Caribbean harmony is the key to prosperity. Compton Bourne, president of the Caribbean Development Bank, tells Sophia Hoffmann that greater regional cooperation is vital
EM: What are the biggest challenges facing the Caribbean nations today?
CB:The biggest challenge is to establish new bases of growth in the light of eroding trade preferences and falling financial assistance to the countries. There needs to be significant modernization.
One concern is to reduce vulnerability to natural hazards. Hurricanes and periodic flooding have set countries back by destroying capital and weakening confidence. There needs to be a programme to address this. One can’t stop the hurricane but one can reduce the extent to which it damages the system.
EM: How is the Caribbean Development Bank helping countries to overcome these challenges?
CB:The main way is by mobilizing international capital and channelling funds into investments in key areas. We have financed quite a bit of infrastructure and helped modernize the sugar industry in Guyana. Financing human resource development, education and training at all levels is important.
We target poverty reduction through a special window to build people’s capabilities to engage in the economic system. A lot of time is spent on developing policy awareness and providing training to ensure that investment programmes are designed to take into account the probability of natural hazards.
We participate quite intensively in the major policy initiatives that the regional economies are taking and provide advice.
EM: How can countries prevent their external debt reaching unsustainable levels?
CB: We try to ensure that countries are aware of the longer-term consequences of what might seem to be debt on easy terms. In some cases the question of restructuring debt might have to be addressed, to find a transitional period to establish a more manageable situation.
Belize has a very high rate of debt exposure and the Jamaicans are seeking to bring their debt profile into better shape. There are quite a few countries, and I think that there is a need for a region-wide programme of debt management.Countries need to find other avenues than trade taxes for fiscal revenues, and a number of governments are already proceeding in that area. Also revenue collection has to be improved. There is a problem of revenue loss simply because the capacity to collect revenues is not there and because of tax evasion.
Debt forgiveness would help in many cases. But forgiveness is more effective if it is part of a restructuring that extends the repayment period, rather than not paying at all.
EM: How serious is the possibility of debt default in the region?
CB: I don’t think that there is a real possibility of debt default. The Caribbean countries have an extremely good track record – I am tempted to say perfect track record – in honouring their debt obligations. In the few instances where countries have found themselves with real difficulties of meeting debt payments they have engaged in discussions with the creditors to restructure the debt or engage in debt swaps.
EM: High liquidity sometimes leads to irresponsible lending by investors. How do you see this problem?
CB: Some investors are greater gamblers than others and bet on recovering their capital in a short time. Countries need to remember that the fact that money is easily available does not mean that it is necessarily a good thing to take that money.
Some providers of short-term funds are only concerned about their margins and not about how resources will be used. Development institutions and bilateral donors, on the other hand, are concerned with putting resources to good use. Countries have to accept that easy money is not necessarily good money.
EM: How do you think that irresponsible lending can be prevented?
CB: That is a really difficult question. We advocate the strengthening of countries’ capacity to manage their debt. It is not always clear that governments fully understand the implications of the terms they agree to.
Ultimately, it concerns the fact that when governments are faced with a fall in revenue and there is a clamour for public expenditures, they sometimes take what seems to be the easy road of action. It is a question of fiscal discipline and responsibility. But this cannot be imposed.
EM: Do the interests of investors and the goal of macroeconomic stability match the interest of poverty reduction?
CB: To reduce poverty on a sustainable basis it is essential that economies grow. But at the same time, one has to recognize that the process of the trickling down [of wealth] could be slow and not evenly distributed.
Developing the capacities of the people who are poor speeds up the process of growth. Making provisions for better nutrition, better health among poor people, improving educational opportunities and the environment in which they live, is crucial. People become more productive; it enhances their ability to contribute to the growth process and reduces some of the demands for transfers.
There is a very close symbiosis between economic growth and poverty reduction. You cannot solve the problem by simply giving handouts; you have to enhance capacity.
EM: How do you evaluate the global trade regime with regard to the interests of the Caribbean?
CB: The global trade regime, in setting the benchmark of open competition and in seeking to put that fully into place in a short time, creates difficulties not only for the Caribbean but for other developing countries too.
The development agenda, as agreed in Uruguay many years ago, says that developing countries need to overcome their initial weaknesses and deficiencies if they are to have a real chance of competing successfully. Financial and technical assistance needs to be linked to the trade regime. Otherwise, instead of evening the playing field, more unevenness is created.
EM: What are the future areas of economic growth in the Caribbean?
CB:Tourism remains one of the central industries and has to be modernized. Traditionally, tourism was largely about the sun and the sand, but there are a much wider variety of products that encourage people to travel. I don’t think manufacturing is likely to be a major dynamic.
Agricultural production has to be linked to the tourism industry and the domestic demand for food. The Caribbean imports a very large proportion of its food from overseas and there is scope for substitution here.
We must not lose sight of the abundant supply of natural gas in Trinidad and Tobago. If used, it could make a big difference to operational costs because natural gas is a cheaper fuel than petroleum.
EM: What can the international community do to help Caribbean countries manage their difficult economic situation? CB: The key requirement is to accept that although Caribbean economies are committed to an open and competitive international system, their ability to cope within that system is very limited.
A transitional period, in which there is a combination of financial assistance and technical assistance, is a necessity. The countries cannot make adjustments within a very short period of time and without significant investment and the development of new industries.
The international community has to realize that small countries are extremely susceptible to natural hazards on a national scale. A hurricane in Grenada means all of Grenada, not a part of Grenada.
The room for insuring against natural hazards by economic diversification is not great. This is a permanent problem, which requires understanding and, from time to time, access to emergency funding.