Handbook of Caribbean Economies

Robert Looney, Robert Looney, Robert E. Looney, Robert E. Looney

• Publisher: Routledge
• Year: 2020
• Print ISBN: 9780367210489
• eBook ISBN: 9780429560125
• Edition: 1
• Topic: Economics
• Subtopic: Economic Conditions
• Index: Economics

This volume aims to illustrate the uniqueness of the economies of the countries and territories of the Caribbean as well as the similarities they share with other regions. While most countries in the region share many of the characteristics of middle-income countries, theirs is a matter of extremes. Their generally small size suggests a fragility not found elsewhere. While much of the world is beginning to feel some effects of climate change, the Caribbean is ground zero. These factors suggest a difficult road ahead, but the chapters presented in this volume aim to help to spur the search for creative solutions to the region's problems.

The chapters, written by expert contributors, examine the Caribbean economies from several perspectives. Many break new ground in questioning past policy mindsets, while developing new approaches to many of the traditional constraints limiting growth in the region.

The volume is organized in four sections. Part I examines commonalities, including issues surrounding small economies, tourism, climate change and energy security. Part II looks at obstacles to sustained progress, for example debt, natural disasters and crime. In Part III chapters consider the specific role of external influences, including the USA and the European Union, the People's Republic of China, as well as regional co-operation. The volume concludes in Part IV with country case studies intended to provide a sense of the diversity that runs through the region.

1

Introduction

Robert E. Looney

The chapters in this volume examine the Caribbean economies from several perspectives. Many break new ground in questioning past policy mindsets while developing new approaches to many of the traditional constraints limiting growth in the region. With new challenges identified, several chapters put forward approaches that may prove to be fruitful in achieving better economic performance. One overriding issue concerns the viability of these economies. Growth in the region has been on a downward trend since the 1980s when gross domestic product (GDP) expanded at an average annual rate of 3.2%. Unfortunately, growth declined to 3.1% in the 1990s, to 2.7% in the 2000s, and finally to 1.7% from 2010–19. Prior to the global financial crisis (1980–2007), growth averaged 3.2%, subsequently falling off to 1.3% (2008–2019).

The chapters in this volume address the region’s declining pattern of growth both directly and indirectly with the first set of chapters (Chapters 2, 6) examining several commonalities found throughout the region. The next set (Chapters 7, 11) examines the obstacles to sustained progress, while a third set (Chapters 12, 15) consider the specific role of external influences. Next, a series of individual country studies (Chapters 16, 29) provide a sense of the diversity that runs through the region. Finally, Chapter 30 provides a a brief overview of the new challenges presented by the Covid-19 pandemic.

In Chapter 2, DeLisle Worrell argues that policymaking may be at the heart of the region’s poor economic performance. He recommends an alternative to the standard approach to economic stabilization and growth policy for small open economies. The conventional view, shared by the International Monetary Fund (IMF), other international institutions, and many orthodox economists, is that a combination of credible inflation-targeting regimes, flexible exchange rates and fiscal sustainability are the core elements of a successful, sustainable policy approach. It is also often contended that this approach is appropriate for all countries, regardless of size. As an alternative, DeLisle Worrell proposes a policy package consisting of fiscal management to maintain and improve the international competitiveness of the economy. His approach stresses the need to maximize the inflow of private foreign capital through attractive rates of return, as well as to stabilize inflation expectations by anchoring the exchange rate to an international reserve currency.

A growing threat to sustained growth in the region is climate change. As Masaō Ashtine points out in Chapter 3, weaving through the compounded and often daunting complexities of climate change quickly leaves many policymakers and development strategists feeling defeated. One aspect of the current weather extremes and shifting climatologies that is clear, however, is the existence of specific vulnerabilities faced by small island developing states (SIDS). The United Nations (UN) lists 16 Caribbean member countries out of the 38 defined as SIDS.

Beginning with the awakening of climate research in the region, Masaō Ashtine traces the historical impacts of changing weather patterns in the region, culminating in today’s worsening prospects. Fortunately, many governments and international financiers are attempting to increase climate resilience through economic reform and energy transformations. In this setting, several questions arise: Who pays? Will tourism survive the coming storms? Can an energy revolution secure the region’s future on the world stage? Masaō Ashtine sheds light on these highly pertinent questions while also calling upon leading research to give an equal sense of hope and warning.

Like climate change, energy insecurity is another common feature of most of the region’s economies. In Chapter 4, David Goldwyn and Cory Gill describe the unique characteristics and challenges of energy security in the Caribbean; the recent progress in the development of national and regional ambitions, organizations and strategies; the opportunities the region has for decarbonization through the use of natural gas and renewable energy; and the significant successes achieved in recent years. They conclude with the lessons learned from these experiences and offer suggestions for extending this positive trend.

The growth of the tourist industry in the Caribbean is a rich and varied success story. As DeLisle Worrell observes in Chapter 5, for the most part tourism has been a story of private enterprise, with the providers of tourism services pricing their services in line with the quality of service on offer, and, for a majority of countries, adjusting prices in a successful strategy of protecting or increasing their market share. The best performing countries recorded high average daily expenditure per visitor, full capacity, a growing inventory of accommodation, and strong increase in the number of arrivals. Among the other countries, there is every combination of high/low average daily expenditure, good and bad value propositions, diversification of source markets, full to low capacity utilization, and large, modest, little or no increase in accommodation. The results ranged from modest to exceptional growth in visitor arrivals, sustaining the Caribbean’s share of world tourism above 2% of the global total.

Given the generally small size of the countries in the region, some sort of regional integration is likely to convey many economic benefits. In Chapter 6, Patsy Lewis examines the role that the Caribbean Community (CARICOM) plays in this regard. CARICOM is a 15-member grouping of 16 million people. She concludes that its members would be much worse off if it did not exist. These benefits occur through shoring up member sovereignty by giving voice to issues that affect them and, more generally, in increasing their visibility in the region and international community. Unfortunately, many of the challenges that confront CARICOM in helping to transform regional economies are structural and beyond its control.

The next set of chapters examine the role played by specific elements in constraining growth in many of the region’s economies. In Chapter 7, Lester Henry examines the critical issue of debt and fiscal constraints in the CARICOM region. First, the history and evolution of the debt problem in the region from the 1980s to the present day is traced. The nature and structural characteristics of the debt is then explored. In some cases, sizeable external debt has been accompanied by large internal debt, and in others both are at critical levels. After examining the macroeconomic significance and consequences of the debt, the question is asked as to what is the opportunity cost of carrying such high levels of per capita debt? The potential for debt reduction and increased fiscal sustainability is then examined. The final section provides a summary with some policy recommendations on the way forward.

Crime, violence, and drugs represent not only a social problem, but also one that undermines economic growth throughout the region. As Sherill Morris-Francis notes in Chapter 8, escalating crime trends in the region, especially since the late 1980s, are of grave concern, with some countries boasting the highest crime rates in the world. The situation has imposed high costs on the region, including high levels of insecurity and distrust, presenting challenges to democracy and development. She then reviews the crime and violence situation in the Caribbean by first examining the history of colonialism and reviewing some theoretical explanations of crime applicable to the Caribbean. She continues with an overview of crime patterns and trends, looking specifically at homicides, drug and gang activities, and shows that the increased use of firearms has led to higher levels of crime and violence. The consequences and costs are then discussed, and it is shown that in the Caribbean, crime, particularly violent crime, has devastating effects and presents negative costs to society.

White-collar crime presents a contrasting difficulty. In Chapter 9, Kristina Hinds notes that the region has become a haven for illicit activities. The chapter’s principal argument is that external imperatives that seek to address the deluge of illegal acts of importance to ‘developed’ countries within Caribbean jurisdictions inform the ways in which such criminal activities are addressed in the region. Caribbean jurisdictions appear to prioritize efforts to address external concerns such as those relating to money laundering, in efforts to rescind the portrayal of the region as a zone of illegality, and the consequences that flow from this. Meanwhile, action against violent criminal activities tend to be more focused on the treatment of crime directly affecting the inhabitants of the region, but leaving high-level white-collar criminal activities that may implicate local business and political elites to be handled with a relatively light touch.

Natural disasters, mainly weather-related, represent a looming threat to prosperity in the Caribbean. Unfortunately, the ability to respond to this menace is declining. Domestic resources are often severely limited due to prolonged periods of fiscal deficits and accumulated external debt burdens. International aid, while useful, often arrives after a considerable delay and is mainly focused on short-term issues such as humanitarian needs and repair rather than on longer-term investments that increase resiliency to subsequent disasters.

As Robert Looney suggests in Chapter 10, a vicious circle is developing in the Caribbean, whereby inadequate funds for reconstruction lessen resiliency to climate change. The result is incomplete recoveries, which in turn perpetuate and, in some cases, expand large pockets of poverty and thus increased numbers of citizens who are highly vulnerable to the next round of natural disasters. If the circle continues, look for an accelerated depopulation of the region with mounting numbers of climate refugees.

He concludes that a reorientation of development strategies will be required if the region is to remain viable. The focus of these programmes should shift towards the construction of sturdier buildings, poverty reduction, targeted educational programmes, and diversification away from an over-reliance on climate-sensitive tourism. Caribbean countries, to remain viable, must look beyond short-term disaster responses and commit themselves to a focus on building self-protective resilience throughout the region.

More often than not, exchange rate policies throughout the region have impeded rather than facilitated economic growth. In open economies, the impact of depreciating exchange rates on the purchasing power of incomes is considerable and erodes the savings habit. Exchange rate volatility also discourages investment and may cause financial instability. To overcome these effects, in Chapter 11 DeLisle Worrell proposes an approach to macroeconomic policy that equips the authorities in small open financially integrated economies to target the exchange rate by influencing the volumes of trade in goods and services to attain equilibrium at the target rate. The use of fiscal policy achieves this result. Specifically, the authorities adjust the size of the fiscal deficit and how it is financed to contain the level of aggregate expenditure and the demand for imports that flows from that expenditure. In the longer term, productivity-enhancing measures secure growth in the supply of foreign exchange. The exchange rate anchor keeps domestic inflation in line with world price changes. Moreover, the anchor is a powerful indicator of economic policy success and a persuasive reason to adopt necessary adjustment. One message comes through clearly – a country that can set an exchange rate target and achieve it consistently over time gains credibility.

Owing to the small size of Caribbean economies, elements that are external to the region continue to play a significant role, both positively and negatively, in affecting growth and development. Historically, Venezuela, through providing monetary assistance and discounted oil, helped to relieve the financial constraint facing many of the region’s energy-poor countries. However, following Venezuela’s economic collapse, this safety net is no longer present. As Anthony Maingot notes in Chapter 12, the situation in Venezuela is not likely to change anytime soon as it stems from that country’s political culture of caudillismo and the tendency towards perpetuation in office (continuismo). Following the virtual collapse of the economy under Nicolas Maduro, maintaining the loyalty of the military loyal has meant making use of every source of funding, legal and illegal. Any return to pluralist democratic politics will have to deal with a military and paramilitary accustomed to illegal prebends.

In Chapter 13, Ginelle Greene Dewasmes and Tony Heron explore the changing external economic relations of the Caribbean with its two biggest trading partners, the USA and the European Union (EU). They find that in its immediate post-colonial period, the Caribbean received considerable benefits from key US and EU trade policy instruments such as the Caribbean Basin Economic Recovery Act and the Lomé Agreement, respectively. However, amid a changing global landscape, over time the US- and EU-Caribbean relationship has increasingly been portrayed as one of diminished privilege and a steady erosion of preferential treatment. The post-Cold War and World Trade Organization era have ushered in trade policy shifts such as the EU’s Economic Partnership Agreements and former US President Clinton’s attempted ‘Free Trade Area of the Americas’. They conclude that in the present epoch, external developments such as the election of Donald Trump to the presidency of the USA and Brexit have once more elicited a significant shift in the nature of US- and EU-Caribbean relations. Although the precise implications of these changes are not yet clear, current US- and EU-Caribbean relations certainly reflect terms that are increasingly shaped by national rather than regional or global interests.

In Chapter 14, Richard Bernal shows that the influence of the People’s Republic of China on the Caribbean is proliferating with many countries in the region shifting their diplomatic ties from Taiwan to the PRC. As a result, the region is trading more with China. It also receives increased aid and investment from that country. While the USA has cautioned against increasing dependence on China, the Trump Administration has yet to develop an effective strategy to combat China’s growing soft power or to address the many challenges currently facing the region.

While CARICOM has been an important element in many of the Caribbean countries’ economies, other regional integration schemes may begin to play a significant role in this regard. In Chapter 15, Cintia Quiliconi and Renato Rivera Rhon discuss the theoretical approaches towards Latin American regionalism that have emerged in the past few decades. In particular, they focus on the Union of South American Nations (UNASUR) and the Latin American and the Caribbean Community (CELAC). First, they assess regional cooperation in CELAC and its current stalemate. Their examination of UNASUR highlights the importance of ideological divergence and lack of regional leadership to explain the current crisis facing the organization. They conclude that regional cooperation in Latin America depends on ideological convergence and regional leadership to succeed.

The final set of chapters examine the economic situation at the country level. While most of these countries share many of the elements noted in previous chapters, each has a unique history and set of structural factors that set it apart. In Chapter 16, Brad Setser and Sergio Marxuach show how the Puerto Rican economy had been declining for many years before Hurricane Maria devastated large parts of the Commonwealth. Owing to this decline, the island’s relationship with the USA was increasingly questioned by many observers in Puerto Rico. The chapter shows how Puerto Rico’s current economic relationship with the USA is not working. It concludes by arguing that restarting Puerto Rico’s economy and putting it on a renewed trajectory of convergence will take more than the completion of the current debt restructuring process and the disbursement of already appropriated federal aid. It will require a fundamental rethinking of how Puerto Rico’s economy fits into the broader US economy.

In Chapter 17, Wenche Iren Hauge draws the line from current demonstrations and food riots in Haiti, back to the 1980s, when economic reforms and structural adjustment created a basis for chronic food insecurity in the country. She shows that after these reforms, Haiti became permanently dependent on imported food, particularly on the import of staples like rice, mainly from the USA. Economic mobility is almost impossible for the average Haitian, as a small economic elite controls large segments of the economy. Of critical importance are the links between this Haitian elite and US actors, and the economic support that this elite has received, particularly from the International Republican Institute. She also traces the disastrous effects of a series of natural disasters that have hit the country in recent years. In this regard, international aid to Haiti after the devastating earthquake in 2010, and after the many hurricanes, particularly Hurricane Matthew in 2016, was mainly channelled through the UN and international organizations. Unfortunately, very little flowed into agricultural investment or state welfare services. As a result, Haiti remains trapped in a vicious circle of inequality and food insecurity.

The Cuban economy has stagnated for years, with its relative international isolation since 1959 imposing high costs. The current situation is not sustainable, and sooner or later, the country must be reintegrated into the global economy. However, as Richard Feinberg notes in Chapter 18, before the country can indeed prosper in this new environment, several constraints must be lifted. First, the US market must be open to the Cuban one, and second, an actual market system must emerge that encourages and rewards private sector activity and innovation.

Trinidad and Tobago remains among the most prosperous of the Caribbean islands. Its abundant endowment of oil and natural gas has provided its citizens with a relatively high standard of living. As Lester Henry notes in Chapter 19, from the first year of independence to the present day, successive governments have recognized the need for diversification of the economy. Several initiatives have been ...

Table of contents

• Cover
• Endorsement
• Half Title
• Title
• Copyright
• Dedication
• Contents
• List of figures
• List of tables
• List of boxes
• List of contributors
• Preface
• Foreword by Sir Ronald Sanders
• 1 Introduction
• PART I Commonalities
• PART II Obstacles to sustained progress
• PART III External influences
• PART IV Country case studies
• Index