Heads of Government of Member States in the Caribbean Community (CARICOM) meeting in Nassau, 4-7 July 1984, reviewed the Report on “Measures for Structural Adjustment in the Member States of the Caribbean Community” prepared at their request by the Caribbean Development Bank [CDB] in consultation with member Countries, other regional institutions and individuals. They expressed appreciation to the President and staff of CDB for the thorough and penetrating analysis contained in the Report. Following upon discussion of the Report, they were in general agreement with its recommendations.
2. This statement records their understanding of the problem of structural adjustment as well as the policy actions which Governments may take at the national level, together with those that will be initiated through arrangements within the Caribbean Common Market. They also identified specific matters that they will pursue jointly in their external economic relations.
3. This common understanding of the need for policy action is to be set against the recognition that each country will formulate and implement its own programmes appropriate to its particular circumstances, and its perception of the long-term economic and social objectives.
4. A number of countries have already initiated various measures with regard to structural adjustment, incorporating several of the measures outlined in the Document.
STRUCTURAL ADJUSTMENT AND DEVELOPMENT
Statement of the Problem
5. Heads of Government recognise that structural adjustment is an integral part of the development process. It essentially involves a conscious and determined shift to a new development path to accelerate development, while adapting to major external or internal shocks to the economic system. These shocks could come about through occurrences such as a sudden and sharp deterioration in the terms of trade; abrupt increases in external debt service; continuing declines in the volumes of major agricultural exports and local food production, and the depletion of a major natural resource.
Similarly, countries which have gone through a period of windfall gains in export earnings and incomes face a situation where, after the booming export sector has slowed down, a legacy is left of extremely high expectations for improvements in living standards, while production costs in the rest of the economy have escalated to uncompetitive levels during the boom period. The task facing such countries of containing expectations and of finding new competitive lines of production is extremely difficult. Other countries are in a situation where their economic problems reflect themselves in the form of protracted fiscal deficits, contraction in imports and economic growth, and in the difficulties being experienced in increasing the efficiency of traditional sectors and developing non-traditional sectors.
6. All of these situations have a serious negative impact on the balance-of-payments, which experience shows cannot be eliminated solely by measures to contract demand through drastic reductions in public and private consumption expenditure, the compression of imports, and more restrictive monetary policies.
Demand contraction policies are appropriate where the elements of weakness in the balance-of-payments are reversible over a short period of time. Where balance-of-payments are structural in nature, demand management needs to be accompanied by more direct measures to expand and/or to diversify and make more competitive production of goods and services, both for export and for domestic consumption. In such circumstances, demand contraction policies can amplify the already deflationary effects of the initial shocks, leading to a continuance of slow and even negative growth, however hard Governments may try to change the course of their economies in the direction of faster growth and development. Instead, there is a general decline in confidence characterised by the flight of human and financial capital, reduced production and productivity, and the emergence of a large underground sector in the economy. Governments progressively lose control over economic events which can put the entire economic and social fabric at risk.
7. The intricacies of the development problem in the Caribbean need to be thoroughly understood. Although incomes per head may appear to be high compared to the other developing countries, these rest on rather fragile foundations. In the typical case, the economy is depending on one or two staple activities for the bulk of its income, employment, government revenue, and export earnings. The agricultural sector, in order to raise productivity and to establish efficient mechanisms – particularly with respect to local food production – needs improved skills and appropriate technology. Despite some progress in industrial development, the manufacturing sector has not yet developed strong linkages with the rest of the economy, local entrepreneurship is not broadly based, and the export capacity of the sector is still rudimentary.
8. The productive sectors together are not yet in a position to provide sufficient employment opportunities for the growing labour force. High rates of open unemployment and underemployment persist, especially among school-leavers who are frustrated in the search for jobs and recent migrants to the urban areas. Such economic conditions breed chronic discontent, crime, violence and political extremism, putting at risk national cohesion and the democratic process itself.
Objectives, Strategies and Macro-Economic Policies
9. The Governments are determined to steer their countries away from a situation of economic and social breakdown. They nonetheless recognise that meaningful adjustment is painful and can be difficult to manage as it may reduce the standard of living of the majority of social groups. Sensitive to the needs of the poor, they intend, within the narrow margins available to them, to adopt measures to cushion the adverse impact of the adjustment process on the most deserving groups in their societies.
10. Governments recognise a very important role for the private sector within a framework of a socially just market economy achieved through the catalytic actions of the government. They call upon all sectors of their populations to view the present economic difficulties as requiring the fullest possible exercise of local initiatives – thereby bringing into play all energies and skills , particularly of the young who are more literate than hitherto, and most adaptable. The Heads are also determined to actively encourage the considerable incipient entrepreneurship which exists in both the rural and urban sectors.
11. They decide that each Government will formulate and implement at the national level a comprehensive programme of support, and provide incentives for the emergence of broadly-based local entrepreneurship. Such programmes will include management training, assistance with identifying sources of technology and venture capital, as well as access to the range of commercial and financial services essential for business development – particularly in the export field. In the specific case of the rural sector, Governments commit themselves to further action for the better utilisation of agricultural land and to modernise the sector through determined efforts to develop a broadly-based agro-industrial environment.
12. Heads of Government recognise that, despite the difficulties in the international environment, there are unique opportunities to be grasped by local entrepreneurs. The Member States of CARICOM have never had such a wide array of export market opportunities as are now available to them. A determined thrust towards more efficient production and greater orientation towards exports could increase the resilience of the economies and substantially strengthen their capacities for sustained growth, development and structural transformation.
13. The Heads are mindful that their economies should continue to rely significantly upon market mechanisms to determine prices and the allocation of resources. However, a process of structural change cannot, under Caribbean conditions, be left to evolve through spontaneous forces. The objective of ‘getting prices right’ will be pursued through purposive national planning that will concretely shape the short and long-term directions through which the economies can attain their maximum growth potential and satisfy basic human needs.
Accordingly, Governments declare their intention to strengthen their machinery for national planning; to involve all sectors of their societies in the processes of plan formation, implementation and monitoring; and to strengthen the links between development plans and the short-term management of the economy. Careful and continuing attention will also be given to the size, composition and financing of public sector investment programmes.
14. It is one of the tasks of planning to extend the arena within which all nationals in a position to do so can, on their own, or with overseas partners, contribute to the aggregate of investment and production decisions that will accelerate growth and development. However, Governments are prepared to do more. In appropriate cases, particularly where new technology and new markets are involved and where local capacities have not sufficiently emerged, they will assume a catalytic role in starting new joint ventures with local and/or overseas partners, establishing from the outset arrangements for divestment to nationals. Governments realise that such a catalytic role requires insistence on the enforcement of sound commercial management practices, transparency in operations, and the establishment of independent machinery for monitoring and accountability to the public.
15. An unrelenting drive will be made to enforce operating efficiency in all public sector activity. Consequently, there will be an upgrading of the management and functioning of existing state enterprises and public utilities, including giving them the autonomy and responsibility to operate on strictly commercial lines within broad policy guidelines clearly laid down by the government. Also, there will be continual reviews of the possibilities of divestment of commercial enterprises to the local private sector and to joint venture with foreign partners where they are willing and capable of bringing to the enterprise new technologies and market penetration initiatives.
16. The Heads agree that the principal objective of the macro-economic policies should be to achieve and sustain a dynamic and rational balance between the level, composition and growth of the domestic demand for goods and services and their local and regional availabilities. This involves, inter alia, fiscal discipline to keep public expenditure within the real resources available to the public sector, and the use of fiscal and monetary instruments to foster sustained growth and bring about an appropriate balance between consumption and investment. Altogether, the overall thrust of adjustment policies will be to increase the share of exports and investment in the aggregate demand for goods and services, and to expand the contribution of domestic production relative to imports in aggregate supply.
17. Policy will aim at a greater outward orientation of the manufacturing sector and mainly, but not exclusively, at greater national and regional self-sufficiency in food. Heads of Government decide to give top priority to launching a major export drive, both with respect to traditional and non-traditional items. They agree that, among other things, this has to be a truly national effort whereby the entire population becomes sensitised to the urgency of achieving competitiveness in all economic activities, whether directly serving export markets or not. Government support and incentive programmes for the export sector will be significantly upgraded.
18. Heads of Government are mindful of the mutually reinforcing links between export development and increased domestic investment and savings. The growth of national savings must come from more resolute efforts to plough back profits, to limit non-essential consumption and increase personal savings, and to achieve larger budget surpluses in Central Governments, Public Utilities and State Enterprises. These have to be underpinned by policies of income restraint throughout the economy.
19. All parts of the society have a contribution to make to incomes restraint. Companies should limit dividend distribution and freeze executive salaries as well as fringe benefits for specified periods. The Trade Unions and their members have a part to play in limiting and moderating claims for increases in remuneration packages. The process of structural adjustment may result in some amount of short-term dislocation. It is acknowledged, however, that failure to adjust structurally will also have the consequence of the even more serious problem of large-scale unemployment. Governments themselves will exercise strict economy in public expenditure on wages and salaries and on consumption. The Heads observe that incomes and prices restraint will give all of the economies a breathing space to translate productivity increases into more competitive cost structures which can be translated into creative investment, job opportunities, export and growth.
20. Although the role that exchange rate policies can play in achieving a competitive cost structure depends on the circumstances of each individual case. Heads of Government acknowledge that suitable exchange rate adjustments and/or productivity increases, arising from greater managerial efficiency, technological change and enhanced worker motivation are options that can improve the competitiveness of the Region’s exports and attractiveness as an area for investment.
21. Heads of Government recognise that the successful execution of macro-economic policies contributes significantly to the improved performance of individual sectors. They are conscious of the need to alleviate a number of structural weaknesses in the more traditional sectors of export and domestic agriculture and mining, but recognise that this must be accompanied by a major thrust to expand and/or activate production in newer fields such as agro-industry, manufactured products with high world market growth potential and tourism. Accordingly, they give their broad endorsement to the Action Programmes as set out in the Report to improve sectoral performance in export and domestic agriculture, livestock, agro-industry, fishery, forestry, manufacturing industry, tourism, energy, bauxite/alumina, and science, technology and information.
22. They decide that these recommendations and the policies and programmes in the Report from which they derive will be elaborated, refined and followed up by the sectoral Ministries concerned and ask that Ministers report to them through the relevant Standing Committees on the progress being made with implementation.
Investment in People and Institutional Reform
23. In furtherance of the objectives to involve the population more closely in development and to widen the local entrepreneurial base, Governments agree to pay major attention to strengthening the educational system at all levels offering opportunities for the acquisition of skills that will directly contribute to the modernisation and development of the economy. Accordingly, deliberate efforts will be made to introduce technology as a major component in primary, secondary and tertiary education. All school children will be exposed to the principles underlying agricultural, technical and vocational skills. The systems analytical approach, including the use of computers, will be made an integral part of the formal educational system. Institutions of tertiary education will, as appropriate, introduce certificate, diploma and degree programmes in the information technologies as well as courses geared to the application of these technologies in agriculture, manufacturing, tourism and other services.
24. The tertiary educational systems will be strengthened and restructured to provide comprehensive training opportunities for para-professionals and middle-level supervisory occupations. Given the large expenditures and the specialist staff that such an upgrading entails, Governments will work closely together to develop the tertiary system as a regional network of institutions that will complement each other in providing the wide range of training required.
25. In this regard, Heads of Government agreed that the University of the West Indies, as the premier tertiary educational institution in the Region, was already making a major contribution towards satisfying the Member States’ requirements for professional manpower. They noted that, with the completion of the Mt. Hope Medical Complex in 1985, the University would have the capability to satisfy the Region’s need for professional manpower in the fields of medicine, dentistry and veterinary science. They recognise the high international standing of UWI degrees, and urged Member States to desist from any steps which could impair that standing. They agreed that in cases where surplus student places are available, they could be offered to students from outside of the Region on internationally competitive terms.
26. They reiterated their commitment to restructure the UWI with effect from 1 October 1984.
27. Heads of Government are anxious that everyone should have easy access to better health care. To this end, community and preventative medicine involving primary care, public health, and prevention will be emphasised. They are particularly concerned with the poor state of nutrition in some countries which is not only the result of low incomes but also of limited knowledge concerning the nutritional properties of individual foods. Accordingly, they agree to intensify programmes of nutritional education; to focus on nutrition in maternal and child care programmes; to have nutritional desiderata inform their domestic agricultural production mixes; and to pursue import replacement initiatives in their continuing efforts to ensure adequate nutritional levels for their populations.
28. Heads of Government realise that improvements in education and health will have beneficial effects on productivity and efficiency. However, specific steps will also be taken to achieve thorough-going institutional reform. This will include virtually all of the public institutions servicing the economy in areas such as development finance and credit; research and extension services; agricultural marketing systems and services; education, science and technology; industrial, agricultural and tourist promotion; and export promotion. The entire public institutional framework will be geared towards becoming more result-oriented, setting the pace for the economy as a whole. The agencies concerned will be restructured to make them into centres of creativity, innovation, operational efficiency and dedication to the achievement of national goals.
29. The public services themselves urgently require major upgrading and reform. Governments will take immediate steps to strengthen the capacities of the public service for policy analysis and for financial management. Special attention will be paid to improving the machinery for planning, budgeting and project implementation.
External Financial Assistance Requirements
30. External financing is a sine qua non for successful adjustment and must go together with strict internal economic measures. Heads of Government are convinced that to implement a path of sustained development and increased local initiative in the beneficiary countries requires greater provision by foreign governments and international financial institutions of short- and longer-term finance on appropriate terms.
31. In relation to short-term finance, in some countries the overhang of external debt service is constraining the flow of maintenance imports and has curtailed capital imports for new projects needed to accelerate growth. The debt overhang also erodes the foreign exchange required to build reserves to more credible levels. Certain CARICOM countries need substantial debt relief as a matter of the greatest urgency, involving, extending amortization, and softening of interest payments. In this connection, Heads of Government urge creditor countries and banks to respond to the need to re-finance debt in a timely and positive manner.
32. Longer-term finance is also required since the process of structural adjustment cannot succeed without concessional money to support the building-up of a virtually new economic and physical infrastructure which already been noted. In addition, there is a need for programme finance to eliminate critical import bottlenecks and scarcities of raw materials, parts and spares. To some extent, finance for short-term stabilisation programmes can help with the latter requirement, but such finance cannot on its own bring about the scale of the adjustment effort required.
33. The immediate requirements of the Region for short- and long-term finance call for greater commitments and a sense of urgency. The international donor community is already making a useful contribution, including drawing attention to the policy opinions open to countries and the benefits to be sustained from mobilising private finance, especially foreign investment. The donor community must be encouraged to move a stage further by making multi-annual pledges of additional concessional finance for structure adjustment.
34. External financing should also foster the strengthening of the intra-general framework for trade, economic and financial co-operation and for such co-operation between Member States of CARICOM and the remainder of the international economy.
35. Finally, the new arrangements for external financing should be directed towards achieving the establishment within the Region of organizational machinery to promote effective co-operation between the donor community and Member States.
36. If all of the foregoing requirements for external financing are met, the countries of the Region will then have available to them the basic elements for implementing a “Marshall Plan” strategy of reconstruction and development.
37. Heads of Government stress the cardinal importance of revitalising intra-regional trade and payments and of achieving greater co-operation and co-ordination of efforts in the field of production.
38. In relation to the trade regime, they endorse the decision of the Common Market Council to establish interim arrangements for mutual trade expansion among Member States. The affirm their resolve that these interim arrangements will give way in the shortest possible time to a return by every Member State to full adherence to the formal obligations of Common Market membership.
39. Heads of Government agree that the Common External Tariff (CET) should replace, over a phased period, quantitative restrictions as the principle instrument of protection in the Caribbean Common Market with low rates of duty on imported raw materials and other intermediate and capital goods. They recognise, however, that in certain instances and for specific time periods, certain sensitive agricultural and industrial products will need additional support on a common, region-wide basis. They decide to ask Council to accelerate its work on the establishment of a single CET. They also stress the urgency of undertaking the necessary technical work to substitute common external tariff rates for national quantitative restrictions against Third Countries as permitted under the provisions of the Annex to the Treaty, and ask Council to take expeditious action on this matter. They agree to institute or strengthen, as necessary, statistical systems to provide timely import data to monitor the flow of imports against foreign availability. They acknowledge that the satisfactory operation of these systems will progressively reduce the need for the introduction or maintenance of import licensing systems, and ask Council to take expeditious action on this matter.
40. Heads of Government also agree to update and revise the Agreement on Harmonisation of Fiscal Incentives to Industry in order to give more encouragement to extra-regional exports. They also agree to establish arrangements, including the CARICOM Enterprise Regime (CER), as appropriate for the “regulated movement of capital”, as well as entrepreneurial and managerial skills between the countries of the Common Market.
41. Heads agree on arrangements to facilitate the early reactivation of the CARICOM Multilateral Clearing Facility. They direct that Ministers of Finance consult urgently among themselves, through the Secretary-General, about possible joint initiatives to secure external financing for a recommencement of the Facility’s operations. They re-state their support for a Regional Payments Support Fund and request the Secretary-General to invite the co-operation of the President of the CDB in actively pursuing this matter with the international donor community.
42. Heads of Government continue to assign top priority to co-operation in efforts to step-up food production for local and regional consumption. They support measures to liberalise intra-regional trade in agricultural products, while providing safeguards for regional production, vis-a-vis imports from Third Countries. They agree to the strengthening of operational agencies for developing and implementing food projects directed towards supplying the regional market. They welcome the initiatives that individual governments are taking to develop extra-regional exports of new agri-business products, including exotic fruits and horticultural products, tropical foliage and fresh vegetables, and consider that there is also room in this field for co-operation among Member States.
Industry and Agro-Industry
43. Heads of Government give priority to concerted action to achieve a fuller utilisation of existing industrial and agro-industrial capacity in Member States and greater complementarity in the development of new capacity. In particular, they stress the urgency of promoting faster industrial and agro-industrial growth in the Less Developed Countries (LDCs). They agree that special steps will be taken by all CARICOM Member States to encourage the use in their development projects of goods and services of CARICOM origin. They decide that a joint approach will be made to the international donor community to untie bilateral aid for the purchase from CARICOM sources of raw materials and intermediate goods as well as staple items in mass consumption.
44. They further agree that Council should examine, taking into account relevant factors, including consumer interests, what steps can be taken to discourage the establishment of new industrial capacity for supplying the regional market exclusively with products for which there is already significant under-utilised capacity.
45. Heads of Government give primary importance to greater co-operation in the field of industrial promotion. They stress that in cases where individual countries are confronting serious shortage of expertise and very limited financial resources for these purposes, they stand to gain from co-operative rather than competitive efforts in this field. These were particularly relevant to promotional work on attracting industries for export to extra-regional markets. They decide to concentrate their initial promotional efforts on existing export opportunities in the USA, EEC and Canada, where their Member States have special access. They also recognise the potential for breaking into new markets, such as those in mainland Latin America, in the context of the action contemplated in the Quito Declaration and Plan of Action.
46. Heads of Government agree that the new emphasis on promoting extra-regional industrial exports is fully consistent with the strategy of efficient production for the local and regional markets. The larger and technologically complex industries can be expected to sell much of their output on the world market, but there will still be considerable scope for a thriving small- and medium-scale industrial sector, producing for the national and regional markets, either final consumer goods or inputs for the bigger extra-regionally oriented manufacturing industries. Moreover, such local and/or regionally oriented production can provide important ‘learning effects’ for eventual entry into the extra-regional markets.
Physical and Institutional Infrastructure
47. Heads of Government reviewed the situation with regard to regional transport. They welcome the improvements that have taken place, and were in prospect, with respect to both WISCO and LIAT. They returned to the question of a regional air transport system centered around BWIA and involving the airlines in the Region. They noted that CARICOM States had accepted the principle of “community interest” and that this was recognised by ICAO. They also noted that certain CARICOM States had designated BWIA as their National Carrier on certain routes and welcome the possibility of further initiatives to integrate airline services in the Region. They agree on the need for BWIA to plan on the basis that the traditional ‘Fifth Freedom Rights’ through the Eastern Caribbean to the UK and North America and to certain Caribbean destinations will continue. They decide that the Chief Executives of regional airlines should continue to work out further details of promoting co-operation in this field and on a timetable for its implementation.
48. Heads of Government also identified opportunities for maximising the utilisation of scarce expertise in the Region through the development of common technical services and pools of experts. This need was particularly acute among the Member Countries in the Organisation of Eastern Caribbean States (OECS). It was agreed that the MDCs will assist OECS, as far as possible, in meeting their needs for specialised services.
EXTERNAL ECONOMIC RELATIONS
49. Heads of Government examined questions of external economic relations, and, without prejudice to earlier discussions of specific items, agree to take joint action on addressing, in the international arena, the issues of the critical external debt problems of some Caribbean countries; old and new forms of protectionism in the industrialised countries; reform of the international monetary system and the need for periodic and adequate increases in world liquidity.
50. Additionally, they plan to approach donors and the international institutions about the premature “graduation” of some CARICOM Countries from eligibility to receive both hard and soft loans from major international financial institutions. They would also urge these institutions to make greater provision for the external funding (in foreign exchange on semi-concessionary terms) of intra-regional payments in integration groupings and to provide more financial support for regional integration projects.
51. Following upon their discussion of prospects for developing mutual trade with other developing countries, Heads of Government agree to pursue closer economic and culture co-operation with the non-English-speaking Caribbean countries and to offer them Observer Status in certain Standing Committees concerned with functional co-operation. Heads of Government also agreed that there should be joint technical groups between CARICOM as a group and the Dominican Republic, Haiti and Suriname to assist with the design and implementation of a programme of co-operation, particularly in the field of trade. They express their deep interest in following up possibilities for greater trade and economic co-operation within Latin America. As a first step, they ask the Secretary-General to hold exploratory discussions with the Andean Group about the possibility of negotiating a broadly-based preferential trade and economic co-operation agreement with them. They give a similar directive to explore possibilities with Brazil, and to invite the Government of Mexico to broaden and deepen its existing co-operation agreement with CARICOM. They also agree that the feasibility of co-operation agreements with other countries and groupings should be studied by the Secretariat.
52. Heads of Government decided that the CARICOM Countries as a Group should participate
in the preparatory work on the establishment of a Global System of Trade Preferences (GSTP) among Developing Countries and ask the Secretary-General to discuss with Member States having resident missions in Geneva what practical arrangements can be made for such participation.
53. The Governments of Jamaica and Trinidad and Tobago announced their decision to sign and
ratify the Agreement establishing the Common Fund for Commodities. The Governments of Barbados, Dominica, Guyana and Saint Lucia decide to sign the Agreement and by so doing declare their readiness to ratify the Agreement as soon as they are in a financial position to do so. Having already signed the Agreement, the Government of Grenada is willing to ratify the Agreement on the same basis, while the Governments of Antigua and Barbuda, Belize and St. Christopher and Nevis signify a similar preparedness to accede to the Agreement when it enters into force. Heads of Government authorise the Secretary-General to, on request, help any Member State to explore the possibilities for financial assistance towards the payment, in whole or in part, of their capital subscriptions to the Common Fund.
54. Heads of Government underscore their deep interest in the successful conclusion of negotiations for a Third Lome convention of the EEC/ACP, and express appreciation for the leadership given by the Rt. Honorable Hugh Shearer, Deputy Prime Minister of Jamaica in the negotiations and for the work being done by regional Ministers, officials and the Secretariat in this regard. They look forward to an early and satisfactory settlement of outstanding issues in the negotiations. They fully endorse the decision already taken by Council to nominate Mr. Edwin Carrington for the post of Secretary-General of the ACP Secretariat and ask the Chairman of the Meeting, the Prime Minister of The Bahamas, to convey their endorsement to the Heads of Government of other ACP countries.
FORWARD IN UNITY
55. In concluding their discussion of the economic situation, Heads of Government throw out a challenge to all parts of their communities to respond positively to this historic opportunity for changing the course of events in order to move into a phase of sustained development, bringing benefits for all. They feel that this is a moment when, coming together in a spirit of co-operation and solidarity, the countries of CARICOM can harness their undoubted potential for development.
56. In discussing the role of CARICOM in structural adjustments, Heads of Government reaffirm
the spirit of Caribbean co-operation and solidarity which has always constituted the foundations of the Community. They do not perceive a regional community as requiring rigid conformity to a single point of view. In common with other integration groupings, both among developed and developing countries there are occasions when Member States will differ on individual issues. What was essential for regional unity was that areas of agreement should out-weigh those of disagreement. Heads of Government re-state their dedication to strengthening the common ground among their countries; to continue helping one another in a spirit of accommodation and togetherness; and to maintaining regular contact among themselves, keeping up the frank, cordial and constructive exchange of views that have traditionally characterised intra-regional relations.