The lost decade

Last week we saw that overall economic growth in the Caribbean was positive, though moderate, during the decades of the 1980s and 1990s. Growth in the 1990s at 3 per cent per annum, had trebled the growth rate of the previous decade. For the wider Caribbean and Latin American region, the decade of the 1980s has become known in the economic literature as the "lost decade." This phrase seeks to capture the slow growth and lost opportunities in the region, as well as the emergence of a number of serious macroeconomic disequilibria, particularly inflation, large balance-of-payments and fiscal deficits, shortages, import restrictions, and the emergence of huge underground economies. In the case of Guyana, I had made a few estimates of the size of the parallel underground economy at its peek, and the highest estimate was that it was as large as the 'official' economy. (See 'Foreign Currency Blackmarkets: Lessons From Experience in Guyana,' Social and Economic Studies, June 1989).

Last week's article also noted that the growth rate obtained in both decades was highly variable, from year to year. The pattern was that the variability intensified as the growth rate increased, so that growth in the 1990s was more erratic than growth in the previous decade.

The changing pattern of capital flows

Last week's article also referred to the decline in official development assistance to the region during the 1980s and 1990s, and the related rise in private capital flows. World Bank data show that total resource flows into the Caribbean region grew by more than 31/2 times between the late 1980s and the end of the 1990s. For the period 1985-90, these inflows averaged about US$950 million. By the end of the 1990s, they were approximately US$3.5 billion.

The changed composition of these flows is striking. For the period 1985-90, official development assistance averaged US$650 million, or about 70 per cent of the total net resource inflows into the region. Of this amount, more than two-thirds was in the form of grants and about one-third in the form of loans. By the end of the 1990s, however, official development finance was accounting for less than one-sixth of the total net resource inflows into the region. The remaining 83 per cent came from private flows. Meanwhile, there was a significant net 'outflow' of funds from the region to the official donors in the late 1990s (ranging from US$100-US$300 annually) as earlier loans were being repaid by regional governments.

The net result of the above has been that foreign private investment has now become crucially important to the future development of the Caribbean, replacing thereby, the role formerly played by official development assistance. Foreign private investment now accounts for about 6 percent of the Region's GDP, that is, three times the proportion it did in 1990 (2 per cent).

Systemic challenges

Despite the positive developments indicated so far, many major economic challenges now face the region. Some of these can be termed as 'systemic,' since they relate to certain fundamental characteristics of the region that cannot, for all practical purposes, be changed in the foreseeable future. These include the region's small geographic size, its small populations, and limited markets. They also include the physical dispersion of the region, which places a high premium on cheap, efficient, effective transport networks, if intra-regional development is to follow. There is also the traditional 'openness' of these economies, since given their configuration the total value of imports plus exports has always constituted a very high percentage of total national output.

Economic gaps and deficits: poverty

While some of the challenges are systemic, others are as a result of the cumulative impacts of past and present policy failures. These have created enormous economic gaps in the society. There are four striking examples of these. One is the high levels of poverty that prevail in the region. Despite the overall high levels of per capita income and standard-of-living that the population enjoys, national poverty rates range from 8 per cent (Barbados) to 36 per cent (Guyana). Within countries the range can be wider. For example, the 1999 Guyana Living Standards Survey shows that the poverty rate in Guyana ranged from 16 per cent in urban areas to 78 per cent in the hinterland interior area. Poverty in the region has been persistent and remains a real scourge on Caribbean efforts to secure sustainable human development.

Unemployment

Another major economic challenge is unemployment. This has been variously estimated in the Region at levels of 7 percent (Antigua and Barbuda) to 20 percent (St Vincent and the Grenadines). Among young persons (men and women) the rate has been particularly high, approaching 40 percent in some territories. This enormous waste of human resources not only reduces output and growth, but adds to the social stress within the region.

Income inequality

A third major economic challenge is the high levels of income inequality that presently obtain in the region. Indeed, the Latin America\Caribbean region is notorious for having among the highest levels of inequality among regions worldwide. The measure of inequality popularly used is the Gini Coefficient. This rates inequality on a scale of 0-1, as you move from the lowest to the highest levels of inequality. In the Caribbean, the Gini Coefficients typically range from a low of 0.372 (Jamaica) to a high of 0.525 (Antigua and Barbuda).