CARIBBEAN: Bracing for U.S. Sneeze

By IPS Correspondents Reprint | | Print |

Peter Richards

PORT OF SPAIN, Trinidad, Oct 2 2008 (IPS) - While United States lawmakers debate the pros and cons of providing a 700-billion-dollar bailout for floundering financial firms, Caribbean countries are bracing for the cold that will follow the proverbial sneeze in Washington.

“I think in many ways the recent financial crisis in the United States exacerbates the risk of global recession with implications for development in the Caribbean, and in fact with implications on the prospects we have over the next few years in being able to address a lot of these issues,” said Desmond Brunton, vice president of the Barbados-based Caribbean Development Bank.

“I don’t think a lot of us recognise how significantly what is happening in the capital markets will affect our economies – affect them in ways that we are yet to identify,” Brunton told regional policy-makers on Tuesday.

The Inter-American Development Bank’s Multilateral Investment Fund (MIF) said this week that for the first time this decade, remittances to Latin America and the Caribbean are expected to decrease in value due to the combined effects of economic downturns in the United States and Spain, inflation and a weaker dollar.

According to an analysis of recent remittance data by the MIF, migrants from Latin America and the Caribbean will send some 67.5 billion dollars to their homelands in 2008, against 66.5 billion dollars in 2007.

“However, adjusted for inflation, this year’s total will be worth 1.7 percent less than the total sent in 2007, marking the first decrease in the value of remittances to Latin America and the Caribbean since the MIF started tracking these flows in the year 2000,” it said in a statement.

The crisis in the U.S. comes as food and energy prices continue to soar around the world. The Caribbean region’s annual food import bill is about 3.5 billion dollars, although there is an abundance of rich but uncultivated land in the area ranging from Belize in Central America to Suriname on the South American mainland.

At an emergency summit meeting in June, Caribbean Community leaders discussed greater investments in agriculture, although it is still unclear how the spreading crisis could affect nascent projects in the works.

“We must now embark upon greater fuel efficiency, as well as the pursuit of alternative sources of energy,” warned Trinidad and Tobago’s Prime Minister Patrick Manning at the time.

“We must ourselves produce more and consume less, and, above all else, we must move towards the highest level of food production and the stimulation of the agro-industry. We are heading for a global crisis,” he said.

Tourism, a mainstay of many islands, would be among the sectors to be immediately affected, noted University of the West Indies economist Don Marshall.

“Tourism sectors throughout the Caribbean will receive a bit of a blow because the first thing that the [people of the] United States, which is a global consumer of leisure, will do is to cut back on the amount of money they spend on holiday travel,” he predicted.

Oil-rich Trinidad and Tobago says it is still examining the possible effects of the U.S. situation on its economy, even as Finance Minister Karen Nunez Tesheria said that the Central Bank had given the assurance that it had no holdings in any of the troubled U.S. financial institutions.

Bermuda, a leading Caribbean tourism destination, is warning of “potential employment repercussions” and Finance Minister Paula Cox said prospects for economic growth next year may be lowered and that some private sector projects could be affected.

Marshall said the agriculture and manufacturing sectors in the Caribbean were also likely to suffer because “anytime you have a situation where there is a credit crunch, the banks are unwilling to lend to other banks, and we know that agriculture and manufacturing sectors of the region rely heavily not only on venture capital but bank capital.”

St. Lucia, for example, has said foreign investors were finding it difficult to gather funding for some capital projects identified in St Lucia’s current fiscal programme.

“We are not immune to the downturn in the USA because of our dependence on international trade and foreign investment,” said Trade Minister Rufus Bousquet, adding “we are working on it and tailoring our whole developmental agenda with a view to dealing with the specific problems we are facing”.

St. Vincent and the Grenadines Prime Minister Dr. Ralph Gonsalves said nationals residing in the United States would also be severely affected by the financial crisis, since some of them would become unemployed and unable to remit monies back to the island that could in the long run affect the local economy.

However, Jamaica’s Finance Minister Audley Shaw insisted this week that the island’s financial system is not endangered by the crisis in the United States.

“Depositors, policyholders and pensioners can rest assured that our financial system remains well capitalised, well-supervised and has the strong backing of the central bank and the government,” Shaw said in a statement in the House of Representatives.