Caribbean Economies face significant difficulties of both a short and long-term nature. The short term problem results from declining performance in both the traditional and non-traditional sectors and is manifested in declining rates of growth in real output, stagnation in holdings of foreign reserves, and rising fiscal deficits. The situation is more critical for some of the States than others. Accordingly, Heads of Government have agreed to a Framework for treating with both facets of the problem. The Framework constitutes the following:
(i) An immediate programme of assistance to Dominica, at present the most severely affected State;
(ii) A short-term programme of stabilisation for the Region as a whole; and,
(iii) A regional economic transformation programme.
In summary the framework includes:
a programme of financial cooperation to augment the budgetary resources available to Member States from domestic sources and multilateral institutions;
a programme to support the accelerated deployment of available funds to expand productive capacity and develop infrastructure;
a comprehensive programme of technical assistance and institutional support for the design and implementation of reform and adjustment programmes;
a comprehensive programme of policy reform to address problems generated by trade liberalisation and in preparation for participation in free trade arrangements such as the Free Trade Area of the Americas (FTAA);
a regional mechanism for economic crisis management and response; and,
a request by Heads for the Caribbean Development Bank (CDB) to play a new role in addressing short and long-term issues.
1. IMMEDIATE PROGRAMME OF ASSISTANCE TO DOMINICA
Dominica faces immediate fiscal difficulties as well as infrastructural and transformation problems. It also has problems with securing an externally supported programme.
Heads have agreed to:
– provide technical assistance to Dominica in reviewing and evaluating the macro-economic situation and in devising and implementing a programme of stabilisation. The team would comprise representatives from The Bahamas, Barbados, Guyana, Jamaica, Trinidad and Tobago and the CDB, the Eastern Caribbean Central Bank (ECCB), the CARICOM and the OECS Secretariats. The First Meeting of the Team should be convened at the CDB on Friday, 23 August 2002;
– provide, through their Central Banks or other appropriate modality, at least US$20 million in assistance which should close the
immediate financing gap;
– provide technical experts to assist Dominica to –
(i) review sources of financing currently available to the country; identify constraints to the drawing-down of such resources; and, develop strategies for removing the constraints and ensuring early access to the funds;
(ii) manage and implement programmes and projects; and
(iii) manage the debt.
In addition, Dominica will subscribe to, and implement the main elements of, the short-term stablisation programme for the Region as set out below.
2. SHORT-TERM STABILISATION PROGRAMME FOR THE REGION
The external conditions facing the Region imply that other CARICOM States are either confronting, or might soon be confronting, serious macro-economic problems.
To alleviate or forestall these possibilities, the Heads of Government –
Agreed to:
(iv) establish a Regional Stabilisation Fund which would be supported by an appropriate level of investment by each Central Bank or other sources. The Fund will be so organised as not to impair the overall earning capacity of the Central Banks;
(v) establish a Technical Team to review and assess international and regional resources available to CARICOM countries, constraints to accessing such resources and develop strategies to remove the constraints. The Technical Team would also devise appropriate programmes of stabilisation;
Also agreed that Member States, where applicable, would:
– identify their domestic circumstances, with specific attention to establishing the size of any resource gaps; appropriate adjustment periods; and, the policy programmes required for successful stabilisation;
– immediately review expenditure commitments and programmes with a view to determining activities which can be postponed or terminated;
– develop mechanisms to advance the collection of outstanding and current revenues;
– prepare an inventory of all available resources, particularly external resources, with a detailed statement of the conditionalities and access arrangements attaching to each. The intention would be to identify resources which could be drawn on quickly to sustain the overall level of economic activity;
– implement a systematic programme of reduction of payments arrears to domestic suppliers and individuals, in order to remove uncertainty and to help generate public support for the actions being taken to cope with the difficult situation;
– establish and maintain an open and transparent public finances management system including publicly accessible budget debates; the prompt publication of performance outcomes on a monthly or quarterly basis; and, the prompt publication of Reports of the Auditor-General or the Director of Audit and of Article IV with the International Monetary Fund (IMF) Consultations;
– pay urgent attention to reducing the level of outstanding debt and to restructuring the terms of commercial borrowing. Even more particular attention needs to be paid to the cost and benefits of borrowing from the domestic banking system, both to provide headroom for emergencies and to reduce the over-exposure of the publicly owned banks;
– closely examine the operations of public enterprises and other para-statal bodies, particularly those which utilise Central Government resources via transfers or other mechanisms, with a view to early decisions regarding their future. Public enterprises may be considered for privatisation, both in order to raise funds for public sector use and in order to contribute to the development of the money and capital markets;
– arrange for the proper structuring of Social Security Scheme Investment Portfolios to ensure the capacity of Social Security Schemes to maintain solvency and liquidity;
– attend to the creation and effective operation of safety net arrangements to minimise the adverse impacts of the adjustment programmes on the most vulnerable groups in society;
– examine revenue systems, including both tax structure and tax administration, in order to enhance efficiency, effectiveness and equity in the operation of the taxation system;
– conduct a detailed examination of the structure of the public sector and the ways in which Government services are provided in an effort to reduce significantly the cost of Government, to reduce expenditure rigidities, to enhance efficiency and flexibility, and to increase capacity and productivity;
– significantly strengthen, or re-establish public sector investment programming systems, with tight links forward to the rolling development strategy and backward to the recurrent budget, and with the whole process of the Public Sector Investment Programme (PSIP) formulation and management being the subject of ongoing, and meaningful, regular and frequent consultations with all the major stakeholder groups in the society;
– formulate and implement a mix of policies (which would clearly need to be subject to continuing adjustment) that is supportive of the stabilisation effort and that would work to prevent, or make very difficult, a subsequent reversion to the current state of affairs, unless all the influences promoting deterioration were external and irresistible; and,
– conduct societal consensus – public consultation.
Where individual Member States do not have the capacity to undertake the activities outlined above, assistance would be provided by other Member States and/or regional institutions. Heads of Government took account of the capacity of the CDB to assist, in appropriate circumstances, in meeting Governments= short-term adjustment financial requirements.
Heads of Government recognised that for some Member States and for the Region as a whole, an adjustment programme of the nature and scope envisaged cannot be fully, or even substantially, implemented in the time-frame required without recourse to the arrangements in international institutions for this purpose. Member States agree to provide technical support, where required, to ensure that such recourse can be as timely and effective as possible.
3. A REGIONAL ECONOMIC TRANSFORMATION PROGRAMME
The most fundamental long-term issue confronting CARICOM countries is that of Restructuring and Diversifying Production. The tradition of a narrow production base has been compounded by loss of competitiveness and markets, and by falling prices – the unit prices of seven of the eleven major exports of CARICOM countries were lower in 2000 than in 1995. There are also issues of investment stimulation, enhancement of labour and management productivity, the effective absorption of technology and information, and cost effective development and utilisation of infrastructure to enhance the overall production and investment environment.
Productive Sector
Tourism which is the leading sector in most of the Member States has been experiencing slower growth in recent years due to a variety of factors. The revitalisation of the sector will be critical to the success of both the stabilisation and transformation programmes. The initiatives taken by the public and private sectors in 2001 will need to be implemented and, where necessary, complemented, as a matter of urgency.
Heads of Government –
Agreed to:
(vi) focus special attention on the tourism sector in the immediate term and to work with the Private Sector to revitalise the industry through a series of measures which would include an expanded regional programme for investment, marketing and product development;
(vii) support programmes that make greater use of technology to restructure and reorient activities in those areas of Agriculture, including Agro-Industry, which can be made competitive on a sustained basis;
(viii) strengthen and re-orient education and training arrangements to support knowledge and skill-based development;
(ix) establish a Task Force to determine the adjustments which the private sector needs to make to benefit from the CARICOM Single Market and Economy (CSME); to identify the constraints to wider private sector involvement in productive activities, and to the greater use of non-debt financing instruments; and, to provide recommendations to address these constraints.
Fiscal Reform
The changing international environment has created fiscal difficulties especially for countries which rely heavily on taxes from international trade, and more challenging conditions for attracting investment resources. To address these issues Heads of Government agreed to:
– support the acceleration of national and regional efforts at fundamental reform and restructuring of taxation policies, systems,
administration and management. Member States will draw on and share experiences, 'Best Practices', and expertise;
– support the initiation of wide-ranging fiscal reform on a regional or sub-regional basis, to cope with the revenue fall-out from trade liberalisation, including in preparation for participation in the FTAA;
– address special attention to the human (technical) and institutional, including technological needs, for effective tax management;
– advance implementation of the relevant policies under the CARICOM Single Market and Economy (CSME) to create the regional market for investment and for skilled and managerial resources. To this end, Heads of Government required the Council for Finance and Planning (COFAP) to direct specific attention to the areas of the CSME under its direct responsibility;
– establish a technical team to develop an outline of the investment requirement for the CSME over the next 15 years.
Institutional Reform
Heads of Government recognised the role of the CDB in the mobilisation of resources not only for public sector infrastructure projects, but also for private sector investment. In this regard, they required the CDB to review how it can most effectively assist in satisfying the needs of the private sector.
Heads of Government recognise the pivotal role of the private sector in the transformation process. To this end they urge:
(x) the Caribbean private sector, as a matter of urgency, to reposition itself in order to address the challenge and exploit the opportunities which are a result of the changing international economic environment;
(xi) that, given the easing of the requirements for establishment and for access to skilled and capital resources across the Region, Caribbean firms move aggressively to exploit the opportunities for synergies as a source of regional comparative advantage.
The CARICOM economies are small and open. They are heavily vulnerable to international developments but must remain engaged with the international and bilateral systems. Heads of Government agreed that the Region's investment must be on a more systematically coordinated basis. To this end they agreed to:
– enhance the exchange of information on international
developments and experiences with multilateral and bilateral
initiatives; and,
– provide technical assistance to each other, where required.
4. MECHANISM FOR IMPLEMENTATION AND MONITORING
The coordination of economic policies, the monitoring of economic performance and the development of strategies to minimise economic disruptions and dislocations in any part of the regional economy is a responsibility of the COFAP. To this end, Heads of Government agreed to:
(i) require the COFAP to conduct annual reviews of the performance of the various economies and to make recommendations to the Member State(s) and to the Conference where action is required;
(ii) reiterate earlier decisions that Member States would provide up-to-date information, including reports such as Article IV Consultations with the IMF, to regional institutions such as the CDB, the CARICOM Secretariat and the Caribbean Centre for Monetary Studies (CCMS) to facilitate indepth analysis of macro-economic performance of the Region and the constituent parts;
(xii) establish within the CSME framework, a technical mechanism for continuous monitoring of elements of the programme and for consultation and advice;
(xiii) authorise the Prime Minister with responsibility for the CSME to superintend the implementation of the programme and to provide regular reports to the Bureau of the Conference and to Heads of Government.
Castries, Saint Lucia
17 August 2002
