The Caribbean and the IMF—Building a Partnership for the Future, by Christine Lagarde, Managing Director, IMF
IMF News, June 27, 2014
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- Published: June 27, 2014
A changing Caribbean
- Regional legacy: "low growth, high debt, low competitiveness, high unemployment."
- Growth performance:
- "Growth has averaged less than 2 percent a year since the mid-1990s" in tourism-dependent countries.
- "Less than 1 percent in Jamaica."
- "The economy grew by 1.6 percent year-over-year in the first quarter of 2014" (Jamaica).
- "St. Kitts and Nevis... grew by almost 4 percent last year."
- Public debt and fiscal vulnerability:
- "Public debt is still at record highs—almost 100 percent of GDP in tourism-dependent countries, and 140 percent of GDP here in Jamaica."
- "Public debt has fallen by 15 percent of GDP in Antigua, and by one third in St. Kitts and Nevis."
- Social outcomes and labor markets:
- "About a third of young people are out of work" (region-wide).
- "In Jamaica, the poverty rate doubled to 17½ percent."
- Crisis legacy:
- "Six years on, output has still not returned to pre-crisis levels."
- Natural disaster exposure and macroeconomic volatility exacerbate vulnerability.
- Jamaica reform example:
- Measures included a "wage freeze on civil servants," "a debt exchange for financial investors," "increases in taxes and tariffs for water and transportation," and allowance for the exchange rate to adjust.
- Social protection: "raising cash transfers for poor households by 67 percent for the elderly and 15 percent for others last year, with another 15 percent increase planned for this October."
- Institutional innovation: Economic Program Oversight Committee monitoring the reform program with representation from "public sector, private sector, civil society, and trade unions."
Completing the Caribbean voyage (policy priorities and structural reforms)
- Overarching goal: "building on stability to lay the structural foundations of sustained and inclusive growth."
- Competitiveness:
- Exchange-rate adjustment can restore competitiveness ("letting the exchange rate depreciate... has helped restore a good deal of lost competitiveness").
- High energy costs are a binding constraint: "Electricity costs three times as much in Jamaica as in the United States. It costs even more in Barbados."
- Policy directions: "conserving and renewing energy," "bring more competition and dynamism to the energy sector."
- Human capital and labor:
- Invest "more smartly in education and training" to match skills to labor-market needs and lift youth prospects.
- Make labor markets "more effective in creating jobs."
- Business climate and public sector:
- Improve business environment by "reeling in much of the red tape" and simplifying fiscal incentives ("fiscal incentives could be made simpler and less murky").
- Public sector should provide "greater predictability, transparency, and impartiality."
- Regional cooperation:
- Advocate regional approaches to "transportation infrastructure and the marketing of tourism."
- Warning against tax competition: "There would be more revenue for all if countries resisted the temptation to compete with each other on taxes to attract business."
- Climate change and resilience:
- Climate change is "a first-order global priority" and a direct threat to low-lying islands (example: "Georgetown, Guyana’s capital, lies entirely below sea level").
- National/regional adaptation priorities: invest in resilient infrastructure; improve water management; better land planning; strengthen institutional disaster management; strengthen catastrophic risk insurance frameworks.
- Three guiding principles for reform ownership and implementation:
- Ownership of the reform program.
- Stewardship of the economy, including nurturing resources and investing in people.
- Partnership with each other and with the international community, including the IMF.
A changing IMF (how the IMF supports the Caribbean)
- IMF as forum for international economic cooperation: "owned and operated by its members" including 188 member countries.
- Three core functions delivered to members:
- Policy advice: convene knowledge and best practices; focus on sustainable and inclusive growth in the Caribbean through high-level conferences (Trinidad 2012, Bahamas 2013, Montego Bay later in 2014).
- Lending:
- "Making 159 new lending commitments and disbursing almost $200 billion" since the crisis.
- Partnered with Antigua and Barbuda, St. Kitts and Nevis, Jamaica, Grenada; supported recovery after natural disasters in Haiti, Dominica, St. Lucia, and St. Vincent and the Grenadines.
- Capacity building:
- Technical assistance and training to members; "technical assistance to 90 percent of them."
- Regional engagement through CARTAC (technical assistance center in Barbados) and emphasis on strengthening public financial management systems.
- Institutional stance and evolution:
- Shift toward prioritizing "growth and jobs," addressing "excessive income inequality," climate change, and female labor-force participation.
- Increased emphasis on protecting social safety nets and sharing adjustment burdens fairly.
- Commitment to listen, learn, and adapt to member needs; reframing the IMF as combining "head" and "heart."
Conclusion
- Both the Caribbean and the IMF "are very different today" than in previous decades.
- Progress requires continued reform, ownership, stewardship, and partnership to realize inclusive and resilient growth.
- Optimistic closing: invoke Derek Walcott—aspiration for "days when every street corner rounds itself into a sunlit surprise."
Source: The Caribbean and the IMF—Building a Partnership for the Future, Christine Lagarde, Managing Director, International Monetary Fund, June 27, 2014.