The Role of the IMF in the Caribbean, Remarks by José Fajgenbaum, Deputy Director, Western Hemisphere Department, IMF
June 12, 2004
Remarks by José Fajgenbaum
Deputy Director, Western Hemisphere Department
International Monetary Fund
Panel on the Role of the IFIs in the Caribbean Going Forward
At a seminar on Developmental Challenges Facing the Caribbean
Port of Spain, Trinidad, Trinidad and Tobago
June 12, 2004
Mr. Chairman, Ladies and Gentlemen,
The Evolving Needs of the Caribbean Nations
1. It has been fascinating listening to the discussions yesterday and today. Soon after I started my career at the IMF, I worked on Jamaica and my first mission chief assignment was Trinidad and Tobago, where I was involved in the successful IMF-supported programs. I am struck to hear that many of the concerns and aspirations of the Caribbean region remain the same. The perennial theme was and is—the Caribbean region's development strategy. But what has surprised me since I returned to the Western Hemisphere Department of the IMF is that the traditional fiscal discipline that had characterized many Caribbean countries, and which had created the basis for the previous period of strong growth has been weakened considerably in a number of countries.
2. Perhaps this weakening has been a consequence of a number of vulnerabilities that governments attempted to address through higher spending and investment projects. But the problem is that higher public spending does not necessarily mean that vulnerabilities are addressed, and they were not. Consequently, we are now facing the large fiscal imbalances and high debt—extremely high, I should add, in some countries. It would seem that greater access to international capital markets and its beneficial effects in supporting growth has become an Achilles heel. Indeed, as the deficits and debt rose, real GDP growth declined—and in some countries turned negative.
3. But as was noted yesterday, I should not generalize. There are countries in the region that have succeeded in addressing their problems.
The Evolution of the Role of the IMF in Serving Member Countries
4. So much for the differences and similarities in the situation of the Caribbean countries. What about the IMF? Is the IMF the same or has it changed? During the 25 odd years that I have worked there I can say that the IMF has changed dramatically. New dimensions are that with the rapid growth of international capital markets and the challenges it brings, we are now more involved in managing banking crises, as in the case of the Dominican Republic. We think much more about growth and poverty, and significant efforts are being made to understand these processes to be able to promote higher and sustainable growth while achieving a lasting reduction in poverty. The IMF is a lot more flexible in its approach. It never was one size fits all, but today it is a lot more apparent.
5. How else has the IMF changed? I think we give a lot more emphasis on detecting early warning signals of potential macroeconomic and financial problems today than we ever did before—that is, we focus much more on crisis prevention rather than management. One way we do this is through a more enhanced surveillance in member countries and by looking more closely at the strengths and weaknesses of the financial sector. We have also become more transparent. If you look at our website you will be overwhelmed by the amount of information that is available. There is a lot more scrutiny of the IMF and we engage a lot more with not only the governments but also parliaments and the larger civil society. Indeed, there is a lot more effort on our part to listen to the governments and members of the civil society. This is because there is a clear recognition that ownership is critical for the success of development and reform programs of countries.
The Role of the IMF in the Caribbean Region
6. In the past, the IMF's role in the Caribbean has focused largely on policy advice to countries on macroeconomic policies and financial sector stability, technical assistance, and in some cases, financial assistance in the context of IMF-supported programs. These aspects will continue to be important going forward, but the question are can, or should, we do more to advance the implementation of reforms in the region. The answer to both is Yes.
7. As the Caribbean countries face the challenges of globalization, it is incumbent on institutions like the IMF to assist in forging greater international cooperation in guiding and managing this process. The IMF also stands ready to help address the new macroeconomic imbalances that have emerged and reduce vulnerabilities to shocks.
8. Intensified discussions in the context of Article IV Consultations and regional surveillance should come first. In this regard, the structure of the Western Hemisphere Department in the IMF has been reorganized to give more focus to the Caribbean region and additional resources have been mobilized. All of the members of the Eastern Caribbean Currency Union (ECCU) are now in the same division, which enables a better understanding of the many common concerns. The new structure has increased the scope for research on broader themes, in line with the IMF's thrust to pay greater attention to regional rather than just individual country surveillance.
9. Much of the IMF's technical assistance to the region is provided through CARTAC, which is now in its third year of operation. The initial feed back on its performance has been quite favorable. One important aspect of CARTAC's work is the Structural Adjustment Technical Assistance Program (SATAP) which is aimed at building capacity in the region to formulate and implement adjustment initiatives. The challenge now is to build on the initial success of CARTAC. One critical area would how to be design structures that would ensure the sustainability of the improvements.
10. Caribbean countries are generally not keen to avail themselves of financial assistance from the IMF. We fully respect this position. We will tailor our work in the region so as to be consistent with your priorities. Indeed, as I mentioned earlier, a high degree of ownership would increase the chances of success. The IMF can also play a catalytic role in bringing together other development partners. But I would urge countries to avoid disorderly adjustment. The IMF's advice could help in this regard; and, if necessary, countries should seek the IMF's support.
11. There are a variety of other areas in which the IMF can assist the Caribbean economies. These include the Financial Sector Assessment Programs (FSAP), a joint program with the World Bank from which a number of countries in the region have benefited—Barbados, Dominican Republic and the ECCU. Others are scheduled for the coming year including Trinidad and Tobago. The FSAP provides the diagnostics for strengthening the stability of the financial sector and assists in improving the regulatory framework and supervisory standards.
12. With respect to our lending instruments, you are all familiar with Stand-Bys. These seek to re-establish macroeconomic stability. As I noted before, Trinidad and Tobago has two successive SBAs and after stability was re-established the country took off. the Poverty Reduction and Growth Facility (PRGF) and the associated PRSP process encourages broad participation by civil society in the development of home-grown poverty reduction strategies. This facility is currently been utilized by Dominica and Guyana, and is available to other eligible countries in the region. We are also reviewing the structure of our Emergency Assistance Facility to be better able to respond rapidly to natural disasters and other similar shocks in our member countries. Finally, another vehicle could be the one being requested by Jamaica, which consists of some form of intensified monitoring.
13. In conclusion, I would like to reiterate that we would like to intensify our policy dialogue with the Caribbean countries. In preparing for this, we have devoted more resources to our work in the region. We are approaching the task with greater degree of openness and with a level of transparency that allows governments and civil society to fully understand the basis for our policy recommendations. We hope the Caribbean will see us as a partner in your efforts to improve the quality of life for the citizens of these beautiful countries.