Earlier this month the International Monetary Fund (IMF) published its latest forecast for the world economy. It suggested that global economic recovery had suffered new setbacks, and the prospects for growth were clouded in uncertainty.
The institution’s gloomy assessment was based on evidence that growth levels in the world’s major economies remained too low to significantly reduce unemployment and increase demand; and in major emerging markets, such as China, Brazil and India, the outlook continued to weaken.
This is not good news for the Caribbean as its recovery mainly depends on two primary forces: the global impetus that will come from renewed growth in emerging economies and a return to prosperity in the region’s main tourism feeder markets of Europe and North America.
To make matters worse there are additional worrying signs. It is widely expected that net food importing nations – which includes almost all of the Caribbean – will experience next year significantly higher import bills, following poor harvests in the world’s principal cereal producers. There also remains the possibility of a new oil price shock to the global economy should any serious conflict in the Middle East arise.
If, as the IMF overview suggests, the main drivers of the global economy fail to recover, the Caribbean may face a very difficult 2013. Almost all nations in the region are now trying with IMF guidance to introduce austerity measures that involve cuts in public expenditure and their social provision. They are also seeking to avoid sovereign debt defaults of the kind that are now looming in Belize, Grenada and potentially elsewhere.
Although a recent high level Caribbean exchange with the IMF made clear that the region must become more self-reliant, internationally competitive, and focus much more at a national and regional level on delivering a long term strategy, the present likelihood of this happening seems remote.
Since the 2007 global financial crisis and subsequent recession, all Caribbean Governments have become more inward looking and protectionist. Challenged economically, they have turned away from regional solutions to concentrate on growth and trying to retain the support of their uneasy electorates.
In the past, faced with such a crisis, Governments would have been able to rely on preferential arrangements, development assistance, debt rescheduling, borrowings on soft terms or incentivising new investment. However, such solutions are either no longer on offer or are being weakened to the point of extinction.
In Europe the preferences the Caribbean enjoyed are all but at an end; bilateral development assistance is gradually being removed; traditional donors are having to introduce economic austerity programmes of their own; and there is a growing political backlash against development programmes that provide support overseas when increasing numbers at home are experiencing hardship.
One simple demonstration of how politically difficult it will become for the relatively wealthy Caribbean to gain sympathy in Europe, is to understand what is happening to its charities. More used to operating overseas, they are now having to develop domestic programmes to offset cuts in public expenditure. So, for example in Spain, where one in four people are out of work, the Spanish Red Cross has embarked on raising around US$39m to help feed up to 0.3m Spanish people, and in the United Kingdom, Save the Children is increasing its national programmes to assist the 1.6m children it estimates are living in severe poverty.
In the coming weeks there will be a heated debate about the need for more support from Europe when the EU-Cariforum Council of Ministers meet in Brussels to review progress, or the absence of it, in relation to the Economic Partnership Agreement.
Undoubtedly there will be fine words from Europe about its commitment to the region. However, the reality is that the window for European development assistance for the Caribbean is slowly closing and, security issues and certain nations apart, the region is marginal to Europe’s long-term thinking. Much the same seems to apply to the way in which Washington and Ottawa think. While policy makers want to remain partners with the Caribbean, they now expect the region to address its own problems, integrate and eventually become much closer to Central and South America.
What this suggests is that the region will in future have to turn more to nations that for strategic or single issue reasons regard the Caribbean as important.
Of these, two nations offer the prospect of substantial long-term support: China and Venezuela.
In recent years China has emerged as the region’s most significant long term development, trade and investment partner. Through concessional funding, investment by Chinese companies, the localisation of some of its enterprises and its deepening economic, cultural and political involvement, it seems set to become an important, if not the predominant future external player in the Caribbean Basin; especially if it can demonstrate that it is serious about investing in manufacturing for export, agriculture and the provision of tourism and services.
In a different way, the other nation that has become an essential component of the Caribbean’s future is Venezuela. Its billion dollar concessional oil and development arrangement, PetroCaribe, now underwrites many Caribbean economies. President Chavez’s recent re-election for a further six year term and his naming of Nicolás Maduro as his Vice President, a man committed to regional and international programmes, would seem to guarantee it continuation should speculation about the President’s health be true.
What the IMF’s quarterly report suggests is that the economic challenges will get tougher in 2013. If Caribbean politicians are to retain their credibility, they have to be much clearer about what this means and in the face of diminishing resources, how they intend encouraging national self-reliance and re-positioning.
David Jessop is the Director of the Caribbean Council and can be contacted at david.jessop@caribbean-council.org
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