Regional Integration in the CaribbeanRemarks by Mr. Takatoshi Kato
Deputy Managing Director, International Monetary Fund
At the Conference on the Caribbean — A 20/20 Vision
The World Bank, June 19, 2007
As Prepared for Delivery
Ladies and Gentlemen,
Thank you very much for the kind invitation to speak at this important event highlighting integration in the Caribbean. This region recognized long ago that the key to greater prosperity lies in working together and increasing economic ties both within the region and with the rest of the world. We, at the Fund, fully share this vision, and it is my sincere hope that your discussions over the coming days will help move this agenda forward.
The Caribbean region is particularly well placed to benefit from globalization. Its rich democratic history, generally strong institutions, and impressive social indicators (notably on education and health) provide a solid foundation for working together as a region to compete effectively in the global economy. The region has already proven adept at seizing on its comparative advantage by developing a thriving tourism sector, and it is now broadening the market to new visitors such as those from Asia and Eastern Europe. Of course, it is important that growth in tourism also benefits other sectors of the economy, and that successful transformations of the manufacturing and agriculture sectors continue.
Regional collaboration and integration will also help overcome the limitations and vulnerabilities inherent in the relatively small size of individual economies. Continued progress toward a common Caribbean market will allow small economies to pool their resources and provide local firms with access to larger markets—a key foundation for boosting efficiency and sustaining dynamic growth. Experience elsewhere shows that regional integration also strengthens the ability of countries to cope with negative shocks. This is a particularly relevant benefit for the Caribbean region where, as you know, the impact of shocks can be devastating for any single economy. In this connection, reforming still quite rigid local labor markets remains a priority to make economies more dynamic, flexible, and resilient.
The region is already making highly welcome efforts on many fronts to work together more closely, coordinate policies, and present itself globally as a united group. You have, for example, already started to consult on how best to coordinate policies in the financial area, where cross-border flows and linkages are multiplying with growing speed. Clearly, this area is a prime example of the benefits integration offers, in terms of increased credit flows, investment, and economic opportunities. But it also demonstrates the policy challenges integration brings, in this case the need to harmonize regulations, coordinate on issues of cross-border supervision and guard against the risk of destabilizing flow reversals.
Regional integration also offers great opportunities to learn from each others' experiences on common issues, such as education and migration. Looking ahead, an important area for collaboration is for countries to coordinate a common approach to tax incentives. The aim here would be to maintain the region's attractiveness to foreign investment while avoiding a "race to the bottom" that erodes domestic tax bases, especially given the high debt levels in the region.
The IMF sees itself as a partner in this process. A prime goal of our work is to help countries seize the opportunities afforded by globalization and guard against its risks by providing them with macroeconomic policy advice, capacity building, and—where relevant—adjustment lending. However, as part of the Fund's new Medium-Term Strategy, we have strengthened our emphasis on regional surveillance, bringing our analysis and policy advice to bear on issues of regional importance. Our Caribbean work program over the past year has, for example, focused on the "regional" themes of financial integration, tax concessions, and the loss of trade preferences. In addition, we have stepped up our capacity building activities in the region, including through the Regional Technical Assistance Center for the Caribbean (CARTAC) for which the IMF is the implementing agency.
To sum up, I believe that this region is well positioned to press ahead with its regional integration efforts, to compete effectively in the global market place for jobs and investment, and thereby provide the basis for faster growth and further improving living standards. We at the IMF look forward to continuing our collaboration with our Caribbean partners, in full support of these efforts.
Thank you very much.