By IPS Correspondents
MONTEGO BAY, May 8 2003 (IPS)

Jamaica, Dominica and other Caribbean nations struggling to improve their economic outlook, look certain to face an increasingly unfriendly global environment and ever-mounting challenges in the years ahead.

Even the region’s traditionally steady performers have been registering economic problems. As it heads into a general election, Barbados’ ruling Labour Party has experienced economic declines of 0.6 percent last year and 2.8 percent in 2001, due largely to the negative effects of the Sep. 11 terrorist attacks in the United States.

But even as the small island states of the Caribbean try to achieve economic growth and reduce debt levels, they are likely to be buffeted by the unfriendly winds of globalisation, and forced to steer straight for the liberalised world of free trade, where small economies are arguably more likely to sink than remain afloat.

Take Dominica, for instance. For years mainly dependent on the banana industry and tourism, the country is still struggling to emerge from a financial crisis that left its economy on the brink of collapse last year. It was rescued with a 20-million-U.S.-dollar package from the Caribbean Community’s (CARICOM’s) new Regional Stabilisation Fund.

After growing about 2.5 percent annually during 1996-99, the country’s real gross domestic product (GDP) stagnated in 2000, and is estimated to have contracted by over 4.5 percent in 2001, according to the International Monetary Fund (IMF), which provided Dominica a one-year, 4.3-million-dollar stand-by credit last August.

Prime Minister Pierre Charles’ government in 2002 introduced what critics called an austerity programme, attempting to reduce the fiscal deficit through a series of new taxes and cuts to public sector spending. The budget sparked massive demonstrations in the country.

It is a reaction with which Jamaica’s government is only too familiar, after its 1999 attempt to introduce new taxes sparked public protest that shut down the country for three days.

A union leader here predicts similar results if Kingston goes ahead with changes that would inevitably harm workers’ standard of living.

”If something drastic is not done, we could see a wave of social unrest in the pretty near future,” says Clive Dobson, president of the National Workers Union.

Jamaican Finance Minister Omar Davies has to walk a thin line in selling the country a trimmed-down budget that will not spark social upheavals, while satisfying the international and local business communities that the government is exercising fiscal prudence.

In presentations over the last two weeks, Davies has promised to gradually reduce the fiscal deficit, which stood at 7.7 percent of GDP at the end of the 2002-3 fiscal year in March. The target is for a deficit of five-six percent this fiscal year, three-four percent in 2004-5 and to present the country with a balanced budget by the following year.

But it is the country’s staggering debt to GDP ratio of 152 percent that has creditors most worried.

Debt servicing this fiscal year will consume 65 percent of total spending in the 4.7-billion-dollar budget, leaving the remaining 35 percent to pay public sector salaries, government’s recurrent expenditures and capital expenses.

The U.S. investment advisory firm Prudential last month warned investors against Jamaican bonds, as did credit rating firm Credit Sights, both citing concerns with the debt level.

But Davies maintains that increased revenues will help reduce the deficit by raising an additional 236 million in taxes this fiscal year, through increased levies on telecommunications, among others, and by applying the general consumption tax to a wider range of goods and services.

By far the most controversial tax is a four percent ”cess” to be levied on importers, initially explained by the government as a measure to capture tax evaders, while allowing legitimate businesses to claim credits on income taxes.

The business sector has responded with outrage, and despite the finance minister’s vow that the tax will remain, has vowed to continue to fight for a rollback.

”We have a series of activities (scheduled) but we do not intend to be confrontational at all; we intend to have discourse with the government to show them that the cess is inimical,” says Beverly Lopez, president of the Private Sector Organisation of Jamaica.

Apart from increased taxes, concern is also now growing about the possible effects of devaluation on inflation and the cost of living. The Jamaican dollar has rapidly lost value against the U.S. dollar this year, moving from approximately 52 Jamaican dollars equals one U.S. dollar at the start of the year to a ration of about 60:1 this week.

Dobson says Jamaica and other Caribbean governments must start a process of dialogue to help balance their fiscal programmes with their countries’ social needs.

”The major stake-holders like the trade unionists, the employers’ federation, manufacturers, government, NGOs need to begin some serious dialogue in order to try to find a solution to this problem,” he says.

On-going negotiations in the World Trade Organization (WTO) and for other international agreements like the Free Trade Area of the Americas (FTAA) make developing consensus at the national, and even regional, level more important than ever, adds Dobson, given the inherent inability of many small, developing economies to compete with larger, more developed countries.

”Jamaica, by itself, cannot fight this dragon, and therefore it’s going to be critical for networking to take place (so that) you have a collective approach, not only here at home, but within this hemisphere,” Dobson says.

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