Business Journal Dec 2011

contents 4

From the Editor

35 Grenada art

5

Airlines call on authorities to meet industry needs

36 Books

6

FDI rises in the region

8

Suriname renews partnership with the World Bank

December 2011

10 The ACP as a global partner 14 Beyond the gender gap 16 Survival, adaptation and uncertainty in 2010: so what’s new?

CARICOM region welcomes two new leaders

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20 Some reflections on the regional banking system 25 ECLAC proposes parameters for defining broadband in Latin America 32 World Bank report 2011 34 FAO paper highlights how food sector can tackle energy challenges to safeguard a food-secure future

Editor: Linda Hutchinson-Jafar Contributors: Ambassador P.I. Gomes Anthony T. Bryan

Trinidad, IDB sign US$130 million loan

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From the Editor’s Desk

Unsettling Times

A

s we get set to leave 2011, there continues to be troubling news on the global front which are quite reminiscent of 2008 - the long-term fallout effects which the Caribbean continue to battle.

Our attention is now riveted on the Eurozone and whether the worsening debt crisis there can be averted.

Any crisis in the Eurozone will no doubt have implications for the rest of the world including us in this part of the western hemisphere.

While the Eurozone is battling its latest problem, there continues to be growth in places like China, India and Brazil.

In our final issue for 2011, we have reproduced two speeches from Trinidad and Tobago’s Central Bank Governor, Ewart Williams and International Monetary Fund (IMF) Assistant Director, Western Hemisphere Department, David Vegara Figueras which should shed clarity for the Caribbean and how global events might impact us.

We’re also looking at the impact of the decision by the UK Government to maintain the high Air Passenger Duty (APD) system to Caribbean destinations, which tourism officials say will result in fewer tourists visiting the islands.

The APD rates to Caribbean destinations are considerably higher than those to some competitor destinations.

For the most part, 2011 was yet another challenging year for the Caribbean with most of the economies reporting flat growth or very small gains.

Unfortunately, many of our countries are entering 2012 carrying over the old burdens which hopefully, they can shed.

From all of us at Business Journal, we wish you the very best in 2012.

Editor

DECEMBER 2011 | Business Journal

AIRLINES CALL ON AUTHORITIES TO MEET INDUSTRY NEEDS

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he need for increased government cooperation and investment was evident in a series of resolutions adopted by ALTA members with the conclusion of its recent 31st General Assembly and the 8th annual ALTA Airline Leaders Forum in Rio de Janeiro, Brazil.

“While the aviation industry in Latin America continues to reach major milestones and grow at significant rates, there are many variables that can negatively affect the industry,” said Alex de Gunten, Executive Director of ALTA. “Without the collaboration of regional authorities and governments, and a serious look at issues related to infrastructure, over taxation and lack of harmonization, the progress we have achieved during the last two decades is at risk.

We call on governments to proactively keep up with the growth of aviation in the region,” he said.

ALTA´s members adopted several resolutions during its 31st Annual General Meeting that took place during this year’s Forum, which gathered more than 500 industry leaders from throughout Latin America, the Caribbean, North America and Europe: Safety Safety is priority #1 for ALTA and its airline members.

While accident rates involving fatalities in the region have diminished dramatically, as evidenced by the absence of any fatal accidents in 3 years, ALTA’s goal is for Latin American and Caribbean carriers to match or surpass the safety record of the US by 2014. ALTA members recognize that challenges remain and are committed to ensuring further progress in the region. The Resolutions once again call

on governments to adopt IOSA as a general standard in their national regulations and exhort governments to adopt all necessary measures to implement new technologies such as PBN and R-NAV routes.

Competitiveness Given their hard work and strong leadership, ALTA’s airlines are among the most efficient in the industry, and have made excellent progress in improving operations and cutting costs. However, they are continually affected by monopolistic charges and over taxation, which negatively impact the airlines and the end consumer. ALTA’s members agreed on the following: •

•

With the goal of improving infrastructure and improving efficiencies, ALTA calls on governments to cease diverting funds from taxes and fees collected from the airlines and reinvest them in the industry They exhort governments to be cautious in their economic regulation regarding airport privatization and concessions and avoid past mistakes, such as: - Pre-financing investment; - Allowing airports to extend monopolies to ancillary services; - Providing concessions with a focus on revenue generation versus airport efficiencies; - Lack of competitive pricing; - Lack of consultation processes with users, such as the airlines; - Lack of independence between regulators and operators.

business journal | DECEMBER 2011

Foreign Direct Investment Rises by 54% in the First Half of 2011 in the Region Despite positive projections, the global financial volatility generates uncertainty regarding the region’s economic performance.

During the first semester of 2011, foreign direct investment (FDI) in Latin America and the Caribbean showed significant growth, maintaining the trend observed since 2010.

According to the Economic Commission for Latin America and the Caribbean (ECLAC), FDI flows to 18 economies in the region increased by 54% during the first half of 2011 compared with the same period in 2010.

However, the region has shown a significant drop in its foreign investments, which posted a negative balance during the first half of the year.

ECLAC estimates that by the end of 2011, FDI inflows will grow significantly, which could mean a new historical record, confirming the projections made in May. “The current flows of investment confirm the good performance of Latin American and Caribbean economies, despite the economic turbulence. As for FDI, our message to the countries has been -and now I reiterate it -to take advantage of these inflows for productive and innovative development policies,” said the ECLAC’s Executive Secretary, Alicia Bárcena.

DECEMBER 2011 | Business Journal

The increase in FDI inflows is due to the stability and economic growth in most of the countries and the high prices of raw materials, which continue to attract investment in mining and hydrocarbons, particularly in South America.

However, despite the good perspectives with regard to FDI, the sovereign debt crisis in Europe, the fiscal dilemma in the United States of America and the global financial volatility place certain uncertainty on the financing of transnational companies and their future investment plans, as well as the region’s economic performance.

Brazil’s performance has been particularly important in 2011 with FDI increasing to US$ 44 billion between January and August, which is 157% greater than the figure observed in 2010. This is due to new capital contributions and the steep rise in loans between companies.

During the crisis of 2008-2009, many subsidiaries of transnational companies gave back loans to parent organizations, however, this trend has reversed over the past year.

Colombia received investments worth almost US$ 7 billion, 91% higher than during the first half of 2010 and even higher than the total investment in 2010. The investments have been primarily concentrated in hydrocarbons and mining sectors.

FDI in Venezuela posted a positive balance again of US$ 1.184 billion. However, Argentina, Chile, Mexico and Paraguay show a moderate decline in FDI inflows.

In Central America, all the countries recorded significant growth, with Costa Rica and Panama being the main FDI recipients in the sub-region. The Dominican Republic, the main recipient in the Caribbean, increased its FDI inflows by 30%, which were in the mining sector in particular.

However, Latin American companies which invest abroad - known as the trans-Latins declined abruptly during the first months of 2011. This is primarily due to the situation in Brazil, which posted a negative balance of US$ 10.8 billion.

This situation, far from meaning abandoning operations in other countries, indicates that Brazilian companies have reduced their investment activity in 2011 and they are taking advantage of business opportunities in the domestic market and protecting themselves from the uncertainty of the current global situation. Brazilian trans-Latins have experienced a strong inflow of capital from subsidiary companies located abroad to their parent companies.

Mexico, the largest investor in the region in 2010, invested around US$ 1 billion during the first half of the year, which is only about 10% of those made during the same period in 2010. Foreign investments made by Chilean trans-Latins fell by 30%.

Of the principal investing countries, only Colombia continues activity abroad. In 2011, Colombian companies are showing activity particularly in electricity, water and gas services and in financial services.

The Prime Minister of Trinidad and Tobago Kamla Persad Bissessar and Australian Prime Minister Julia Gillard during the CHOGM 2011 Opening Ceremony at the Perth Convention and Exhibition Centre on 28 October, 2011.

Photograph by John Donegan/CHOGM.

business journal | DECEMBER 2011

Suriname Renews Partnership with World Bank

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rançoise Clottes, World Bank Director for the Caribbean, Giorgio Valentini, World Bank Country Representative for Suriname, and Kirk Ifill, Representative of the International Finance Corporation (IFC), the private sector arm of the World Bank Group, undertook a three-day visit to Suriname to renew the Bank’s commitment to the country’s development efforts.

After 30 years of limited dialogue, Suriname and the World Bank Group are working on a gradual re-engagement strategy and exploring how the organization’s global knowledge and expertise can best support the government.

Since October 2010, the World Bank has been working in partnership with the Government of Suriname to develop an Interim Strategy Note (ISN). The ISN is a two-year strategy that will guide the World Bank Group’s engagement in Suriname and is closely aligned with Suriname’s Multi-Year Annual Development Plan (20122014).

DECEMBER 2011 | Business Journal

Françoise Clottes The World Bank has recently completed an Accounting and Auditing Report on Standards and Observance of Code (ROSC), which will support financial institutions to learn from and attain international best practices in the field of auditing and accounting, and is currently assessing the needs in public financial management and procurement.

Suriname’s economic growth is estimated to have risen from 3 percent in 2009 to 4.5 percent in 2010, driven by a rebound in prices of Suriname’s main commodity exports (gold, petroleum, and alumina), higher alumina production, and elevated government spending. Growth is expected to accelerate to 5 percent in 2011 supported by continued buoyant commodity prices, and large capital investments in the mineral and energy sectors.

CHANGE OF GUARDS IN ST. LUCIA AND GUYANA New leaders have been sworn into office in the Caribbean Community (CARICOM) member states of St. Lucia and Guyana.

In St. Lucia, 60-year old Dr. Kenny Anthony who served as prime minister from 1997 to 2006 was returned to power after winning general elections in the tourism-dependent island.

In Guyana, 61-year old Donald Ramotar became the country’s new President of a minority government.

Guyana’s economy depends on the export of commodities such as gold, bauxite, sugar, rice, shrimp and timber.

Prime Minister Kenny Anthony, St. Lucia

President Donald Ramoutar, Guyana

Blow for Tourism Caribbean countries are bracing for a fall-out in arrivals from the UK, a very important source markets for tourists after the administration in London announced that it will maintain the banding aspect of the Air Passenger Duty (APD) system.

Ricky Skerritt, Chairman of the Caribbean Tourism Organisation said the decision by the UK government – which means more money for a ticket to travel in the Caribbean- is a “slap” in the face for all Caribbean people.

“The Caribbean is the most tourism-dependent region of the world and the British Government’s decision totally ignores the negative effect that APD is having on our economies and the Caribbean’s business partners in the UK travel industry,” said Mr. Skerritt, who’s the Tourism Minister, St Kitts and Nevis.

business journal | DECEMBER 2011

Column

The ACP as a Global Player

By Ambassador P.I Gomes

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n this issue of the Business Journal (BJ) that closes 2011, a few thoughts are shared on major events during the year in which the African, Caribbean & Pacific (ACP) Group was involved as initiators or allies in the promotion of sustainable development and poverty eradication in its Member States.

These events are discussed as aspects that may shape future directions of the Group in 2012 and beyond. This is useful given the ACP’s Council of Ministers’ Decision in November 2010 to approve “... the setting up of the Ambassadorial Working Group on the Future Perspectives of the ACP Group” with a mandate that “expires in 2014.”

That year is important since during “2015” the Final 5-Yearly Review of the Cotonou Partnership Agreement will be undertaken prior to its conclusion in 2020.

The historical and contemporary context The historical and politically unique, internationally binding Cotonou Agreement between Europe and the ACP Group was signed in Cotonou, the capital city of the West African Republic of Benin on 23 June 2000 for a period of twenty years. The Agreement provides Five-Yearly Reviews to adjust, deepen and reexamine the relevance of the relationship taking account of the wider global realities facing both Europe’s 27 (since 2007 when the last two States joined) and the ACP’s 79 Member States. Hence 10

DECEMBER 2011 | Business Journal

the “2015 Review” will be very significant and rightly demands that the Partners begin to ask “tough” questions on what, if any future they wish for their “partnership?”

Would there be a successor Agreement, “Cotonou 2”? If so, should it embrace a wider membership of “developing countries”? Might the constituent member regions of Africa, the Caribbean and Pacific pursue alternative formations such that all of Africa, as a continent through the African Union, rather than only Sub-sahara Africa, as is now the case, becomes the core of an “All Africa-EU Agreement” outside the current “ACP Group?”

What of the 16 Pacific States in the ACP? Will they regard more economical and political advantage lies in deepened relations of the Pacific Forum with the Association of Southeast Asian Nations (ASEAN) and a role in the expanding “Asia-Pacific region”? This may indeed be feasible, as many, willingly or otherwise, acknowledge the ascendancy of Asia and decline of the “American age”? Does this not illustrate the strengthened concern, a few weeks ago, of President Obama’s assertive role to maintain the USA’s “Pacific frontier”?

It must also be asked where does the “C” in the ACP position itself in pursuit of geopolitical interests? Will its future orientation be more in the Community of Latin American & Caribbean States (CELAC) with its Mexico-centred orientation or in the amorphous GRULAC – Group of Latin America and Caribbean “caucustype” formation; and how do Guyana and Suriname perform a “gateway role” for other CARICOM Member States to be beneficiaries of

UNASUR- the Union of South American Nations, increasingly organised with a Secretariat and rotating Presidency?

These questions deservedly underlie the exploration of “future perspectives” on the solidarity and unity of the ACP Group as a whole; and address the “raison d’etre” of the ACP’s “privileged partnership” with Europe from its inception in 1975 through the Georgetown Agreement.

Legitimate and thought provoking as these kinds of questions are it is not my intention to provide answers since they will be receiving timely reflection by the ACP Group. The Ambassadorial Working Group has set about “reinventing” the Group by means of a structured and systematic process for an assessment of Cotonou by 2015, on which to craft contours for ACP’s meaningful future beyond 2020. In this column, I share some thoughts on context and trends in which the ACP is engaged as a living entity.

A heightened urgency for reflection and forward looking was certainly stimulated by various actions of the EU. For instance, the European Commission’s initiative for “joint” strategies with Africa, then with the Caribbean and presumably with the Pacific, as separate continental or regional processes, began with an elaborate 2007 Lisbon Summit and political endorsement of the Joint Africa-EU Strategy (JAES).

This telegraphed a signal that the EU could well be questioning the “exclusivity” of the Cotonou Partnership with all 79 ACP

Member States as a unified entity. Taken in the wake of the fragmentary nature of “regional negotiations” of Economic Partnership Agreements (EPAs) and their continuing contentious tensions of a questionable “trade liberalisation” model for ACP’s development, unease on the future of ACP-EU relations beyond Cotonou became explicit.

These sentiments, according to sceptics, were given credence when the EU’s Treaty of Lisbon on 1 December 2009, made no reference to the Cotonou Agreement as constituting a “privileged partnership”. To those who viewed the Lisbon Treaty, correctly in my view, as an outcome of a quasi-constitutional reform effort by the EU, omission of “Cotonou” from the Lisbon Treaty was no basis to be disturbed, as the Cotonou international agreement entrenched the ACP-EU special relationship.

In fact, the Lisbon Treaty so described as “a Treaty on the Functioning of the European Union”, is a compromised outcome of Europe’s protracted negotiations for a Constitution to state how its internal structures could be more “democratic and transparent” while charting its global role with greater “policy coherence”.

However, the signals of Europe’s unease with itself and the changing global geopolitical alignments to which the ACP was paying close attention, offered sufficiently serious grounds for the ACP to adopt a proactive stance to deepen and strengthen the unity and solidarity of the ACP. Solidarity in action- events in 2011 Rather than a chronology of activities of the Working Group so far, let us examine “Intra-ACP Cooperation” in specific areas that demonstrate, in practice, commonality of purpose and solidarity among ACP Member States. These also illustrate the consolidation of relations with the EU and developing countries as a whole, while suggesting trajectories for the Group as a Global Advocate of the rights and interests for sustainable development and equity of developing countries, as LDCs, Land Locked States or Small Island Developing States. business journal | DECEMBER 2011 11

The Fourth UN Conference on Least Developed Countries (UN LDC IV) was held in Istanbul, Turkey 9-13 May 2011.

Among the world’s 49 countries so classified as LDCs, 40 are Member States of the ACP Group. This reinforces, in principle, the active preparatory process and participation of the ACP’s committed engagement to the Istanbul Programme of Action for the decade 20112020.

In that PoA, 8 priority areas are systematically, and in various forms, integral and complimentary to the Annual Action Plans of ACP’s Intra-ACP Programme. They include: productive capacity; agriculture, food security and rural development; trade; commodities; human and social development; multiple crises; mobilising financial resources for development and capacity-building and governance.

It is useful to recall that the objectives of the ACP Group and of its cooperation with the European Union are to promote and expedite the economic, cultural and social development of the ACP States, with a view to contributing to peace and security and to promoting a stable and democratic political environment.

As stated in the Cotonou Agreement: “the partnership shall be centred on the objective of reducing and eventually eradicating poverty consistent with the objectives of sustainable development and the gradual integration of the ACP countries into the world economy.”

Effective participation in the Istanbul POA for LDCs logically fits within the priority areas that the ACP has pursued with allocations from both the 9th and 10th European Development Fund (EDF) for Intra-ACP Programming between 2003-13.

More significantly, the Istanbul Declaration reaffirmed that “South –South Cooperation as well as sub-regional and regional cooperation have an important role for LDCs in areas such as “human and productive capacity-building, technical assistance and exchange of best practices, particularly in issues relating to… energy, water resources, science and technology, trade...etc.”

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DECEMBER 2011 | Business Journal

Moreover, the statement further says: “such cooperation, including… triangular approaches, should be supported by the international community.”

Enhancing South-South Cooperation Not only is the accumulated experience and expertise of the ACP a rich repertoire to champion LDCs development but also, the recent emphasis given by a joint Initiative of the ACP and OIF (International Organisation de Francophonie) on South-South and Triangular Cooperation has shown the Group’s readiness to make a substantial contribution for innovative development financing in which “ownership” of development strategies is set by developing countries and “mutual accountability” is practiced with obligations of both donors and partners, consistent with the Paris Principles and Accra Agenda for Action.

Following Istanbul’s PoA, the ACP Group intends to set up “ a mechanism for supporting its 40 member states that are LDCS” and monitor implementation of the Istanbul Work Programme. Additionally, it is my considered view that concrete steps be explored for deeper relations with ALL LDCs and preconditions for an expanded membership of those so interested within the ACP Group.

Further thoughts The ACP Group is undertaking a deep reflection on its performance and relevance to determine how effectively it can continue to make an unique and valuable contribution to poverty eradication and sustainable development of its 79 Member States and also directly or indirectly, to other countries of the South and North. Indeed, this effort is by no means a technical or theoretical exercise given the present tumultuous changes and uncertainty, globally, as well as within Europe and ACP countries. Who would be so dare to pretend to be knowledgeable of the shape of world affairs in 3-5 years much less by 2020?

But ACP solidarity through “political dialogues” have restored democracy to Member States, afforded opportunities for “preferential trade” in sugar, bananas and cotton to fuel improvements in rural economies, despite being disadvantaged by rich countries’ subsidies, and enabled common “policy declarations” on countries in conflict, promoted development effectiveness, South-South Cooperation and regional integration.

These actions constitute social and cultural capital with which to deepen political consciousness and commitment, inspire the calibre of leadership within the ACP Group to address enormous challenges of food, energy and human security, decent work, social justice and respect for human rights. Global in their cause and local in their impact, they can only be effectively overcome through solidarity among countries. Thirty-six years of modest but meaningful success provides a strong foundation for the ACP Group to shape a meaningful future and play a dynamic role as a global player. It is a “tryst with destiny” in which all must be involved.

Dr. P. I. Gomes is the Ambassador of the Republic of Guyana to the ACP Group of States, Brussels

ACP Group of States 1. Angola

41. Madagascar

2. Antigua and Barbuda

42. Malawi

3. The Bahamas

43. Mali

4. Barbados

44. Marshall Islands

5. Belize

45. Mauritania

6. Benin

46. Mauritius

7. Botswana

47. Federated States of

8. Burkina Faso

Micronesia

9. Burundi

48. Mozambique

10. Cameroon

49. Namibia

11. Cape Verde

50. Nauru

12. Central African

51. Niger

Republic

52. Nigeria

13. Chad

53. Niue

14. Comoros

54. Palau

15. Democratic Republic of

55. Papua New Guinea

Congo (Kinshasa)

56. Rwanda

16. Congo (Brazzaville)

57. St. Kitts and Nevis

17. Cook Islands

58. St. Lucia

18. Cote d’Ivoire

59. St. Vincent and the

19. Cuba

Grenadines

20. Djibouti

60. Samoa

21. Dominica

61. Sao Tome and

22. Dominican Republic

Principe

23. East Timor

62. Senegal

24. Equatorial Guinea

63. Seychelles

25. Eritrea

64. Sierra Leone

26. Ethiopia

65. Solomon Islands

27. Fiji

66. Somalia

28. Gabon

67. South Africa

29. Gambia

68. Sudan

30. Ghana

69. Suriname

31. Grenada

70. Swaziland

32. Guinea

71. Tanzania

33. Guinea-Bissau

72. Togo

34. Guyana

73. Tonga

35. Haiti

74. Trinidad and Tobago

36. Jamaica

75. Tuvalu

37. Kenya

76. Uganda

38. Kiribati

77. Vanuatu

39. Lesotho

78. Zambia

40. Liberia

79. Zimbabwe

business journal | DECEMBER 2011 13

Beyond the Gender Gap Latin American and Caribbean Women in Search of a New Balance In many respects, the gender gap in Latin America and the Caribbean (LAC) has been closed. Today, women in the region outnumber men in schools and universities.

Since 1980, nearly 70 million women have joined the labor market ensuring that more women now work outside the home than not and that the percentage of single working women is as high as that of single men.

“The region is making important strides towards broader social equity with significant progress in poverty reduction. We are also witnessing a reduction in gender disparities,” said Pamela Cox, World Bank Vice President for Latin America and the Caribbean. “We are glad to see that the focus on improving women’s status is paying off.”

According to the new study, Work and Family: Latin American and Caribbean Women in Search of a New Balance, maternal mortality rates have been declining continuously in the region since the 1980s. In fact, those countries previously most affected have seen the most progress, with mortality rates dropping by 40 percent in the Caribbean and 70 percent in the Andean region. Latin American fertility rates are now as low as those of industrialized nations.

With the exception of indigenous populations, girls now outperform boys in education, according to the study. Female enrollment rates from primary to tertiary education have increased to the point of closing

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or even reversing the gender gap. In the labor market, such gap has narrowed faster than in any other region in the developing world. In most LAC countries, the rate of women working has at least doubled since the 1960s, and has tripled in Brazil.

This expanded professional engagement of women in Latin American society has also translated into higher participation in formal politics, with the share of parliamentary seats held by women in the region at nearly 24 percent, the highest among all regions of the world.

The dramatic increase in working women has brought a level of financial and social equality between men and women unimaginable decades ago. Yet increased access to work and financial independence don’t automatically translate into improved wellbeing. The new study, cautions against such simplistic conclusions, and urges a nuanced understanding of differences that remain and that require a new approach to gender issues.

instances of domestic violence. Understanding the conditions that affect bargaining positions is therefore crucial in today’s reality.

Household interactions are seldom exploited in the design of policy. Notable exception are conditional cash transfer programs, pioneered in Latin America, which favor women as the recipients of small stipends given in exchange for keeping children in school and getting regular medical checkups. These programs are designed on the presumption that money in the hands of women is spent differently and benefits children more.

“Gender policy in the region is at a crucial Michele Bachelet juncture,” said World Bank Chief Economist for Latin America and the Caribbean, Augusto de “Latin American women have come a long way la Torre. “The evidence and analysis presented in a relatively short time, with increased access in this study indicate that women in the region to health, education and employment,” said are increasingly facing the complex challenge UN Under-Secretary-General and UN Women of balancing different roles, identities, and Executive Director Michelle Bachelet during aspirations. These complexities have to be the launch. “Now we need to consolidate gains brought to the center stage of policy design, and reduce inequities, address with a greater emphasis on equity the double burden of women’s than equality.”

The dramatic unpaid work, and increase The study documents, for increase in women’s political participation instance, women’s demands working women and leadership. To this, UN for greater flexibility.

Today, has brought a Women is committed.” Bachelet unfortunately, formal labour level of financial was President of Chile from 2006 market institutions are still woefully and social to 2010. insensitive to these needs leaving equality between The quest to achieve workwomen in the region resorting to men and women life balance reflects the tension informal employment -- trading unimaginable commonly known as “mothers’ basic labour protections and career decades ago. guilt.” In Latin America and the advancement for the job flexibility Caribbean, men and women tend that facilitates balancing family to still believe that young children are likely to responsibilities. suffer if their mothers work. However, more and This puts a premium on policies that help more women and men in the region also believe women find a balance among competing that women’s identity extends beyond their role demands-- through labour contracts that allow as a housewife. This apparent contradiction flexible leave and part-time arrangements, or represents the tensions between the roles and regulation that better protect informal unions. identities women now seek to reconcile.

Legislation that acknowledges the pressures As discussed in the report, in some of motherhood in today’s world can generate cases, household dynamics can yield efficient important returns by enabling women to fulfill allocations of resources, with both spouses their identities as mothers and workers, raising gaining from cooperation. In others, household the quality of their economic participation, interactions may be far less efficient leading increasing their well-being, and that of the to destructive outcomes, including extreme entire household. business journal | DECEMBER 2011 15

Commentary Survival, adaptation and uncertainty in 2012: so what’s new?

By Anthony T. Bryan

I will hedge my bets that the world, as the majority of the world’s population now knows it, will not end (according to Mayan prophecy) on 21 December 2012!

But perhaps some will feel as if it is about to, while others will harbour the thought that it should. The global money system seems headed for self destruction, as are many elements of the natural environment.

There are certain trends underway that will germinate during 2012 and bring about a changed landscape for the world and our region.

Of course that happens continuously, but at times it may be good to take a reality check and a look forward with some degree of calm before events overwhelm us.

First, the economies of Western Europe and the United States will continue to flirt with economic disaster because of the indecisiveness and recalcitrance of politicians on both sides of the Atlantic who place their greed and their own survival above the public good. The Eurozone seems headed for collapse despite frantic efforts to rescue it, and the United States will be a victim of self-induced economic anaesthesia while it watches the dynamic economies of Japan, China and BRICs such as Brazil begin to challenge it and in some cases outgrow it.

Emerging markets will for the first time buy over half of the world’s imports, and the superheated economy of China (absent any sudden bust) according to The Economist will overtake the United States as the world’s biggest importer by 2014. Moreover, it is estimated that in 2012 emerging markets will account for nearly half 16

DECEMBER 2011 | Business Journal

of global retail sales, their increase in spending in dollar terms will be twice as large as the increase in the so-called developed world, and within a decade emerging markets could produce half of the revenues of several prominent multinational corporations.

The emerging markets in 2012 will import more goods than Europe and the US, almost three-fifths of US exports will be directed toward emerging markets boosting the profits of their companies, but increasing trade between the countries of the Global South, such as China and Brazil, will be a simultaneous growth dynamic.

Second, during 2012 citizen insecurity will continue to rise to the top of the global agenda.

Notable in this regard are the local political wars in Africa and the Middle East with regional repercussions, the violent clashes that have taken thousands of lives in political upheavals in Egypt, Libya, and Syria, the rapid rise of transnational criminal organizations (TCOs) and their violent gangs who profit from the international trade in illicit drugs, and small arms in Mexico and Central America. At another level, the risks of theft of low yield nuclear weapons from unstable parts of Asia and the Middle East that could be used to further destabilize those regions and cause countless civilian casualties. In 2012 and beyond, as economic, environmental and infrastructure failures in Europe and North America occur, more people will be displaced, and crimes are expected to increase dramatically in all major urban environments.

Third, of importance to our part of the world is the rise of a confident and assertive Latin America on the global stage, independent of the United States. As Michael Shifter of the Washington-based Inter-American Dialogue has commented, twenty years ago it would have been hard to imagine that all Latin American and Caribbean governments would have created an organization that excluded the United States.

It would have been equally unthinkable that the head of the International Monetary Fund would have gone to the region to request help for a European economic crisis.

Yet both of these events happened in early December.

The formal launching of CELAC (Community of Latin American and Caribbean States) revealed the strength of regionalism in Latin America, although there are many questions about CELAC, including its purpose, structure and financing and the declarations of unity that mask sharp policy and political differences among its 33 member governments. The US was excluded from the organization but most of the region’s governments are more pragmatic than ideological – and most continue to seek cooperation with the United States on many issues. The Latin American presidents who are confrontational towards the United States remain a minority.

As Michael Shifter also notes, the visit of Christine Lagarde, the new IMF director, to Peru, Mexico and Brazil was a revealing role reversal.

Lagarde did not come to scold the Latin Americans for fiscal mismanagement as in the

past, but rather to praise them, since in most of the countries of the region, macroeconomic management has been exemplary and fiscal discipline has been the norm. She also came to ask for assistance, should it be needed, to prevent the most catastrophic economic scenario in a troubled Europe. Latin Americans should relish the moment but be cognizant that the global outlook is uncertain.

Fourth, compared to Latin America the future of regionalism in Caricom is in doubt. Little progress has been made on the implementation of the Caricom Single Market and Economy (CSME) since 2006 when it was officially inaugurated. Member countries have struggled—individually and collectively—to implement CSME commitments.

An audit carried out by the Caricom Secretariat in 2009 found that, while the legislative requirements have largely been met, institutional and administrative infrastructure is still lacking. Implementation of the single economy component of the CSME was officially placed “on pause” by Caricom leaders in early 2011. The single economy was originally scheduled to come on stream in 2008 but was later pushed back to 2015. The inability of Caricom to implement the CSME calls into question the future of the regional project and highlights the inadequacies in regional governance structures. Public apathy, lack of public confidence in regional institutions, and the reluctance of national leaders to hold to declared regional commitments, threaten to derail the entire process.

Fifth, the economic situation in the Caricom region is liable to grow much worse in 2012 and several countries are facing increasing problems of mounting debt. Barbados (112 per cent Debt to GDP) is on the brink of being downgraded by S & P and Jamaica (136 per cent Debt to GDP) is in a stalemate with the IMF. Since the inception of PetroCaribe, Venezuela has begun to emerge as the most important single country partner for development for its members and seems central to the region’s short and medium term economic survival and stability. business journal | DECEMBER 2011 17

PetroCaribe has helped to cushion the shock of the financial crisis on its members; but the program has also become one of the greatest debt accumulators for the already debt-overburdened countries of the region.

The sustainability of PetroCaribe depends on several factors.

Some specialists estimate that Venezuela won’t be able to maintain the program if the oil prices go lower than US$75.

Also pronouncements on grandiose projects (as at the recent meeting in Nicaragua) are a constant feature of PetroCaribe summits.

The projects represent a viable option for obtaining new cooperation resources; but the past reveals that such projects do not always get off the ground. Venezuelan finances for the recently announced schemes could well be stretched between now and anticipated elections in October 2012. The PetroCaribe model of regional energy cooperation is based on the primacy of Venezuelan oil, current largesse, and the current use of ideology as a strategy for regional cooperation. It is not a model for the future since neither continued Venezuelan largesse, nor PetroCaribe (beyond Chávez) can be guaranteed.

Finally, the hydrocarbon energy matrix in the Americas is going to become more complicated in 2012 (and beyond) with the United States, Argentina, and Cuba taking the role of game changers. The United States and Argentina are experiencing booms in shale oil and natural gas exploration, with the U.S. poised to become a natural gas exporter by 2012. In Cuba, a whole range of international oil companies from ten different countries--but not the U.S.—are lining up to search for what are believed to be substantial oil deposits.

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DECEMBER 2011 | Business Journal

The recent expansion of the U.S. shale gas industry also poses a long-term threat to T&T’s gas sector. The country historically has supplied up to 70 percent of U.S. liquefied natural gas (LNG) imports; but in mid- 2011, the figure had dropped to 23 percent, with the surplus going to Asia, South America, Spain and other parts of Europe because of higher prices than it earns in the U.S. The implications of these changes in the matrix for Trinidad and Tobago are potentially painful. The energy sector accounted for 35.7 percent of GDP, over 90 percent of FDI, and more than half of government revenues in 2010. Oil and gas exploration and production (E&P) alone accounts for about 20 percent of GDP, while refining and petrochemicals represent 5.7 percent and 5.8 percent respectively.

Higher oil prices will boost government finances, but declining crude oil production (now below 100,000 barrels a day) and an increasing dependence on gas production will undermine fiscal consolidation efforts. The lack of progress in resolving upstream gas and oil reserve replacement problems, and declining oil production while natural gas prices are low, means that T&T’s current economic recovery will be slow. More exploration is needed to augment the country’s dwindling proven reserves of gas, but low gas prices, a lack of seismic studies, and government delays in offering more attractive fiscal incentives for E&P have hindered progress. New gas is not being found quickly enough to replace the gas

that is being used for industrial and domestic purposes, and the challenge is to use it more efficiently. T&T is by no means out of the LNG game, but as the distinguished T&T energy journalist David Renwick has preached for some years, T&T’s competitiveness will depend on its willingness to chase after and compete in the market for small and medium-sized liquefied natural gas trades in the Caribbean and Central America.

There are many other trends for 2012 of course. These are just a few of the most glaring for the globe and for the region. Obviously many things are headed toward collapse, and possibly rebirth or adjustment. Nothing really new there!

Dr. Anthony T. Bryan is Professor Emeritus, University of Miami and a nonresident Senior Associate at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

Her Excellency Arline Gonzales Costa, Ambassador of Panama; Minister of Energy of Panama His Excellency Juan Manuel Urriola Tam and Kamla Persad-Bissesar Prime Minister of Trinidad and Tobago

The Ministers of Foreign Affairs and Communications and Energy and Energy Affairs of Trinidad and Tobago met with a delegation from the Republic of Panama headed by His Excellency Juan Manuel Urriola Tam, Minister of Energy of Panama. The aim of this meeting was to further discussions for economic and technical cooperation between both countries. Panama’s demand for energy is now developing and as such they are looking to Trinidad and Tobago for expertise and supplies of energy.

A Memorandum of Understanding (MOU) between the National Secretariat of Energy of the Republic of Panama and the Ministry of Energy and Energy Affairs of the Republic of Trinidad and Tobago, to establish cooperation in the energy sector will be ratified and submitted to both Governments for consideration and approval.

business journal | DECEMBER 2011 19

Some Reflections on the Regional Banking System Extracts from a speech delivered by Mr. Ewart Williams, Governor, Central Bank of Trinidad and Tobago at the Financial Industry Seminar in Barbados in November 2011

I

t’s no secret that the last few years have been a difficult time for the financial services industry all over the world.

In the US, some four years after the financial system faced the greatest crisis in close to a century and after a significant official support, including bouts of quantitative easing, banks are still in the process of repairing their balance sheets (and remain very vulnerable).

In the Eurozone, sovereign risks have spilled over to the banking system as contagion spread from Greece to Ireland and Portugal and more recently to Spain, France and Italy. Many European banks that are holding risky and volatile sovereign debt are now facing major difficulties.

An agreement reached among EU members calls for banks to accept a 50 per cent principal haircut on Greek sovereign debt with EU Governments providing up to euro 100 billion in loans to help re-capitalize weak banks. You may have seen a major financial institution had significant exposure to EU, sovereign debt went belly-up, underscoring the close links between the US and European banks and the vulnerability of US banks.

And then there is the “Occupy Wall Street” movement which began in New York and has since spread to 70 major US cities as well as throughout Europe. What started as an expression of discontent with income inequality and corporate greed has now expanded into a more general concern about all the ills plaguing the US economy and other advanced economies.

Dissatisfaction with the banking industry stands at the heart of the protests.

Banking corporations are seen as being increasingly insensitive to the plight of the 20

DECEMBER 2011 | Business Journal

average customer and overly focused on their bottom line. Some of you may have read that in September, Bank of America decided to charge customers US$5 per month to make purchases via debt cards. Viewed as a source of customer irritation, client reaction was swift and decisive with large numbers of customers moving their accounts to institutions with less onerous fee structures, such as credit unions.

Fortunately, our regional banking system is in far better shape and enjoying a much greater degree of consumer trust – at least, we hope so. The regional banking system demonstrated remarkable resilience to the international financial crisis, thanks to the banks’ conservative operating policies which left them with limited, if any, exposure to the type of toxic assets that contaminated the balance sheets of the banking system of many of the developed countries. Also, the loan portfolios of our banks were largely funded from domestic deposit mobilization with little exposure to wholesale financing from external sources.

There is the argument in some quarters that the international financial crisis was one of several factors that contributed to the collapse of CL Financial and the Stanford Bank. While this may be true, the demise of these institutions was in the main self-inflicted. Several macroprudential indicators paint a fairly robust picture of the regional banking system.

I have sought to show these indicators in comparison with those of the advanced countries in a few slides. I am fully aware of the problems with inter-country comparisons, but I believe that even allowing for definitions and other differences the data provide an interesting picture.

(i) Table 1 shows that the regional banking system is more than adequately capitalized. Banks in the region maintain capital adequacy ratios in a range of 15 to 20 per cent way above the statutory minimum of 8 per cent. In Trinidad and Tobago the average is 27 per cent.

Table 1: Capital Adequacy Indicators /Per Cent/ 2006

2007

2008

2009

2010

2011*

Regulatory Capital to Risk Weighted Assets

Barbados

14.4

16.4

16.1

17.5

17.1

n.a

Guyana

15.4

15.0

14.9

18.3

18.9

20.0

Jamaica

16.1

14.5

13.9

18.3

17.2

16.3

Trinidad & Tobago

18.0

19.0

18.8

20.5

24.2

27.0

US

13.0

12.8

12.5

13.9

14.8

15.0^

UK

12.9

12.6

12.9

14.8

15.9

n.a

Eurozone#

9.7

8.7

12.2

13.3

14.4

n.a

Source: Financial Stability Report 2010, Central Bank of Trinidad and Tobago; IMF; ECB. *As at June 2011 ^ As at March 2011 # Tier 1 capital to Risk weighted assets (Average)

(ii) Table 2 presents indicators of the profitability of the regional banking sector. While 2 profitability, measured both by return on assets and return on equity has declined somewhat since the international financial crisis, by and large, the regional banking industry is still very profitable by international standards. The Trinidad and Tobago banks more so. According to the data Barbadian banks have faced a sharp decline in profitability, as measured by “return� on equity.

Table 2: Indicators of Bank Profitability /Per Cent/ 2006

2007

Barbados Guyana Jamaica Trinidad & Tobago US UK Eurozone

2.0 0.5 3.5 3.4 1.3 0.5 0.8

1.7 0.5 3.5 3.4 0.8 0.4 0.7

Barbados Guyana Jamaica Trinidad & Tobago US UK Eurozone

17.9 6.9

18.8 6.8

25.2 12.3 8.9 14.6

27.7 7.8 6.2 11.7

2008 2009 Return on Assets 1.4 1.6 0.5 0.7 4.1 3.4 3.5 2.7 0.3 0.2 -0.4 0.1 0.2 0.2+ Return on Equity 16.1 16.2 6.3 6.7 n.a 25.9 20.2 3.3 1.8 -10.3 2.6 -14.7 0.3

2010

2011*

1.3 0.6 2.8 2.3 0.2 0.1 0.8+

n.a 0.5 0.5 3.1 0.3^ n.a n.a

11.7 6.1

n.a 5.1

17.2 1.8 1.0 6.8

19.5 2.3^ n.a n.a

Source: Financial Stability Report 2010, Central Bank of Trinidad and Tobago; IMF; ECB. *As at June 2011 ^ As at March 2011 + Return on risk weighted assets (Average) 3

business journal | DECEMBER 2011 21

A recent article in Latin American Markets Monitor predict “tough years ahead” for the banking system in Barbados given the rising level of non-performing loans and the expected weak economic recovery. I don’t subscribe to an overly pessimistic outlook for the banking system in Barbados. Though I agree that there could be challenging times ahead.

One of the factors behind the “weakening” of the regional profit picture is clearly the sharp increase in loan delinquency rates which is now apparent, throughout the regional banking system. As shown in Table 3, here in Barbados the loan delinquency rate has increased threefold from around 3 ½ per cent to 10 ½ per cent of total loans. In Trinidad and Tobago, the relative increase in loan delinquency is even larger – from 1 per cent in 2008 to over 6 per cent currently. The non-performing loan ratio has also risen sharply in Jamaica – from a little over 2 ½ per cent to close to 8 per cent of total loans.

And while we don’t have a consistent series for the ECCU, the 2011 IMF Staff Report indicated that aggregate NPLs measured 9.6 per cent in June 2010, but were higher for the indigenous banks, also an issue in the ECCU as provisions cover less than 30 per cent of NPLs. ECCU banks were also heavily exposed to general government debt (to an extent of almost 30 per cent of regional GDP) concomitant with the rise in public sector debt and while some of these loans are not being serviced … they are not classified as non-performing. But even this relatively comfortable macro-prudential picture begs the question as to whether our regional banking system should not be making a greater contribution to regional economic development.

I think it should be and I also believe that over the next few years, if we are to enhance our economic viability, our banking system will need to be more innovative and even more supportive than it has been in the past, to our

Table 3: Non-Performing Loans /Per Cent/ 2006

2007

2008

2009

2010

2011*

Non-Performing Loans to Total Loans

Barbados

4.5

2.9

3.4

7.2

10.7

10.3

ECCU1/

7.0

5.8

7.9

7.5

9.6^

n.a

Guyana

11.5

10.6

5.3

8.3

6.5

5.1

Jamaica

2.2

2.0

2.6

4.2

5.4

7.9

Trinidad & Tobago

1.6

1.1

1.0

4.6

5.3

6.3

US

0.8

1.4

2.3

5.0

4.4

4.4

UK

0.9

0.9

1.6

3.5

4.0

n.a

Eurozone

1.8

1.7

2.3

5.2

6.8

n.a

Source: Financial Stability Report 2010, Central Bank of Trinidad and Tobago; IMF Staff Report: St. Lucia 2010; ECB. *As at June 2011. ^ As at March 2011.

1/ Excludes Montserrat and Anguilla.

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DECEMBER 2011 | Business Journal

4

developmental efforts. As I noted, our Caribbean economies are still digging themselves out of the global crisis of 2008 and unfortunately the recovery of the region is lagging behind that of other developing countries.

According to the World Bank statistics, in 1980, the Caribbean’s average per capita income was twice as high as the average for developing countries; today it is only a third higher.

Countries in the region have been growing at an average rate of 2 per cent per year while other small island states have been growing at an average rate of 3.6 per cent per year, roughly the average for the world economy.

Unfortunately, as we seek to reverse this trend and address the challenge of long-term viability, the region faces the reality that it has lost some comparative advantage at a time when the global economy has become less friendly.

To add to these exogenous factors, most countries in the region already have unsustainably high public debt burdens, which limit the extent to which government spending could lead the recovery.

Some of my countrymen would like to argue that Trinidad and Tobago represents a variation of this theme, given our energy resources, our stronger public finances and our much lower public debt burden which gives us more room to manoeuvre. I warn them to be careful about pushing this argument too far since: i.

ii.

iii.

The following examples are worth noting: i. First, the traditional preferences for bananas and sugar have ended but the region still finds itself unable to compete with lower-cost producers; ii. Second, foreign aid flows to the region (with the exception of Haiti) have all but dried up and FDI has been declining; iii. Third, while Caribbean tourism continues to be a viable brand, the region is facing stiffer competition from stay-at-home tourism in both the US and Europe and will experience even greater competitive pressures when Cuba is fully opened up (as it could in the not too distant future); and iv. Fourth, the prospect of continued high unemployment in the US and the UK for the next 2– 3 years will have implications for workers’ remittances which are very important to some Caribbean economies.

our proven energy reserves are fast dwindling (though some experts think that prospects for new discoveries are high); our fiscal space is being steadily consumed, the more the private sector activity remains subdued and government steps in to lead the recovery; and three years of fiscal deficits and the CLF/ CLICO bailout are taking a heavy toll on our public sector indebtedness.

The slow recovery of the Caribbean economies is mainly due to the challenges being faced by the region’s main export markets – the U.S and Europe. The conventional wisdom is that over the medium term, growth in these traditional markets would continue to lag behind the more dynamic emerging market economies – China, India and Brazil.

According to this thesis a greater diversification of regional exports of goods and services towards these new growth poles would make regional economies less vulnerable to the kinds of shocks experienced in the past few years. This, combined with the establishment of greater regional linkages would seem to be a desirable medium-term economic strategy for our regional economies.

business journal | DECEMBER 2011 23

An abbreviated version of a speech delivered by David Vegara, Deputy Director, Western Hemisphere Department of the IMF delivered at an Investment conference held in Trinidad by the Unit Trust Corporation. The speech was entitled ‘The Global Economic Outlook and the Growth Prospects for the Caribbean’

First, the global economy expanded at a rate of about [3¾] percent in the first half of 2011, compared to [5¼] percent a year earlier. The deceleration was much stronger than anyone anticipated.

Second, policy makers are still grappling with the issues that are needed to put the 2008 crisis behind us: the rebalancing of domestic demand from the public to the private sector, and of global demand from the external deficit to external surplus countries.

Finally, policy makers need to act quickly to prevent a further deterioration in the outlook.

The slowdown in global growth reflects weaker-than-anticipated growth in advance economies. This is the result of a number of adverse developments: •

•

24

In the U.S, higher commodity prices, bad weather, and disruptions from the Japanese earthquake slowed economic activity, particularly in the manufacturing sector.

More importantly, private consumption has turned out to be weaker than expected, reflecting fragile household balance sheets and feeble income. This further exacerbated the weaknesses in the housing market and adversely impacted on job creation and unemployment.

Looking forward, the recent decline in equity prices and increased uncertainties about the outlook are expected to weigh on growth going forward by suppressing business investment and consumer demand and offsetting any uplift from the dissipating temporary drags of the first half of the year.

DECEMBER 2011 | Business Journal

•

A similar story holds in the Euro area, where growth is now sharply decelerating in light of uncertainties concerning potential negative feedback loops between weak sovereigns and banks.

Thus far, recent developments in advanced economies have had a limited impact on growth in emerging economies: • Increased risk aversion has weighed in on EM equities, and souring global prospects have helped to moderate commodity prices (particularly oil and metals). Leading indicators such as the Purchasing Managers index suggest that some slowdown in activity may be in store for countries particularly dependent on exports to advanced economies. That said, our baseline projections assume that EM Asia, including China, will continue to grow at robust rates, helping to keep commodity prices at still healthy levels.

• Both the Latin America and Sub-Saharan Africa regions continued to expand rapidly, riding the wave of surging commodity prices.

In the Middle East and North Africa (MENA) region economic activity suffered from political and social unrest although strong revenues boosted the economies of oil exporters.

Downside risks now dominate the outlook, and I would highlight the three most important: • Heightened concerns about sovereign risks in the euro area and the potential spillovers

World: GDP Growth (Percent; quarter over quarter, annualized)

to European banks have the potential of disrupting global credit markets and produce a Lehman type event.

• A recession in the U.S. resulting from a more front-loaded than desirable fiscal adjustment or continued household balance sheet weakness, would severely impact global growth and bring down commodity prices.

• Over the medium term, failure to decisively tackle debt sustainability issues in the United States could undermine confidence and lead to volatility in U.S. treasury rates (spilling over to global credit markets).

We have seen these factors culminating in a return to high levels of volatility as markets are besieged by uncertainty.

Much of this relates back to the causes of the 2008 crisis: too much debt and leverage in key advanced economies. Financial institutions engaged in practices that magnified, disguised and fragmented risk, while households borrowed too much. Experience tells us that these excesses (combining both housing and financial

crises) take a long time to work off—and require decisive action. We have made some progress, but not enough to unshackle growth.

In 2008, governments took bold action to prevent a calamitous collapse in demand. They offset private contraction with fiscal expansion and used public resources to recapitalize financial institutions.

They strengthened financial regulation, and reinforced the capacity and resources of international institutions. And monetary authorities did their part as well.

The headline problems of today are the sovereigns in most advanced economies, banks in Europe, and households in the United States.

The fundamental problem is that in these advanced economies, weak growth and weak balance sheets—of governments, financial institutions, and households—are feeding negatively on each other. If growth continues to lose momentum, balance sheet problems will worsen, fiscal sustainability will be threatened, and policy instruments will lose their ability to sustain the recovery.

business journal | DECEMBER 2011 25

What to do - Policy response?

With higher fiscal deficits, larger debt burdens, and record low interest rates, the scope for policy action in AEs is much narrower today than in 2008. There are no easy solutions, but that does not mean there are no solutions.

In her Jackson Hole speech, Ms. Lagarde (Christine Lagarde,IMF Managing Director) argued that while fiscal consolidation remains an imperative, macro-level policies must support growth.

Fiscal policy must strike a balance between losing credibility and undercutting the recovery process. In other words, while we need bold action to address the longer-term fiscal sustainability issues, governments must proceed cautiously to avoid exacerbating economic uncertainty and slowing economic activity.

This is particularly true for the U.S, where hasty fiscal cutbacks will further weaken the outlook, without providing the long-term reforms required to keep debt growth on a sustainable path. The focus must be on “durable measures that will deliver savings

tomorrow which, in turn, will help to create as much space as possible for supporting growth today—at least by permitting a slower pace of consolidation where possible.”

In the U.S. and in Europe, governments should address long-term fiscal risks like rising pension costs or healthcare spending, while being careful to avoid “slamming on the fiscal brakes too quickly [which] will hurt the recovery and worsen job prospects”.

At the same time, monetary policy also should remain accommodative, as the risk of recession outweighs the risk of inflation. This is particularly true as (i) in most advanced economies inflation expectations are well anchored; and (ii) pressures from energy and food prices are abating. So policymakers should stand ready, as needed, to dive back into unconventional waters.

At the micro-level policy actions are needed to repair balance sheets and halt the downward spiral of foreclosures, falling house prices and deteriorating household spending. In the U.S., such policies may involve more aggressive principal reduction programs for homeowners, stronger intervention by the government

Tourism Dependency (Average Tourism Receipts, 2000-2009, as %of Exports)

26

DECEMBER 2011 | Business Journal

Remittances (In percent of total exports of goods and services, average 2000-2010)

housing finance agencies, and steps to help homeowners take advantage of the low interest rate environment.

In the euro area, banks also need to be urgently recapitalized so that they are in a position to withstand the risks of sovereigns and weak growth. In addition, the union needs a common vision for its future. This would aid greatly in reducing market uncertainty.

The emerging economies have also a role to play. As the MD noted in her Jackson Hole speech, “the lack of rebalancing hurts everyone, while at the same time, everyone should recognize that decoupling is a myth.

If the advanced countries succumb to recession, the emerging markets will not escape.” Surplus countries, as in Emerging Asia, need to do more to stimulate their own domestic demand, including by allowing greater currency appreciation.

As for the low-income countries, where populations are especially vulnerable to economic dislocation in the rest of the world, the focus should be on protecting themselves from future storms—including by rebuilding policy buffers and investing in social safety nets. The international community, of course, must stand ready to help.

The Implications for the Caribbean With few exceptions, the performance of Caribbean countries depends heavily the performance of their major trading partners - US, UK and Canada. This is a direct result of their high dependency on these markets for international trade (particularly tourism), foreign direct investment and migrant remittances, which have also become an important source of foreign exchange earnings, in some cases outstripping export earnings.

Against this backdrop, the global economic recession had an overwhelming impact on the countries of the region, negatively affecting virtually all sectors. Tourism receipts, remittances and private capital inflows into the region were among the hardest hit, as shrinking global output, depressed credit markets and double-digit unemployment impeded growth prospects for many of the region’s major trading partners.

The unanticipated depth and protracted nature of the crisis significantly strained the limited resources of the region, as many of the countries had amassed high debt levels in prior years, severely limiting the fiscal space within which to maneuver. business journal | DECEMBER 2011 27

The fallout from CLICO’s collapse added further strain in many economies, and the ensuing problems have yet to be fully resolved.

Governments’ efforts to mitigate the effect of the crisis widen the fiscal deficits and further added to the public debt levels. Indeed, despite reductions in real expenditures in most countries, primary balances deteriorated almost across the board as revenues losses more than offset efforts to curb spending.

In most cases, declines in real growth added to the debt burden, while debt exchange operations provided relief in some countries (Jamaica and Antigua and Barbuda).

The good news is that the Caribbean is finally exiting from a deep and protracted recession. In 2010 growth in the region averaged 1.1 percent compared to a moderate contraction in the previous year. Most of the countries recorded improved performance on their balance of payments, either in the form of greater surpluses or reduced deficits, reflecting recovery in the tourism sector and favorable movements in the terms of trade for commodity based economies. Nonetheless, the majority of countries still registered large fiscal deficits, supported by a significant amount of borrowing, which further added to the public debt.

However, growth remains weak, and the recent developments in the AE’s would suggest that the situation will become even more challenging, reflecting the expected impact of weaker performance of the AEs on tourism, foreign direct investment and remittances.

The outlook is however more positive for the region’s commodity exporters, with Guyana and Suriname benefiting from record gold prices.

“Necessary conditions” for growth to resume in the region: Caribbean economies need now, more than ever, to continue with their policies of fiscal consolidation as markets are increasingly worried about high-debt sovereigns. In highdebt countries, fiscal consolidation will have to be more aggressive as there is no time for delay. In countries with lower debt burdens, emphasis should be placed on quickly rebuilding buffers used during the financial crisis, since a rapid shift in sentiment may require more supportive policies.

Fiscal adjustment strategies should be comprehensive and balanced, and designed in a way to protect much needed infrastructure and social spending. Attention must also be given to containing transfers and subsidies to public institutions.

The Caribbean: Primary Balance and Public Debt in percent of GDP

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DECEMBER 2011 | Business Journal

Strengthening public administration and macroeconomic management is critical.

In general, the focus must be on gaining efficiencies in revenue collection, and employing targeted fiscal support in key productive areas. Governments need to examine ways to improve efficiency in tax collections and broaden the tax bases. In some cases, it may result in the removal of some of the exemptions attached to many of the indirect taxes currently administered, particularly the VAT. It may also mean restructuring and upgrading tax collection agencies.

Europe shows how markets worry about high debt and deficits, and how spillovers in a monetary union can be very important and can even threaten its stability. It also highlights the need for an overall credible and “enforceable” strategy within a currency union, including an appropriate institutional set-up to foster fiscal coordination and accountability. These are useful lessons for the ECCU, but also for other fixed rate economies of the region.

The region should also move quickly to address any lingering financial sector issues, particularly as it relates to the Banking sector in the ECCU sub region. This may require reinforcing macroprudential measures, increasing the frequency and scope of onsite inspections and moving towards consolidated supervision across the region. In addition, such issues should be tackled in a way that does not compromise debt sustainability and involves the private sector.

As it pertains to the non-bank financial sector—credit unions, insurance companies, trust and mutual funds—it is necessary to bring regulation up to international best practice standards. It will also be beneficial to enhance collaboration between regulators in the various countries, including the establishment of memoranda of understanding and possibly College of Regulators.

Finally, the recent global financial crisis and now the slowing of economic growth in the advance economies exacerbated the region’s needs to diversify its economy and its export base, and rethink the growth model in the region. This would require the focus to shifting the engine of growth from the public sector to the private sector.

This, of course, has a medium term strategy but efforts can commence now through policies that facilitate and support private sector development, and improve the business environment—one that would encourage investment in the region by raising the region’s competitiveness and further integrating it into the world economy.

More must be done to ensure that investors’ rights are protected, contracts are enforced, transaction costs lowered, and the processing of investment applications are expeditious and equitable. In fact, much of what needs to be done in this area is within the control of the respective governments of the region. This is the good news, gains on these fronts will create a platform that will enable innovation, development and growth.

All graphs and charts used from presentation: “The Global Economic Outlook and the Growth Prospects for the Caribbean” by David Vegara

business journal | DECEMBER 2011 29

ECLAC Proposes Parameters for Defining Broadband in Latin America

In order to guide public policies in the region, the ECLAC Regional Broadband Observatory (ORBA) has proposed a number of parameters for connectivity, speed and user experience to define the Internet service.

The proposal was accepted by the representatives of the nine Latin American countries which participated in the recent fourth meeting of the Regional Dialogue on Broadband which took place at ECLAC headquarters in Santiago, Chile.

National broadband policymakers from Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Paraguay, Peru and Uruguay attended the meeting.

According to the Economic Commission for Latin America and the Caribbean (ECLAC), basic broadband should have a minimum download speed of 256 kilobytes per second (Kbps) and an upload speed of 128 Kbps in the two existing forms.

These include real wireline broadband (the effective speed which the user has access to) and wireless broadband from a radio transmitter (maximum speed which the radio transmitter can provide, the device which receives and sends electromagnetic waves).

A minimum download speed of 2 megabytes per second (Mbps) and 512 Kbps for the upload speed was set for the advanced broadband 30

DECEMBER 2011 | Business Journal

service -both real wireline and wireless from a radio transmitter point.

Finally, a minimum download speed of 10 megabytes (Mbps) and upload speed of 768 Kbps was set for the total broadband delivered by wired or wireless networks, which enables all applications available on the Internet to be accessed.

All of these services should give permanent connectivity (always on), where users should not have to set up a connection each time they decide to exchange information.

This definition, which is in line with concepts used by the International Telecommunications Union (ITU), does not have a binding or regulatory nature, but rather it seeks to become a reference for defining more precisely the goals and objectives of policies on broadband universalization in the countries of the region.

The Regional Dialogue on Broadband also concluded that there is a need to encourage greater Internet traffic exchange in the region.

This involves encouraging the interconnection of Internet service providers (ISP) and setting up traffic exchange points.

At the same time, it was also agreed to lower the costs of deploying broadband infrastructure by making more efficient use of installations for other services, such as electricity and gas, and in roads. In addition, they agreed to encourage the generation of local content and attract the storage of content in the region.

The Regional Dialogue on Broadband, an ECLAC and Government of Chile initiative, aims to lower the prices of this service in the region in order to enable greater digital inclusion.

The first meeting of the Regional Dialogue on Broadband took place in August 2010 in Santiago in Chile.

In November 2010, during the second meeting, the countries involved in this initiative asked ECLACto create the Regional Broadband Observatory. Its objective is to provide the countries with the elements to develop public policies which enable the costs of the service to be lowered.

UWI Seismic Research Centre Scientist Receives National Award from El Salvador

In photo L to R: Eduardo José González, Chargé d’Affairs Association of Caribbean States, Dr. Walter Salazar UWI Seismic Research Centre, Nicolas Salazar, José Roberto García Prieto, Chargé d’Affairs at the Embassy of El Salvador, Prof. Kenneth Ramchand, Former President of UTT.

The University of the West Indies (UWI) Seismic Research Centre’s (SRC) Dr. Walter Salazar has been presented with a “Distinguished Salvadoran” national award in recognition of his contribution to the development and promotion of El Salvador.

This award was established to commemorate the Bicentennial Independence Day celebrations of El Salvador.

A native Salvadoran, Dr. Salazar leads the Seismic Hazard/Risk Assessment projects at the UWI Seismic Research Centre where one of his primary roles is to strengthen and provide direction for the science/engineering interface between The UWI and the SRC. He has also worked closely with the EUCENTRE in Pavia-Italy to produce the first peer-reviewed Seismic Hazard Maps for the Eastern Caribbean Islands and he leads the World-Bank funded Seismic Risk Atlas Project for three pilot states in the Caribbean. He has recently been appointed to be a peer reviewer of the Journal of Civil Engineering and Architect and the NED Journal of Engineering Research.

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World of Work Report 2011

In a grim analysis issued on the eve of the G20 leaders summit, the International Labour Organization (ILO) says the global economy is on the verge of a new and deeper jobs recession that will further delay the global economic recovery and may ignite more social unrest in scores of countries.

“We have reached the moment of truth. We have a brief window of opportunity to avoid a major double-dip in employment,” said Raymond Torres, Director of the ILO International Institute for Labour Studies that issued the report.

The new “World of Work Report 2011: Making markets work for jobs” says a stalled global economic recovery has begun to dramatically affect labour markets. On current trends, it will take at least five years to return employment in advanced economies to pre-crisis levels, one year later than projected in last year’s report.

Noting that the current labour market is already within the confines of the usual sixmonth lag between an economic slowdown and its impact on employment, the report indicates that 80 million jobs need to be created over the next two years to return to pre-crisis employment rates. However, the recent slowdown in growth suggests that the world economy is likely to create only half of the jobs needed.

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ILO says world heading for a new and deeper jobs recession, warns of more social unrest The report also features a new “social unrest” index that shows levels of discontent over the lack of jobs and anger over perceptions that the burden of the crisis is not being shared fairly.

It notes that in over 45 of the 119 countries examined, the risk of social unrest is rising. This is especially the case in advanced economies, notably the EU, the Arab region and to a lesser extent Asia. By contrast, there is a stagnant or lower risk of social unrest in Sub-Saharan Africa and Latin America.

The study shows that nearly two-thirds of advanced economies and half of emerging and developing economies with recent available data are once again experiencing a slowdown in employment. This comes on top of an already precarious employment situation in which global unemployment is at its highest point ever, surpassing 200 million worldwide.

The report cites three reasons why the ongoing economic slowdown may have a particularly strong impact on the employment panorama: first, compared to the start of the crisis, enterprises are now in a weaker position to retain workers; second, as pressure to adopt fiscal austerity measures mount, governments are less inclined to maintain or adopt new joband income-support programmes; and third, countries are left to act in isolation due to lack of international policy coordination.

The report calls for maintaining and in some cases strengthening pro-employment programmes, warning that efforts to reduce public debt and deficits have often disproportionately focused on labour market and social measures. For example, it shows that increasing active labour market spending by only half a per cent of GDP would increase employment by between 0.4 per cent and 0.8 per cent, depending on the country.

The study also calls for supporting investment in the real economy through financial reform and pro-investment measures.

The report’s other main findings include: •

•

•

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Approximately 80 million net new jobs will be needed over the next two years to re-attain pre-crisis employment rates (27 million in advanced economies and the remainder in emerging and developing countries).

Out of 118 countries with available data, 69 countries show an increase in the percentage of people reporting a worsening of living standards in 2010 compared to 2006.

Respondents in half of 99 countries surveyed say they do not have confidence in their national governments.

In 2010, more than 50 per cent of people in developed countries report being dissatisfied with the availability of decent jobs (in countries such as Greece, Italy, Portugal, Slovenia, and Spain, more than 70 per cent of survey respondents reported dissatisfaction).

•

•

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The share of profit in GDP increased in 83 per cent of the countries analyzed between 2000 and 2009. Productive investment, however, stagnated globally during the same period.

In advanced countries, the growth in corporate profits among non-financial firms was translated into a substantial increase in dividend payouts (from 29 per cent of profits in 2000 to 36 per cent in 2009) and financial investment (from 81.2 per cent of GDP in 1995 to 132.2 per cent in 2007). The crisis reversed slightly these trends, which resumed in 2010.

Food price volatility doubled during the period 2006-2010 relative to the preceding five years, affecting decent work prospects in developing countries.

Financial investors benefit more from price volatility than food producers, especially small ones.

Third Meeting of Ministers Responsible for Public Security in the Americas

The Secretary General of the Organization of American States (OAS), José Miguel Insulza participated in a security dialogue with representatives of the hemisphere’s public and private sectors to discuss possible bilateral public safety alliances in the region.

The forum was held in the framework of the Third Meeting of Ministers Responsible for Public Security in the Americas, which was held in Port of Spain, Trinidad and Tobago.

Also present at the dialogue organized by the Young Americas Business Trust (YABT) was the Minister of National Security of Trinidad and Tobago, John Sandy, and the OAS Secretary for Multidimensional Security, Adam Blackwell. Leaders in both sectors gave brief presentations on the topic for discussion, including Hans Kolsdorf, Chairman of the YABT board and president of the company Business Ideas; Abraham Bechara, President of AEA Salvador; and John Aboud, Chief Financial Officer of Amalgamated Security.

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FAO paper highlights how food sector can tackle energy challenges to safeguard a food-secure future The global food system needs to reduce its dependence on fossil fuels to succeed in feeding a growing world population.

In a paper released during the UN Conference on Climate Change in South Africa, the FAO said there is justifiable concern that the current dependence of the food sector on fossil fuels may limit the sector’s ability to meet global food demands.

“The challenge is to decouple food prices from fluctuating and rising fossil fuel prices,” according to the report ‘Energy-Smart Food for People and Climate.’

High and fluctuating prices of fossil fuels and doubts regarding their future availability mean that agri-food systems need to shift to an “energysmart” model.

The food sector both requires energy and can produce energy — an energy-smart approach to agriculture offers a way to take better advantage of this dual relationship between energy and food, according to the report.

“The global food sector needs to learn how to use energy more wisely.

At each stage of the food supply chain, current practices can be adapted to become less energy intensive,” said FAO Assistant Director-General for Environment and Natural Resources, Alexander Mueller.

Such efficiency gains can often come from modifying at no or little cost existing farming and processing practices, he added.

Steps that can be taken at the farm level include the use of more fuel efficient engines, the use of compost and precision fertilizers, irrigation monitoring and targeted water delivery, adoption of no-till farming practices and the use of less-input-dependent crop varieties and animal breeds.

After food has been harvested, improved transportation and infrastructure, better insulation of food storage facilities, reductions in packaging and food waste, and more efficient cooking devices offer the possibility of additionally reducing energy use in the food sector.

Transitioning to an energy-smart agricultural sector will be a “huge undertaking” that will require long-term thinking, and needs to start now, FAO says.

During the climate talks in Durban, the UN agency is advocating “Energysmart food for people and climate,” an approach based on three pillars: (i) providing energy access for all with a focus on rural communities; (ii) improving energy efficiency at all stages of the food supply chain; and (iii) substituting fossil fuels with renewable energy systems in the food sector.

“The key question at hand is not, ‘If or when we should begin the transition to energy-smart food systems?’ but rather ‘how can we get started and make gradual but steady progress?” said Mueller.

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Artist Eric Johnn was born in northern Grenada in the village of Mt. Rose, St. Patrick’s. When asked why he chose to be an artist, Eric’s responsed, ‘I did not choose to be an artist. I think that art chose me instead”.

Eric now lives in New York City, but despite the glamour of big city life, his paintings still reflect the charm and calm of beautiful Grenada.

The artist’s work can be found at http://www.Grenadaart.net

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Books

Trinidad and Tobago’s Strategic Culture By Anthony T. Bryan

The Trinidad and Tobago Strategic Culture Findings Report, authored by Dr. Anthony T. Bryan, is the product of a working group held in Miami on August 4, 2011. The study included five prominent academic and private sector experts on Trinidad and Tobago’s history, culture, geography, economics, politics, and military affairs.

In addition to Dr. Bryan, these experts were Drs. Jacqueline Braveboy-Wagner, Ramesh Deosaran, Hamid Ghany, and Anthony Maingot.

About the Author Dr. Anthony T. Bryan is a Senior Associate (Non-Resident) in the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C.; and a Senior Fellow at the Institute of International Relations, University of the West Indies, St. Augustine, Trinidad and Tobago.

Previously he was a senior scholar at the Carnegie Endowment for International Peace; a senior fellow at the Woodrow Wilson International Center for Scholars of the

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Smithsonian Institution in Washington, D.C.; and the director of the Caribbean Studies Program at the Dante B. Fascell North-South Center of the University of Miami.

During his academic career he was a tenured Professor of History at the University of Rhode Island and served for a decade as a tenured Professor of International Relations and Director of the Institute of International Relations at the University of the West Indies-St. Augustine, Trinidad and Tobago.

He has held visiting professorial appointments at: Indiana UniversityBloomington, The University of Texas-Austin, Georgetown University, and the Graduate Institute of International Studies in Geneva, Switzerland.

Born in Trinidad and Tobago, Dr. Bryan received his PhD in Latin American History from the University of Nebraska at Lincoln. He is the author/editor of 10 books and numerous scholarly articles on Caribbean and Latin American issues: including regional security, regional trade, energy security, energy geopolitics, and energy diplomacy.

New Commonwealth book looks at the link between democracy and development

Commonwealth Deputy Secretary-General Ransford Smith

A Commonwealth publication studying the link between democracy and development was launched by Commonwealth Deputy Secretary-General Ransford Smith at the Commonwealth Secretariat’s headquarters in London in mid-November.

The ‘Commonwealth Governance Yearbook 2011/12’ was launched in the presence of senior public sector leaders from around the Commonwealth, as part of the ‘Senior Leaders Forum,’ held at the Secretariat.

The publication is a comprehensive guide to public sector reform in the Commonwealth.

“It captures the collective thinking of experts and practitioners around the Commonwealth on public administration...a notable and significant contribution to the literature on this subject,” said Mr Smith.

The Director of the Secretariat’s Governance and Institutional Development Division, Max Everest-Phillips, said the yearbook looks at the two Commonwealth pillars of democracy and development and the importance of having a just and equitable public administration in both these pillars.

“We believe democracy and development are interrelated. To examine that relationship the articles in the Yearbook indirectly tease out how to achieve democratic developmental states.”

He explained that fair and effective public administration is at the heart of the legitimacy of the state as seen through the eyes of its citizens.

“So that just and honest public administration is vital for achieving both genuine democracy and sustainable development,” he said.

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Trinidad, IDB sign US$130 million loan

Acting Minister of Finance, Mr. Vasant Bharath (right) and the Inter-American Development Bank Representative Mr. Iwan Sewberath Misser sign the loan document

The Government of the Trinidad and Tobago and the Inter-American Development Bank signed two loan agreements for a total of US$130 million.

These comprise US$80 million in support of climate change policy, legislative and institutional reform and similarly US$50 million to ensure strengthening of the financial sector.

The Ministry of Finance will be the agency responsible for the execution of both projects.

The loans are for a 20-year term, with a fouryear grace period respectively, at a variable interest rate based on LIBOR. Climate Change Specifically, this loan will facilitate the incorporation of the impact of climate change considerations into national policies and institutions and promote carbon markets and policies to reduce greenhouse gas emissions.

The strengthening and modernization of the

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regulatory, institutional and policy framework would encourage the development and promotion of instruments to assess and reduce vulnerability and risks associated with climate change. These reforms are also critically important because mitigation and adaptation measures are central for small island states like Trinidad and Tobago that are highly vulnerable to the impact of global climate change.

Financial Sector This loan will also strengthen the supervisory and regulatory framework in the financial sector. This is not only critical for Trinidad and Tobago but highly relevant at the regional level given the importance of and the linkages with as a regional financial centre to the Englishspeaking Caribbean. The programme focuses on reinforcing macroeconomic stability to minimise the probability of exposure to any future vulnerability or systemic crisis.

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