The small states of the Caribbean often face unique challenges — hurricanes and other natural disasters that hit with some regularity, high debt levels, less diverse economies than their larger counterparts, and susceptibility to turbulence in the foreign markets that send them tourists and investment and offer them trade possibilities.
But a new World Bank report, “Open and Nimble: Finding Stable Growth in Small Economies,” suggests that other small economies around the world face similar challenges and that small size alone doesn’t mean the countries of the Caribbean Basin are condemned to underdevelopment or lower growth rates.
On Thursday, executives and top government leaders from around the Caribbean will gather to discuss how to cushion Caribbean Basin economies from volatility in economic growth.
The conference, “The Caribbean Dilemma,” will be held at the Biltmore Hotel in Coral Gables and will feature two prime ministers — Allen Chastanet of St. Lucia and Keith Mitchell of Grenada — and a keynote address by Michael Lee-Chin, chairman of Jamaica’s Economic Growth Council and chair of Portland Holdings, a private investment company based in Canada.
Organized by the Miami Herald/El Nuevo Herald and presented by the World Bank, the conference will also bring together panels of economists and business and financial leaders to discuss strategies for long-term growth, how small economies can become more nimble in meeting external challenges, and efforts to strengthen fiscal and financial policies so Eastern Caribbean States aren’t so vulnerable to swings in trade, foreign investment and interest rates.
Many Caribbean states are highly dependent on selling their sun and sand to tourists.
“Larger economies tend to put fewer eggs in one basket than smaller economies,” said Daniel Lederman, the World Bank’s deputy chief economist and co-author of the “Open and Nimble” report. But faced with economic downturns, smaller economies are often more adaptable in changing their export mix, he said.
Costa Rica, for example, was long dependent on the export of bananas, coffee and other agricultural products. But in a relatively short period, it reinvented itself as a small manufacturing power and a purveyor of green tourism, Lederman said.
Among remedies to cushion volatility, he said, are regional cost-sharing solutions like the Caribbean Catastrophic Risk Insurance Facility that Caribbean nations pay into and then have the ability to draw funds from if hit by a natural disaster. After Hurricane Matthew tore through Haiti, Barbados, St. Lucia and St. Vincent last year, the fund paid out more than $29 million to the four nations.
Since the inauguration of CCRIF, it has paid out almost $68 million to its 10 member governments.
Better fiscal policies and debt management also can minimize the impact of external shocks on smaller economies, Lederman said.
Fiscal policies in many of the smaller Caribbean economies tend to be pro-cyclical, meaning they spend more money when their economies are growing and less in hard times, said Francisco Carneiro, the World Bank’s lead economist for the Caribbean.
But he said members of the Organization of Eastern Caribbean States should consider a counter-cyclical approach where they save during good times and “lean against the wind” so they can spend during bad times.
He cited Grenada as a potential model for other Eastern Caribbean nations.
Devastated by Hurricane Ivan in 2004, the country is once again enjoying economic growth thanks to improvements in its tourism product, its spice exports — and its rules-based fiscal policy. In Grenada, fiscal policy drives the budget process rather than the other way around, said Carneiro, who will present the report “Taming Volatility: Fiscal Policy and Financial Development for growth in the Eastern Caribbean” at the conference.
The World Bank economists also found that remittances sent by Caribbean emigrants living abroad cut both ways. On one hand, they’re associated with higher growth rates and poverty reduction. But on the other, they may function as a substitute for domestic savings, which can spur higher growth.
Remittances also may be a disincentive to holding a job. For every three Jamaican-born adults, said Lederman, one lives abroad, one works in Jamaica and the third does not work. Remittances mean people can survive without necessarily working, he said.
The upshot, he said, is that smaller economies that are more dependent on remittances need to make themselves more attractive to working-age populations.
Miami Herald Caribbean correspondent Jacqueline Charles contributed to this report. Follow her on Twitter: @Jacquiecharles.
Follow Mimi Whitefield on Twitter: @HeraldMimi.
If you go
When: Thursday, 8 a.m. to 12:30 p.m.
Where: The Biltmore Hotel, Alhambra Room.
Price: $75 in advance, $100 at the door.
Purchase tickets: http://amco.bpt.me