A few days ago the World Bank issued a report containing a dire warning to developing countries. It made clear that they needed to begin to prepare for a significant downturn in the global economy. In unusually direct language it warned that such nations should prepare now for further economic shocks and evaluate their vulnerabilities. It suggested that while prospects in most low- and middle-income countries remained favourable, the effect of the economic crisis in high-income countries was beginning to be felt worldwide. The problems of debt in the Eurozone and weakening growth in a number of large emerging economies, the Bank said, was causing global growth prospects to dim.
According to Andrew Burns, the Manager of Global Macroeconomics at the World Bank, any escalation of the impending crisis would spare no one. Developed and developing-country growth rates could fall by as much or more than during the 2008-09 global economic crisis, he is reported to have said. His comments were echoed by Justin Yifu Lin, the Bank’s Chief Economist, who warned that ‘developing countries needed to evaluate their vulnerabilities and prepare for further shocks, while there is still time’.
In its report, the World Bank lowered its growth forecast for 2012 to 5.4 per cent for developing countries and 1.4 per cent for high-income countries. It also suggested a contraction by -0.3 per cent in the Eurozone and that global growth would be around 2.5 in 2012 and 3.1 per cent in 2013.
The World Bank’s outlook is little different to that of the UN Economic Commission for Latin America and the Caribbean (ECLAC), which suggested late last year that there was a real possibility that a deep crisis in the Eurozone would significantly affect the global economy overall and impact the Latin American and Caribbean region by hitting exports, investments and access to capital.
All of which should set alarm bells ringing loudly across much of the Caribbean given that the region is already home to some of the most heavily indebted nations in the world.
According to the IMF, the Caribbean’s debt to GDP ratio stood at well over one hundred per cent in 2010 for Jamaica, Barbados, Grenada and St Kitts; and at lower, but just as alarming levels, in most other nations where growth has since been either weak or in decline. Only Suriname and Trinidad appear to have avoided this trend.
Unfortunately there seems to be little sign as yet that the region has fully understood the implications or come to terms with the actions necessary to address these issues. While governments such as Jamaica, Antigua and Barbados are looking for new solutions with the IMF to stabilise their economies, there is little overall sense that governments have any clear idea about how they intend to generate future growth or how they will implement the harsh decisions needed to turn their economies around.
Instead the signs are that while governments have recognised that there is a pressing need for austerity, they have so far failed to spell out the nature of the predicament that most Caribbean nations are now in or what this means to their citizens. Put another way, they know they will have to introduce hugely unpopular measures but have no political appetite for cutting public expenditure, enforcing wage restraint, laying off public sector workers, and addressing the very difficult issue of capping or curtailing expenditure on education, health care, pensions or other social provisions.
In this they are in a similar situation to many European nations that are struggling to address mountains of debt while seeking to sustain an expensive social model at a time when lending is drying up.
This is not intended to suggest that role of the state in providing social support is wrong. Rather it is to point to the fact that successive governments in many Caribbean and European nations have allowed debt to spiral to unsustainable levels, and now find that they can no longer rely on growth, investment flows, borrowing or taxing visitors to sustain the model that their voters have grown accustomed to since the 1960s.
This has serious consequences as Jamaica’s Finance Minister Peter Phillips recognised when speaking recently about negotiations just starting with the IMF. Any new programme, he said, “must involve comprehensive tax reforms, reform of the public sector pension system, public sector transformation and a reduction in public sector costs.”
Unfortunately, as a government of any political complexion will discover, achieving credible macroeconomic targets in this way may not be how the public sector, the labour unions and the man or woman on the street will see it.
No one should pretend that there are simple answers to generating growth at a time when the world economy is slowing. But what it seems to require is for those Caribbean nations – there seem no longer to be regional solutions – to dramatically up their individual game, and start to think differently.
Interestingly, Sir Richard Branson, the entrepreneur, was a keynote speaker in the past week at a conference in the British Virgin Islands where he addressed some of these issues from the perspective of a large corporation. At a thought provoking and practical one-day event looking at future directions for the BVI he imagined that he was the non-executive Chairman of BVI PLC and spoke about the approach he would have his ‘company’ take to ensure growth and the development and protection of its assets.
What he suggested was a different way of thinking about the development of a small economy faced with global and national pressures. His remarks were not the stuff of development agency speak, but a robust, honest and practical appraisal of how best to maximise and protect core assets, about global positioning and developing skills that better relate to the nation‘s economic future, and about taking the best advice and then implementing it.
There is of course only so far one can take this analogy. The social commitments of a state go far beyond anything any company would accept, but the issues Sir Richard saw facing his imagined BVI PLC about management, implementation, efficiency, marketing and good governance had resonance with the challenges in this case the new BVI government faces.
This is not to propose that a country be run as if it were a company, but to wonder whether the disciplines, implementing ability and efficiency common to the private sector might as concepts be better harnessed by Caribbean states to create future growth.
Previous columns can be found at www.caribbean-council.org
