaica we are seeing after a very sharp contraction last year, zero growth this year and a gradual pickup of about 1.8 per cent in 2011. For Antigua we see a sharp contraction this year of minus 4.1 per cent but next year bouncing back to 3.1 per cent. In Trinidad, we have modest growth this year of about 1.2 but doubling in 2011 to 2.5 per cent”.

The IMF senior researcher says that the multilateral agency has noted an increase in tourism in the Caribbean, not so much from Europe but more specifically North America and more specifically Canada. She believes that is related to the fairly good employment numbers in Canada. Nevertheless prospects are tightly linked to unemployment developments in the United States and Canada.

"Another interesting discovery we made is that hotel discounting in the Caribbean has given a boost to tourist arrivals. It seems to have worked like magic. The Dominican Republic has seen some of the largest repricing and its growth rate in the region really stands out. This year it will grow by 5.5 per cent and next year its economy is expected to grow by 5.5 per cent again. Remarkable! There seems to be a relationship between the discounting by hotels and a boost to its economy. Given that many Caribbean islands are dependent on tourism there is this link between tourism and economic growth," said Petya Koeva Brooks.

Augusto de la Torre of the World Bank is of the view that many Caribbean economies have failed to find new trading partners during this downturn choosing to stick with the tried and tested US economy which itself is experiencing sluggish growth. This he sees has hurt the region. The question then is the Caribbean too centred on tourism and does it now have to look to a new economic model?.

Petya Koeva Brooks would not be drawn on this issue but did remark that the IMF's upcoming Regional Economic Outlook points a need for greater productivity in the Caribbean and more specifically the tourism sector.

She made the point that the region needs to see a reduction in its unemployment figures in order to spur the required recovery.

"Unfortunately, we have seen still very high unemployment rates in many of the Caribbean economies. Now from one point of view, one can understand that given the impact this crisis has had on the Caribbean's output. The hope is as these economies recover, tourism picks up and activities become more entrenched employment prospects will improve as well. Unemployment is still a weak spot in the Caribbean and going forward we hope things there improve”.

At the beginning of this year the Jamaican government secured a Standby Arrangement with the IMF for the sum of US$2.7 billion. The minister of finance oversaw the implementation of the Jamaica Debt Exchange, efforts to reduce the fiscal deficit and put in place a number of austerity measures. To date there have not been any civil disturbances in the Caribbean to the degree seen in Europe as some of its economies contract and people refuse to swallow the bitter pill”.

"Our general advice to countries is to achieve fiscal sustainability through medium-term frameworks and plans. Unfortunately, the Caribbean had no option but to take fiscal measures now, specifically Jamaica. You have to keep in mind what the alternative would have been. The type of adjustment you would have seen without the IMF programme would have been even harsher. I can imagine that just the reduction in activity is causing a lot of pain to people. In that regard it is important to have social safety nets and support for the people that need it," said Petya Koeva Brooks.

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