2017 High Level Caribbean Forum: Unleashing Growth and Strengthening Resilience
IMF News, November 16, 2017
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Bibliographic details
- Published: November 16, 2017
Event and speaker
- Opening Remarks by Christine Lagarde, IMF Managing Director
- November 16, 2017
Purpose and framing
- Annual Forum as a platform for brainstorming and collaborating with key stakeholders on regional challenges and solutions.
- Theme: deepen Caribbean growth, insulate it more from shocks, and make it more resilient.
- IMF published a book with the same title as the Forum to explore ideas and inform discussion.
Hurricanes Irma and Maria — impact and IMF response
- Hurricanes Irma and Maria highlighted the special vulnerabilities of the Caribbean and the need to strengthen resilience.
- Climate-change drivers noted:
- Rising sea levels increase risks of erosion and flooding.
- Warmer water temperatures heighten the potential for more intense hurricanes.
- IMF roles and proposed actions:
- Assess macroeconomic implications and determine financing needs after disasters.
- Provide financial support to catalyze broader financing from the international community.
- Convene an event with major public and private stakeholders to explore options for building resilience, including risk mitigation, debt management strategies, and use of catastrophe bonds.
- Coordinate closely with the World Bank, the Inter-American Development Bank, the Caribbean Development Bank, and other development partners.
- Emphasis that efforts are focused on building long-term defenses, not just short-term responses.
Unleashing Growth — diagnosis and priorities
- Stronger economic growth is framed as the essential foundation for resilience and job creation.
- Observations on Caribbean growth performance:
- Economic growth in the Caribbean has been low for several decades.
- Low growth has led to rising social and economic challenges: poverty, inequality, unemployment, and crime.
- External shocks have affected growth, including natural disasters and loss of international trade preferences.
- Large macroeconomic imbalances and structural impediments have limited insulation from shocks.
- Structural impediments cited:
- High cost of electricity.
- Limited access to credit for households and medium and small enterprises.
- High rates of violent crime.
- Persistent outflow of highly-skilled workers (brain drain).
Conference agenda — three key issues for higher growth
- (a) Crime and youth unemployment
- Caribbean youth unemployment is among the highest in the world.
- Crime, partly fueled by high youth joblessness, is a major obstacle to growth.
- Economic costs of crime include public spending on security and criminal justice, private spending on security, and social costs from loss of income due to victimization and incarceration.
- Inter-American Development Bank study finding: on average, crime in the Caribbean costs nearly 4 percent of GDP per year.
- Policy aim: create a virtuous cycle where stronger growth reduces unemployment and crime, boosting productivity and investment.
- (b) Fiscal policies, stronger institutions, and political cycles
- Political and electoral cycles can drive policy reversals that cut short promising reforms.
- Need for strong institutions and fiscal frameworks to safeguard prudent fiscal policy over time.
- Fiscal rules example:
- A rule targeting a reduction in public debt to 60 percent of GDP over the medium term has been introduced in several countries in the region—the Eastern Caribbean Currency Union—and has had success in St. Kitts and Nevis, Grenada, and Jamaica.
- Fiscal councils recommended to provide independent information and monitor compliance with fiscal rules.
- Jamaica’s Economic Program Oversight Committee (EPOC) cited as a public-private committee that helped monitor reforms and build support for the program from 2013 onwards.
- (c) Financial sector: stability and growth trade-offs
- A healthy financial sector must balance risk-taking, growth, and stability.
- Historical patterns:
- In high public-debt countries, banks have grown dependent on government paper, crowding out private sector credit.
- In other countries, excessively risky lending has produced high nonperforming loans.
- Need to identify the right balance between stability and growth and address constraints on financial inclusion and deepening.
Correspondent banking relationships (CBRs) and de-risking
- IMF facilitated international dialogue to foster shared understanding and tailor policy responses for Caribbean economies.
- Progress reported:
- Following a closed-door event in Barbados convened by the IMF, several correspondent banks are providing technical support to respondent banks in the region to address information gaps and regulatory expectations, including upgrading systems and processes.
- A global bank that had left the region has re-engaged with some respondent banks.
- Belize example: after losing two-thirds of its correspondent banking relationships, currently every bank in Belize has at least two correspondent banking relationships and can process transactions in a timely manner.
- A regional roundtable was convened, and IMF Legal Counselor Sean Hagan will discuss further.
- Ongoing challenges:
- The issue of CBR loss and the high costs of international payments remain challenging; IMF commits to continued engagement to find solutions.
Conclusion and closing message
- Resilience is a long-term endeavor: “Rome was not built in a day.”
- Collective effort and partnership emphasized: “We know that we can get there, if we work together. The IMF is proud to be your partner in this process.”
Opening Remarks by Christine Lagarde, IMF Managing Director, November 16, 2017.