Speech

2017 High Level Caribbean Forum: Unleashing Growth and Strengthening Resilience

November 16, 2017

The Most Honorable Prime Minister Andrew Holness
Prime Ministers, Ministers and Central Bank Governors
Representatives of International Organizations
Public and Private Sector Participants
Friends and Colleagues:

Good morning, Bonjour.

Welcome to the 2017 High Level Caribbean Forum, Unleashing Growth and Strengthening Resilience. I am very glad to see old friends, and new faces.

Thank you all for sharing your time with us today. I would also like to thank the Government of Jamaica for its warm hospitality, and Prime Minister Holness for his strong support of the Forum.

The annual Forum is an important platform for brainstorming and collaborating with key stakeholders on the challenges facing the region and the possible solutions to address them. 

We have just published a book by the same title as the theme of this Forum—which explores some of our ideas. This year’s Forum is also about hearing your views on how we can work together to deepen Caribbean growth, insulate it more from shocks, and make it more resilient.

We all want this region to create more jobs and growth for the benefits of its current and future generations.

Before we get started, let me mention that this is the second time I have had the pleasure of visiting this beautiful country in my capacity as Managing Director of the IMF.

As you know, the Fund has been deeply engaged here in Jamaica. And it is great to see that excellent progress continues to be made in implementing economic reforms, with debt steadily coming down.

I. Hurricanes Irma and Maria

I also want to express my deepest sympathies to the governments and people of the Caribbean for the loss of life and devastation caused by Hurricanes Irma and Maria. These hurricanes have again highlighted the special vulnerabilities of the Caribbean, and the need to strengthen its resilience.

Climate change is expected to intensify the impact of natural disasters, and worsen the vulnerabilities of small states in the Caribbean. Rising sea levels increase risks of erosion and flooding, and warmer water temperatures heighten the potential for more intense hurricanes.

We must come together to address the challenge posed by climate change, and help those most affected by it.

Emergency relief following events like Hurricanes Irma and Maria is a key responsibility of the global community.

The IMF stands ready to do whatever it can to help in these situations—in assessing macroeconomic implications, determining financing needs, and providing financial support that would also help catalyze broader financing from the rest of the international community.

Beyond these efforts, I propose convening an event with all the major public and private stakeholders to explore options for building resilience in the region, including risk mitigation, debt management strategies, and use of catastrophe bonds. This effort is not about a short-term response, but about building defenses to events that will reoccur again.

In this effort, we will work in close collaboration with our Caribbean partners and the World Bank, the Inter-American Development Bank, the Caribbean Development Bank, and other development partners.

II. Unleashing Growth

Stronger economic growth is the essential foundation for a more resilient Caribbean. It is also a foundation for building defenses.

Unfortunately, economic growth in the Caribbean has been low for several decades. This has led to rising social and economic challenges—including poverty, inequality, unemployment, and crime. While many authorities in the Caribbean were successful in their efforts to create a stable macroeconomic environment, growth still remains elusive.

There is no one explanation for this disappointing growth performance. Caribbean economies have been hit by external shocks, such as natural disasters which affected agriculture in particular and loss of international trade preferences.

At the same time, they have not been able to fully insulate themselves from such shocks because of large macroeconomic imbalances. Growth has also been affected by structural impediments.

A few come to mind: The region’s high cost of electricity, limited access to credit for households and medium and small enterprises, high rates of violent crime, and a persistent outflow of highly-skilled workers, the brain drain.

So what can we do moving forward? That is what brings us together this morning. This conference has been organized to discuss these issues. The IMF is not a specialist on these topics, and this conference will afford us an opportunity to learn.

Today’s agenda covers three specific issues that are key to higher growth: (a) crime and youth unemployment; (b) fiscal policy and political cycles; and (c) stability and growth trade-offs in the financial sector.

Let me offer a few thoughts on these topics, before passing the baton to our panelists.

(a) Crime and Youth Unemployment

Let us start with the nexus between crime and youth unemployment in the Caribbean, which is among the highest in the world. Crime—partly fueled by this high rate of joblessness—is a major obstacle to growth in the Caribbean.

Crime imposes several economic costs, including public spending on security and the criminal justice system; private spending on security; and social costs from the loss of income due to victimization and incarceration.

In a recent study, our colleagues from the Inter-American Development Bank found that, on average, crime in the Caribbean costs nearly 4 percent of GDP per year, more than in most Latin American countries.

So we need to create a virtuous cycle, where strong growth would reduce high unemployment and in particular high youth unemployment and crime which, in turn, would contribute to boosting productivity and growth —without which investors are reluctant to invest. 

But this can only take us so far—which brings me to our second topic: fiscal policies.

(b) Fiscal Policies, Stronger Institutions and Political Cycles

Politics and electoral cycles can have a strong impact on fiscal policies and economic outcomes—a phenomenon that has been observed around the world, and has also played a major role in shaping economic developments in the Caribbean.

Too often, promising reforms have been cut short by policy reversals driven by political pressures—not in all cases, but in many instances.

We need strong institutions and fiscal frameworks that can help safeguard and sustain prudent fiscal policy over time.

For example, well-designed fiscal rules can help guide consolidation efforts. Indeed, such a rule targeting a reduction in public debt to 60 percent of GDP over the medium term has been introduced in several countries in the region—the Eastern Caribbean Currency Union—and has had success in putting public debt on a clear downward path in St. Kitts and Nevis, Grenada, and Jamaica.

The experience of these countries,which in the main has been very successful, provides a good example for other countries in the region.

Fiscal councils are also increasingly recognized as tools to promote sound fiscal policies—by providing independent information and analysis, and by monitoring compliance with fiscal rules.

Here I would like to recognize Andrea Repetto, the President of Chile’s Fiscal Advisory Council, who is with us today to share the Chilean experience.  

Well-designed institutions can play a key role in securing broad political consensus around important reforms.

Jamaica’s Economic Program Oversight Committee—EPOC—comes to mind. From 2013 onwards, this public-private sector committee has played a central role in monitoring Jamaica’s economic reform program and building support for it. While some had doubts whether the government’s program would work, through the authorities efforts including building support, the program succeeded.

Which brings me to our third topic—the financial sector.

(c) Financial Sector: Stability and Growth Trade-offs

Here we need to consider the connection between financial stability and growth. We know that a well-functioning and healthy financial sector should strike a balance between risk-taking, growth, and stability.

But we also know that the financial sectors in the Caribbean have historically either taken on too much or too little risk.

• In countries with high public debt, banks have grown dependent on government paper, and have crowded out private sector credit.
• In other countries, at times, banks have engaged in excessively risky lending, leading to struggles with nonperforming loans.

What is the right balance? That will be the focus of a part of our conversation today. The distinguished panel has also been asked to examine policies to address constraints on financial sector inclusion and deepening—and I am very much looking forward to hearing its views.

When it comes to banking, there is another challenge we need to look at. Both Caribbean and other economies around the world have had to contend with the loss of correspondent banking relationships (CBRs), also known as de-risking.

The IMF has facilitated an international dialogue on this issue, aimed at fostering a shared understanding of the problem, and to help develop policy responses that are tailored to specific challenges faced by Caribbean economies.

And we have made progress together.

Following the recent discussions on this issue at a closed-door event in Barbados convened by the IMF, which included key stakeholders, several correspondent banks are providing technical support to respondent banks in the region—so that they can better address information gaps and regulatory expectations. This includes upgrading of systems and processes to better, and more cost-effectively, meet the requirements of home regulators.  

Moreover,a global bank that had left the region has re-engaged with some respondent banks.

Another example is Belize—which is now making progress after losing two-thirds of its correspondent banking relationships. Currently every bank in Belize has at least two correspondent banking relationships, and can process transactions in a timely manner.

We have collectively made further progress on this issue, including through a regional roundtable on Monday—and the IMF’s Legal Counselor Sean Hagan will talk about this later today.

Notwithstanding important progress, the issue continues to be a challenge, and let me assure you that we are not giving up on this, and we will work together to find a solution, not only on the loss of CBR but also on the high costs of international payments.

Conclusion

Let me conclude with this thought on resilience, captured by musician Jimmy Cliff in the soundtrack of the classic movie “The Harder They Come”:

Listen, Rome was not built in a day
Opposition will come your way
But the harder the battle, you see
Is the sweeter the victory now
You can get it if you really want

We know that we can get there, if we work together. The IMF is proud to be your partner in this process.

Thank you very much.