Morrison
The countries of the Caribbean will this week get their turn at the Summit of the Americas to be held in Port-of-Spain to frame the issues affecting the region as a result of the worst global economic crisis in over 60 years. But it won't have the political leverage it had in the early 1980s, the time of the last deep world recession.
Back then at the peak of the Cold War rivalry between the United States (US) and the Soviet Union, the Reagan administration placed great priority on beating back the feared communist threat in America's backyard. It actively courted the loyalty of regional countries and this served as leverage for the Caribbean to gain increased economic assistance from Washington and concessions from the International Monetary Fund (IMF), World Bank and the Inter-American Development Bank.
Jamaica in particular not only pulled in vastly higher amounts of aid funds from the US government but it was able to secure a sizeable contract for sale of bauxite to the US strategic stockpile that kept two major mining operations open. For at least the half of the 1980s, we were also given less stringent conditionalities in loan agreements with the IMF and World Bank. Not only has the US geopolitical focus changed dramatically, but its economic situation has deteriorated.
In short, the options of the 1980s that helped America's regional political allies weather the economic storm simply do not exist today. And at this time, Caribbean votes are not needed to help shift the balance on any decisive matter at the United Nations or any other international forum. Nor is there any competition on ideological or other grounds that would push the Americans to offer the region political rent as it did in the 1980s. We are therefore left with the drug trade, trade development and terrorism as the most potent agenda issues of mutual interest.
Dependence
In a real way, early recovery of the US economy is perhaps the most important step that can help the region. With the heavy dependence of its tourist industry on the US travel market, the region is being squeezed as the recession deepens. The Bahamas, Cayman Islands, Bermuda, Aruba and Jamaica are the most exposed. As a whole, Caribbean destinations saw US visitor arrivals decline in the second half of 2008 in both the stopover and cruise categories bringing the growth rate for the year to just 0.4 per cent.
Forced to offer deep discounts to attract bookings, the industry recorded lower revenues which means that foreign earnings were less even in those cases where arrivals increased. The less economically resilient countries are therefore likely to face mounting balance of payments pressures the longer the crisis continues. Jamaica is among the more vulnerable since the economies of The Bahamas and the Cayman Islands are more robust even though these destinations are more dependent on tourism and the US travel market.
The region's ability to sustain inflows of foreign direct investment is also being hurt by the US economic problems. The impact is most heavily felt in The Bahamas, Cayman Islands, the Dominican Republic and the Eastern Caribbean where the larger portion of such inflows to the tourist industry has come from the US. Jamaica has relied more on European investments but as the US travel market is essential to the tourist industry these investments have slowed.
Jamaica, the Dominican Republic and The Bahamas used heavy inflows of foreign capital in recent years to drive their economies and these were mostly linked to tourism and tourism-related infrastructure. These inflows are drying up and in The Bahamas several mega-projects have been shelved. Construction workers are already feeling the pinch and the long recession and slow turnaround which are being projected suggest that the next upside of the investment cycle could be some years off.
Trade agreements
In recent times, Canada has provided increased business opportunities as Caribbean-Canada relations have taken on greater prominence in discussions about the region's economic prospects. Word is that trade agreements are to be upgraded. Though it is not a replacement for the dominant US economic links, Canada is becoming a growth market for the region's tourist industry. Over the last two years, stopover visitors from Canada went up by more than 25 per cent and Jamaica had spectacular success in recording an increase of over 50 per cent.
The big source of cash flowing from the US economy to the Caribbean is, of course, remittances. In Jamaica's case, this source generated US$ 1.1 billion in 2008, far exceeding any other source in net terms. Whereas in other recessions these flows were hardly affected, we are now seeing a significant decline. In fact, the inflows for February fell by over 18 per cent. Indications are that the services sectors of the US economy have suffered sharper job losses in this recession and as Jamaican migrants are largely employed in those areas, their finances have been squeezed.
An important point to note about this recession in the USA is how the health sector has continued to expand, including in terms of employment levels. This suggests that it is an area which could offer a stable market for services that Jamaica could offer as an offshore health centre. Ageing populations in both the USA and Canada provide the long-term investment horizon which should attract investors. Jamaican and indeed, Caribbean nurses and other health workers have long demonstrated competitive advantage in this field. By making the requisite institutional arrangements and expanding the training system, a new economic sector could be created locally. Already an excellent telecommunications system, an essential ingredient, is in place. The input of the US government would be needed but this is the least that Americans could contribute to raise the economic situation of those on its third border.
Dennis Morrison is an economist. Feedback may be sent to columns@gleanerjm.com.