CCMF: Governments must be cautious to survive economic crises

By VonDez Phipps
Reporter-SKNVibes.com

BASSETERRE, St. Kitts – IN its January 2009 Newsletter, the Caribbean Centre for Money and Finance (CCMF) has recommended a number of guidelines to Caribbean governments with an aim to better allow them to weather the ongoing international financial and economic crises.

The Centre urged the region’s governments to be wary of attempting to make up for lost foreign exchange, jobs and income by expanding public works and public service employment. It added that this approach may work in the US, because “about 72 cents of every extra dollar spent by Americans buy products and services made in America by Americans, and only 28 cents goes for imported goods and services”.

The report however indicated that in the Caribbean the proportion spent on local goods is much lower: in Trinidad and Tobago 40 cents of every extra dollar goes for imports, while in Jamaica the import share is 71 cents, and in Barbados it is 76 cents.

“Over the most recent five years, some Caribbean countries spent more on average on imports than the average increases in their incomes. In St Lucia imports increased by EC $1.25 for every dollar of additional income, and for the Bahamas the import increase was more than double the increase in national income. When Caribbean governments expand expenditure therefore, they create jobs for foreigners at a faster rate than they do for residents.

“A consequence of this is the deterioration of the countries’ foreign exchange reserve positions, unless the extra government expenditure is fully funded by foreign finance.  ~~Adz:Right~~

The prime targets for any countercyclical government activity on the part of Caribbean governments should therefore be those projects which are foreign funded. Every effort should be made to accelerate the implementation of projects for which funding has already been arranged, to bring forward disbursements of projects already underway, and to conclude arrangements for foreign financed projects that are in the pipeline.”

The report also stated that the private and public sectors of the region should “proceed with care” in light of the uncertainty of the prevailing international economic climate. The Centre stressed the importance for the region to keep stocks of foreign reserves high, in case the global financial prospects remain gloomy at the end of 2009.

CCMF has predicted that Caribbean countries would be unable to avoid contraction in real income and employment if the recession in North America and Europe is prolonged. Its newsletter informed that prospects of a “gloomy outlook in 2010 with depleted foreign exchange reserves” would ultimately raise the prospect of exchange rate devaluation and worsen the adverse impact of foreign recession.

“The watchword must therefore be cautious spending on the part of government, until it becomes clear that the economies of North America and Europe have recovered.”