Could this be a tough new year for the Caribbean? Maybe. What with slowdown in the United States coupled with cut-price resorts in Mexico. The region’s tourism planners already had their worries, even before 11 September. Bananas, sugar, Guyanese bauxite . . . not a pretty picture, either. And for some islands, debt service may gobble up to a third of government revenue.
Further ahead, things look better. Smart new tourism resorts on some islands should reach completion just in time for a US recovery. New telecoms-based industries, niche markets in agriculture, well-run financial services. The prospects are there.
Which isn’t necessarily much help when governments have to balance their books this month. Unfortunately, there’s every chance that one or two regional governments will be forced to seek external finance to get through the year, with tough conditions attached. Others are well prepared, but will nonetheless need to manage carefully to survive a tough period.
Financial management is a challenge for small economies — specialised, vulnerable to outside shocks and with a small corps of skilled professionals stretched to the limit. Much bigger economies, with a whole army of trained specialists, find it hard to tackle tax fraud or bank regulation effectively. International pressures to deal with the complexities of money laundering and terrorism stretch scarce resources still further.
Where tiny economies interface with international finance they need regulatory systems almost as complex as those of countries with a thousand times their population. Designing and maintaining a system like that isn’t easy, but it need not mean reinventing the wheel. There is expertise, and there are systems that can be readily adapted to local needs. Very often neighbouring regional economies face similar problems. Sharing ideas and experience may help.
The new Caribbean Regional Technical Assistance Centre (CARTAC) aims to help regional governments source financial expertise when they need it, without having to go outside the region. Planning started in 1999, the idea prompted by a similar Fiji-based organisation that serves the Pacific Islands. Start-up in late 2001 couldn’t have been more timely.
CARTAC serves the Caricom region and the Dominican Republic, with a steering committee made up of regional country representatives and donor agencies. It’s a United Nations Development Programme project, with the IMF as executing agency.
Major funding comes from Canada (to the tune of C$8m) and also from the IMF, the World Bank, the UN Development Programme, the Inter-American Development Bank, the Caribbean Development Bank, Britain and the United States, and Barbados, which provides office space at the Weymouth Centre on Roebuck Street in Bridgetown, a brand new building where there’s still a fresh smell of construction. The other Caricom countries will also contribute to running costs.
CARTAC has an international management team. Nigel Bradshaw, the programme coordinator, is British, and had been working as an advisor at the office of the IMF’s managing director in Washington. Bradshaw heads a team of five advisors. The first four to be appointed were a Brazilian, an Australian, an American and a Barbadian, Desirée Cherebin, formerly director of bank supervision at the Central Bank of Barbados. They’ll be advising governments — or else sourcing outside help — when assistance is needed in areas such as:
• Raising taxation revenue fairly and effectively. Several Caribbean governments are thinking about a Value Added Tax system. Some, such as Barbados and Trinidad, already have one. But VAT systems are not easy to design and run. There are pitfalls. Even governments with a few years experience want to refine their operations.
• Other taxes, such as income tax, property tax, may need rethinking too. Existing assessment and collection systems can sometimes be inefficient or unfair. Where taxes are easy to evade, low and middle income contributors may pay much more than their share. There’s scope for sharing experience from within the Caribbean on what works and what doesn’t, as well as for drawing on outside expertise.
• Bank supervision, which may be technical. Regional central banks generally have a strong record in managing their financial sectors, but there’s always a need for modernisation and strengthening. Notoriously, Jamaica’s financial sector bubbled in the early 1990s, due to imprudent lending. In 1993 the stock market crashed. From 1994 to 1998 the government was forced to rescue most locally-owned banks and four insurance companies. Taxpayers will pay a heavy bill. Total assistance has been estimated at almost half of one year’s GDP. Less dramatically, taxpayers have also picked up the tab for troubled financial institutions in more prosperous Caribbean economies.
• The offshore sector needs careful management too, more so now that it is under increased international scrutiny. A well-managed offshore sector, as in Bermuda or on a smaller scale in Barbados, can broaden the basis of an island economy. But lax supervision can open the road to financial scandals that do irreparable damage to an island’s reputation.
• Public expenditure management, and how to manage money when times are tight. Half the battle is tracking expenditure — exactly how much is being spent, where, and on what. Where cuts are needed, how can they be made with minimum hurt for essential services?
Statistics aren’t just there for number games. Governments need to know precisely what is happening. How far did 11 September knock regional tourism? A precise answer will help predict the effect of a downturn in tourism on government revenue and on national foreign exchange earnings. Basic data on arrivals are needed, and needed fast. Too often, there’s a long wait for the information.
Balance of payments or economic growth data are harder to calculate, and there’s an even longer time lag before numbers are available, while estimates of debt and economic growth rates can vary widely.
Now, more than ever, planners need to know the right numbers, and so do the voters and the media.
