Over the past two weeks we looked at a number of pieces of evidence in support of the view that in the decade of the 1980s and 1990s there was positive, though moderate growth in the Caribbean. Compared to other developing regions, the Caribbean as a whole performed quite well. What was perhaps not stressed in the earlier pieces, is that the smaller states did much better on average than the larger ones. Thus for example the member countries of the OECS as a group grew at 6.4 per cent per annum in the 1980s and 3 per cent per annum in the 1990s. This growth was six times larger than that for the region as a whole (one per cent) in the 1980s and about the same (3.0 per cent) as that in the 1990s. On the face of it therefore, small size does not appear (at least when compared to other Caribbean countries), to have been a major disadvantage.
Diversification
The smaller countries benefited particularly from the diversification of their economies and the absence of serious macroeconomic disequilibrium during this period. In these states tourism and off-shore finance literally 'took-off,' and their impact on the economies was huge. Agricultural exports also benefited in the 1980s from favourable prices, particularly bananas and spices, and to a smaller extent sugar. Indeed, St Kitts and Nevis is the only OECS country still exporting sugar.
In recent years both these sectors have come under threat. The traditional protected bananas regime in the European Union (EU) collapsed, and a new less protective arrangement has succeded it. The Lomé Convention, which offered broad protection has also been transformed into the Cotonou Agreement, which espouses a future "partnership" between the Caribbean and the EU.
The growth of the off-shore finance industry in the OECS has run into OECD opposition, as allegations that it is a cover for money-laundering, tax dodging, and other criminal financial practices have been made. In a totally unfair and one-sided approach to this issue, the OECD countries commenced a major offensive against the off-shore financial sector of the region. Under the guise of greater "transparency in the operations of off-shore jurisdictions" and the need for more "information exchanges," the OECD embarked on a course of action to "blacklist" these countries for engaging in what it described as "harmful tax competition." We shall return to this topic later, but for now it is important to note that these developments have cast a damper on the earlier expectations for this sector.
Impact of recent events
Because of the September 11 events, the tourism and travel-related sectors of the regional economy now face very difficult times. The adverse impact on the smaller OECS states could be particularly dramatic, as some of these countries are very heavily dependent on tourism. However, it should be noted when considering the emerging challenges related to September 11 that the pace of diversification in the smaller territories of the OECS had quickened considerably over the past two decades. Thus agriculture, which accounted for one-sixth of the OECS' GDP in 1980s, had fallen to less than one-twelfth by the end of the 1990s. By that time also, tourism had increased and accounted for more than one-sixth of GDP and one-quarter of the exports of goods and non-factor services in 1999.
Capital inflows
The OECS states, like the larger Caribbean, had much of its prosperity in the 1980s linked to substantial inflows of concessionary funds. Indeed these flows accounted for as much as 9 per cent of the GDP of the OECS in the 1980s. During the 1990s, this sum fell to only 4 per cent of the OECS' GDP. The expectation then was that private flows would have substituted for official flows. Unfortunately, this did not materalise. Private flows represented 8 per cent of the GDP of the OECS in the 1980s but only grew slightly to 9 per cent during the 1990s.
Per capita GNP
Per capita GNP in the OECS is high in comparison both with the rest of the Caribbean region, and for that matter other developing regions. The lowest per capita income in the grouping is St Vincent and the Grenadines, with an amount of just under US$3,000. Compared to the wider Caribbean, however, this was about six and a half times as large as that of the lowest
(Haiti), and four times that of Guyana (the next lowest). The highest per capita income in the OECS (British Virgin Islands, US$34,394) was more than ten times as large as the lowest in the grouping. The average per capita income for all the territories of the OECS was just under US$5,000.
Macroeconomic performance
There is one particular feature of the OECS economy that has often been credited with its good economic performance in the 1980s and 1990s. That is, these territories belong to the Eastern Caribbean Central Bank (ECCB). Under the arrangements of the ECCB, individual governments are severely constrained in their ability to create 'money' through the banking system. Furthermore, in practice current government revenue in the OECS has averaged just under 30 per cent of the OECS' GDP, and the overall public sector deficit has been quite small, averaging less that one per cent of GDP.
This pattern has allowed these countries to maintain a stable exchange rate and, with the absence of significant fiscal deficits, to avoid inflation. Recorded inflation in the OECS has been in the low single digit range in the 1990s. This performance is in contrast to that of the larger countries, particularly Guyana, Trinidad and Tobago, and Jamaica. All of these suffered severe macroeconomic disequilibrium in the 1980s and 1990s.
Indeed, Guyana and Jamaica have had such prolonged periods of structural/macroeconomic disequilibrium that adjustment to that occurrence still characterises their contemporary growth.