Women picking coffee cherries, Jamaica. The country has made some hard choices to get growth higher, cutting spending while protecting the most vulnerable (photo: Bojan Brecelj/Corbis).
Lagarde Speech
Speaking at an event organized by the University of West Indies in Mona, Jamaica, she called on Caribbean countries to “build a partnership with each other and with the international community—including the IMF.”
“A partnership with the IMF is really a partnership with the community of nations,” Lagarde added. The IMF is an organization that is “owned and operated” by its members—and that includes the people of the Caribbean.
As part of this partnership with the region, the IMF has organized a number of high-level conferences on how to bring about sustainable and inclusive growth in the Caribbean. One conference was held in Trinidad in 2012 and one in the Bahamas in 2013—and a third conference will take place in Jamaica, in Montego Bay, later this year. The IMF is also paying special attention to the needs and concerns of small states, Lagarde said.
The outreach event at the University of West Indies also drew in students from campuses in Barbados and Trinidad and Tobago. During the question-and-answer session, students asked about the impact of the uncertain global environment on their countries.
Difficult legacy
“The Caribbean has had a tendency to get stuck in the doldrums of stagnation—low growth, high debt, low competitiveness, high unemployment,” Lagarde observed.
This has been especially true for the countries depending largely on tourism, like Jamaica. In these countries, growth has averaged less than 2 percent a year since the mid-1990s—and less than 1 percent in Jamaica.
“Given this legacy, the Caribbean was vulnerable going into the global financial crisis, and was hit with its full force,” Lagarde stated. “Six years on, output has still not returned to pre-crisis levels, and public debt is still at record highs—almost 100 percent of GDP in tourism-dependent countries, and 140 percent of GDP here in Jamaica.”
“As always, the poor and the vulnerable were hit hardest by the crisis,” she added. Across the region, about a third of young people are out of work.
A changing Caribbean
The global financial crisis was “a major wake up call,” Lagarde pointed out. The good news, she noted, is that Caribbean leaders understand the need for change and have begun to deliver on reforms.
In the case of Jamaica, the country has made some hard choices to get growth higher and debt lower. “While Jamaica implemented difficult measures, it tried to spread the burden across society—a wage freeze on civil servants, a debt exchange for financial investors, increases in taxes and tariffs for water and transportation, and higher import prices as the exchange rate was allowed to adjust,” Lagarde said.
“And while the government was cutting spending, it was doing its best to protect the most vulnerable—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 October.”
While Jamaica is not out of the woods yet, there are some positive signs. Public finances are healthier and growth has returned. “We can see similar signs in some other countries that are navigating their way through difficult reforms,” Lagarde said.
Unique institution
Jamaica has also come up with a great innovation in ownership, Lagarde noted. The government’s reform program is being monitored by an outside group, the Economic Program Oversight Committee, drawn from all strands of society—public sector, private sector, civil society, and trade unions.
“This is surely a role model that should be emulated elsewhere. With everybody inside the tent, all voices are heard, and everyone has a stake in success,” Lagarde said.
Jamaica’s four-year economic reform program, supported by the IMF, is off to a good start. The fourth review under the program was completed by the IMF Executive Board on June 20.
Long-term challenges
The Caribbean is adapting and building economic stability to lay the structural foundations of sustained and inclusive growth.
To continue with this change, Lagarde stressed that the region needs to address the twin challenges of competitiveness and climate change.
“Competitiveness is vital in a region of small open economies that rely on tourism,” Lagarde said. Competing in world markets means keeping a lid on production costs. In Jamaica, letting the exchange rate depreciate, although painful, has helped restore a good deal of lost competitiveness, and will support investment and job creation.
“But competitiveness that ignores climate change is hollow competitiveness,” Lagarde stated. Even though climate change requires a global solution, there are measures that the Caribbean can take to protect its people and make its economy more resilient to the forces of nature. For example, it can invest in the infrastructure needed to better withstand natural disasters.
“If the region can get to grips with these challenges, I believe that its voyage will be successful,” Lagarde concluded.
