Last week, Prime Minister Kenny Anthony of St Lucia presented his Budget for the year 2013-14, an event that followed a three-week strike by the country’s civil servants in protest against the government’s wage offer for a triennium ending in 2013. The Budget was presented, and the strike was held, against a background of a certain level of dissatisfaction with the government’s original wage offer of 0%-0%-0% for the triennium, a figure which was eventually raised to 4%, and still rejected by the Civil Service Association.
The government’s offer was made against a gloomy picture drawn by the Prime Minister as Minister of Finance, a central element of which was the worsening of the fiscal situation of inadequate revenue in spite of the introduction of a Value Added Tax in 2012, and a deep fear that the country’s debt to GDP ratio was going beyond 70% ‒ unprecedented for the country. That the country’s Civil Service Association, representing those who are required to implement government’s policies, decided that they would accept nothing for the triennium ending, rather than what they considered a meagre final government offer of 4%, suggests a deepening disaffection with the state of things in the country, and with the government which they are required to serve.
In the week preceding St Lucia’s budget presentation, OECS ministers of finance (in effect the heads of government) gathered in Grenada, representing the member states of the Eastern Caribbean Currency Union (ECCU). There, Governor of the Eastern Caribbean Central Bank, Sir Dwight Venner, the monitor of the sub-region’s single currency, the Eastern Caribbean dollar, allegedly painted a picture of relative gloom, both in respect of the state of the international economy itself and in respect of the fiscal situations of the participating countries, as well as the growing debt situation of most of the area’s economies. But this could not have been news to his listeners.
For by the time that St Lucia’s difficulties were made public by Prime Minister Anthony, the country was really the last of the grouping to indicate the possibility of a persistent downward slide of the economy in the face of the recession in the North Atlantic economies (bar Canada) with which they mostly trade and derive foreign exchange. And indeed, it had become well known that most of the other members of the ECCU were in much more desperate straits than St Lucia itself, the host country Grenada having only recently announced its inability to meet payment of its external debts.
The Eastern Caribbean Central Bank, as the main monitor of its member-countries’ economies, has been warning for some time now that the time has come for a review of the policies pursued by member states. The Bank has been arguing that to the extent that the states share a common currency and, in effect, a collective foreign currency pool, it is in their interest to increasingly harmonise the conduct of their economic policies, so as to avoid a spill-over of one, or more, states’ financial difficulties that can affect the integrity of the sub-region’s collective reserves. But as is obvious, difficulties naturally arise as each country has its own electoral cycle that in turn, tends to determine the management of its financial system and its continuing stability.
But the Bank has also been arguing for some time that lack of proper national economic management, or the negative peculiarities of any specific national economy from time to time, cannot be seen as the sole causes of the countries’ difficulties. For, as has indeed come to be now well accepted, these countries, for long dependent on traditional agricultural crops like sugar and bananas, have over the last two decades in particular, entered situations of what is referred to as structural disequilibrium, as their exports of those commodities have come up against the WTO free trade regime, and the loss of the British market as other non-Commonwealth states have accessed the UK. The end of preferential entry into the UK market has robbed them, as other Caribbean economies, of the advantages which they assumed themselves to have arranged virtually in perpetuity, with the signing of the Lomé Convention in 1975.
Some states, Antigua being the first, had long seen the possibility of the demise of sugar, if only as a result of increasing costs of production, and introduced tourism as a means of economic diversification. That initiative proved successful. Then an attempt to enhance this was made by commencing a form of international financial services involvement, first through tax concessions and then, in Antigua’s case, through Internet gambling. The United States, however, has pounced on the latter initiative, by declaring the regime against the WTO rules. And the weight of that country has not allowed Antigua to claim respite from the WTO itself, given the fact that the US has ignored the small country’s judicial victory at that level.
Other states, like St Lucia and St Kitts have also sought diversification through tourism, an initiative that has now become the norm for other countries. The present North Atlantic recession, in particular its deepening in Europe, has, at least for the time being, diminished the upward trends in recent years in the industry, a situation which the OECS countries now fear will be worsened by Britain’s introduction of an Air Passenger Duty on persons flying to Caribbean destinations; and which, it is claimed, has been disadvantageously introduced when compared with the United States as a destination. The British, however, seem unwilling to take cognizance of these objections.
With all these external factors perceived as seriously weighing against possibilities for economic diversification, specific OECS states have tended to look for what might be, at least, temporary alternatives. Most of the states, led initially by St Vincent and Dominica, have, for a few years now, become beneficiaries of Venezuela’s PetroCaribe and Alba initiatives, a vent apparently sustained for the time being by President Maduro’s electoral victory. Prime Minister Anthony, seemingly more tentative about the initiative, has now, in his budget presentation, announced his government’s intention to accede to the initiative. The limitations of what he has insisted is diminishing “fiscal space,” has no doubt moved him in that direction.
Still other countries, like St Kitts and Dominica, have offered inducements like the grant of what is called economic citizenship to willing external investors, particularly in the light of the expansion of the Asian economies. This trend seems likely to continue, the Government of Grenada , in the face of its present severe financial deficiencies, having recently announced a resumption of this practice, following a change of government.
The Eastern Caribbean Central Bank, however, in the statements of Governor Venner, would appear to be insisting that such initiatives cannot be alternatives to economic stabilization and regional cost-effectiveness of both economic production and management of the countries’ public sectors. It sees efficiencies arising from deeper integration, and at its suggestion, has induced governments to accept, at least verbally at this early stage, the necessity for a long-term stabilization plan designed to more permanently adjust these small economies to the new global environment.
Given the history of our wider Caricom integration system, it is left to be seen whether the struggling governments will feel themselves able to persist in a change of direction, and a more coherent economic integration involving sub-regional wide harmonization of economic policies.
