The Caribbean and the IMF— Building a Partnership for the Future
Christine Lagarde, Managing Director, International Monetary Fund, University of the West Indies at Mona, Jamaica, June 27, 2014, Source
As prepared for delivery
Good afternoon. It is a great privilege to visit this exceptional university. Let me greet all of you—those of you here at Mona, and those of you watching online from other locations.
I want to especially thank the Principal of the Mona Campus, Professor Archibald McDonald, and our moderator today, Dr. Damien King. I should point out that Dr. King is no stranger to the IMF—he was one of the academic fellows invited to our Annual Meetings.
I know that the University of the West Indies is a true haven of higher learning. Its excellence is evidenced by the prominence of its alumni, peppered across the top echelons of their fields—scientists and CEOs, artists and entrepreneurs, professors and public servants.
These alumni include 18 current or former heads of state or prime ministers, and a Nobel Prize winner in literature—Derek Walcott. As well as that, a Nobel Prize winner in economics—the remarkable Arthur Lewis—was also Vice Chancellor here. This is a great legacy.
And how wonderful it is to come to Jamaica, a country whose culture has truly captivated the globe. It is a country of enchanting beauty, with a freshness and grace that stirs the soul. Its people are blessed with poetic panache and a gift for inspiration.
It is so rare to find so much talent packed into such a small space. Jamaica is home to the world’s fastest sprinters—Usain Bolt and Shelly-Ann Fraser Pryce. It is home to some of the world’s most soulful musicians—the birthplace of reggae and Bob Marley, as well as Tessanne, the new singing sensation. It is home to some of the world’s most gifted writers—think of the lyricism of Claude McKay and Louise Bennett.
It’s not just Jamaica—we can see the same level of talent all across the region. Derek Walcott hails from St. Lucia, and another Nobel Prize winner in literature, V.S. Naipaul, comes from Trinidad and Tobago. Grenada can boast Kirani James, the reigning Olympic 400 meter champion. Rihanna, the chart-topping songstress, comes from Barbados, and Sidney Poitier, the legendary actor, comes from the Bahamas.
It is abundantly clear that Jamaica and the entire Caribbean region simply exude capability and creativity.
I realize that the Caribbean has gone through a tough time over the past few years. You know this here in Jamaica. You have lived it.
But this generation holds the keys to the future. When your immense talents are put in the service of your countries, success is surely guaranteed.
Indeed, I can feel a powerful wave of change. I believe that the region has set sail on a voyage toward greater prosperity. And Jamaica is raising its sails with confidence.
It is this change that I want to talk about today—change in two dimensions:
- First, the change that has come to the Caribbean.
- Second, how the Caribbean can keep changing to ensure a successful voyage.
- Third, I will conclude with how the IMF has changed to adapt to the needs of its membership.
1. A changing Caribbean
Let me start with how this region is changing—trading lethargy for lift-off.
The need for change is clear. The Caribbean has had a tendency to get stuck in the doldrums of stagnation—low growth, high debt, low competitiveness, high unemployment.
This has been especially true for the countries depending largely on tourism, like Jamaica. In these countries, growth has averaged less than 2 percent a year since the mid-1990s—and less than 1 percent in Jamaica.
I recognize that this picture does not apply to all countries in the region. Natural resource-based countries like Trinidad and Tobago, Suriname, and Guyana have been able to achieve higher growth, thanks to stronger commodity markets.
But in the other countries, stagnation can be traced to a number of factors. Productivity and competitiveness have suffered from overvalued exchange rates and high energy costs. Confidence has been hurt by high debt and macroeconomic volatility. Everyone has had to cope with the high frequency of natural disasters.
Given this legacy, the Caribbean was vulnerable going into the global financial crisis, and was hit with its full force. Six years on, output has still not returned to pre-crisis levels, and public debt is still at record highs—almost 100 percent of GDP in tourism-dependent countries, and 140 percent of GDP here in Jamaica.
As always, the poor and the vulnerable were hit hardest by crisis. Across the region, about a third of young people are out of work. In Jamaica, the poverty rate doubled to 17½ percent.
With the doors of opportunity barred for so many, the result is disengagement and disenchantment. Exclusion creates an inflammatory cocktail of crime and insecurity, and a steady deterioration in the quality of life.
Clearly, then, the crisis was a major wake up call. Caribbean leaders understand the need for change—not just to free themselves from the grip of crisis, but to adapt to the challenge of the global new normal.
Think about it. The global economy is more interconnected than ever before. The engines of growth are shifting away from traditional markets in North America and Europe to the far-flung shores of Asia. The cozy comfort of trade preferences is long gone. The specter of climate change hovers over the small island states.
As Derek Walcott put it, “the future happens, no matter how much we scream”.
Change begins with restoring economic stability—this establishes a platform for rising and shared prosperity.
Leaders have begun to deliver on that front—in a few cases, with bold and far-reaching reforms. This includes Jamaica, which has made some hard choices to get growth higher and debt lower.
We know that hard choices are made easier when implemented in a spirit of solidarity and shared sacrifice. This is confirmed by Jamaica’s experience.
While Jamaica implemented difficult measures, it tried to spread the burden across society—a wage freeze on civil servants, a debt exchange for financial investors, increases in taxes and tariffs for water and transportation, and higher import prices as the exchange rate was allowed to adjust.
And while the government was cutting spending, it was doing its best to protect the most vulnerable—raising cash transfers for poor households by 67 percent for the elderly and 15 percent for others last year, with another 15 percent increase planned for this October.
Jamaica has also come up with a great innovation in ownership. The government’s reform program is being monitored by an outside group—the Economic Program Oversight Committee—drawn from all stands of society—public sector, private sector, civil society, and trade unions. I met with them earlier today, and came away extremely impressed.
This is a surely a role model that should be emulated elsewhere. With everybody inside the tent, all voices are heard, and everyone has a stake in success.
So where do we stand? Jamaica is not out of the squalls just yet, but we can already see signs of calm seas ahead. The public purse looks much healthier. Growth is back—the economy grew by 1.6 percent year-over-year in the first quarter of 2014. And both inflation and the external current account deficit have come down.
We can see similar signs in some other countries that are navigating their way through difficult reforms. For example, public debt has fallen by 15 percent of GDP in Antigua, and by one third in St. Kitts and Nevis. In some countries, growth is on the rebound—St. Kitts and Nevis, for example, grew by almost 4 percent last year, after years of decline.
And yet we are really only at the beginning of the journey. The voyage ahead is a long one. Achieving lasting success will take time—for Jamaica and for the Caribbean as a whole.
2. Completing the Caribbean voyage
This takes me to my second area—continuing with change to complete the voyage. By this I mean building on stability to lay the structural foundations of sustained and inclusive growth.
I am confident that this can be done. You have it within your power to do it—to bring to life the beautiful vision of Claude McKay, who wrote with such poignancy about Jamaica: “I shall return again, I shall return, to laugh and love and watch with wonder-eyes”.
This region certainly has a proven ability to adapt and change. Remember, the Caribbean shifted from an economy based on agriculture to one based on tourism—a leap that has eluded many others.
The Caribbean is also home to highly-educated, highly-driven people. I can see it here today. The region welcomes the contribution and leadership of women with open arms—evidenced of course by Jamaica’s inspiring prime minister, Portia Simpson-Miller, and by Kamla Persad-Bissessar from Trinidad and Tobago.
The Caribbean also has a legacy of good institutions—with a thriving tradition of democracy and political accountability.
This all bodes well for the future—especially if the region can get to grips with the twin challenges of competitiveness and climate change.
Competiveness is vital in a region of small open economies that rely on tourism. Competing in world markets means keeping a lid on production costs. In Jamaica, letting the exchange rate depreciate, although painful, has helped restore a good deal of lost competitiveness, and will support investment and job creation.
A big issue is high energy costs. Electricity costs three times as much in Jamaica as in the United States. It costs even more in Barbados. So conserving and renewing energy, alongside efforts to bring more competition and dynamism to the energy sector, will be important. I know that Jamaica is working hard on this.
The region also needs to invest more smartly in education and training, to link the skills people have to the skills the economy needs. This is especially important to lift the prospects of the young.
It is also critical to improve the business climate, which is less hospitable in the Caribbean than in other dynamic small economies. This includes reeling in much of the red tape and making labor markets more effective in creating jobs.
In tandem, the public sector must play an enabling role—through greater predictability, transparency, and impartiality. For instance, fiscal incentives could be made simpler and less murky. Again, Jamaica is making good progress here.
In all of this, the Caribbean would also gain from greater cooperation. A difficult task is always made easier when more people lend a hand—and a lot easier when they work together.
For example, a regional approach to transportation infrastructure and the marketing of tourism might work better than each country pressing its own advantage. There would be more revenue for all if countries resisted the temptation to compete with each other on taxes to attract business. By definition, a race to the bottom leaves everybody at the bottom.
I have talked so far about boosting competitiveness. But competitiveness that ignores climate change is hollow competitiveness. As climate change continues its relentless march, the Caribbean is on the front line—a region of low-lying islands surrounded by increasingly angry seas. As but one stark example: Georgetown, Guyana’s capital, lies entirely below sea level.
For the Caribbean, climate change brings a climate of fear. People know that their lands, their livelihoods, and even their lives, are in peril.
This is a first-order global priority for all of us. The global community must come together to save our precious planet—before it is too late.
Yet even though climate change requires a global solution, there are certainly measures that the Caribbean can take to protect its people and make its economy more resilient to the forces of nature. For a start, it can invest in the infrastructure needed to better withstand natural disasters. It can improve water management, to stop salt water from infiltrating valuable fresh water sources. It can protect people through better land planning. It can improve the institutional setup of disaster management. It can strengthen catastrophic risk insurance frameworks.
Ultimately, if the region can get to grips with these challenges, I believe that its voyage will be successful—especially if it takes place on board three “ships”.
What ships do I mean? I certainly don’t mean cruise ships, or pirate ships, or the three ships of Christopher Columbus!
Rather, the “ships” I have in mind are ownership, stewardship, and partnership. Ownership of the reform program—so that all citizens have a stake in success. Stewardship of the economy—nurturing its resources and investing in its people. Partnership with each other and with the international community—including the IMF.
3. A changing IMF
I have already talked about ownership and stewardship, so let me now turn to partnership—which is my third point today. Specifically, I will talk about how a changing IMF can help a changing Caribbean.
A partnership with the IMF is really a partnership with the community of nations. The IMF is a forum for international economic cooperation—nothing more, nothing less. It is an organization that is “owned and operated” by its members—and that includes the people of the Caribbean.
The IMF was founded almost exactly 70 years ago, during the waning days of the Second World War. As world leaders gazed beyond the blood-soaked horizon of chaos and carnage, they were determined to build a better world—one based on collaboration instead of conflict, integration instead of insularity.
The IMF was founded on the core principle that by helping your neighbor, you are ultimately helping yourself; that the route to national prosperity runs through global prosperity.
As Bob Marley put it, “Live for yourself and you will live in vain; live for others, and you will live again”.
I know that this spirit of solidarity runs deep in Jamaica. In fact, one way to think of the IMF is as a kind of “Economic Program Oversight Committee” on a global scale—and we have 188 member countries!
Our mission is global economic and financial stability, and we try to achieve it in three ways—policy advice, lending, and capacity building.
Starting with policy advice: our goal is to bring together knowledge, expertise, and best practices from across the spectrum of our entire membership. No, we don’t have all the answers—nobody does. But we do know how to take the birds-eye view, to see how the moving parts of the global economy all fit together. We also understand the importance of listening to all views, and engaging in open dialogue.
This is why we have convened a number of high-level conferences on how to bring about sustainable and inclusive growth in the Caribbean. We held one in Trinidad in 2012, and one in the Bahamas in 2013—and a third will take place here in Jamaica, in Montego Bay, later this year. We are also paying special attention to the needs and concerns of small states.
The second way we help is through our lending. Not surprisingly, we have been working in overdrive since the crisis broke out six years ago—making 159 new lending commitments and disbursing almost $200 billion to help ease the pain of adjustment in countries all across the world.
This was a global crisis calling for a global response, and I believe that the IMF’s safety net played an essential role in avoiding a catastrophic economic meltdown. In other words—we did what we were founded to do.
We did it by partnering with countries and supporting their efforts to get out of crisis. These countries include Antigua and Barbuda, St. Kitts and Nevis, Jamaica—and now Grenada too. We also helped countries get back on their feet after the devastation of natural disasters—including in Haiti, Dominica, St. Lucia, and St. Vincent and the Grenadines.
The third way we help is through capacity building—technical assistance and training. This is about helping countries design, build, and strengthen the institutions that make up the core building blocks of economic success. Since the crisis broke, we have provided training to all of our members, and technical assistance to 90 percent of them.
Again, we are heavily involved in helping the Caribbean countries build capacity, including through CARTAC, our technical assistance center in Barbados. In this region, we have paid special attention to strengthening public financial management systems. After all, if countries want to make debt more sustainable, and be able to deploy funds to priority spending areas, they need the capacity to manage these funds well.
Ultimately, you are our shareholders and the IMF is at your service. Our goal is to help you—and more importantly, help you to help yourselves.
Now, I realize that the Fund has not exactly won many popularity contests in this region. For too long, the IMF was viewed in harsh terms—hindering rather than helping.
Much of this criticism is, I believe, unfair—after all, many of the countries that seek our help are already in dire economic straits. But some of it is valid. We may not always have gotten it right in the past, but we are committed to listen and to learn, to adapt and to change, to be humble and open-minded.
That is what we have been doing. As some have said, this is no longer your father’s IMF—maybe because the current Managing Director is a mother!
Today, we are putting the highest priority on growth and jobs. We are getting more involved in less traditional areas that matter for growth and stability—such as taming excessive income inequality, grappling with climate change, and enticing more women into the labor force. We are putting more emphasis on protecting social safety nets and sharing the burden of adjustment fairly—and we fully support what Jamaica and others are doing here.
As Prime Minister Mitchell from Grenada put it recently, “I always knew the IMF had a head, now it appears it also has a heart”. My view is that the head needs the heart and the heart needs the head—as with so much else in life, they work best as a partnership!
Conclusion
Let me conclude on that note. I believe that the old paradigms are dead. Both the Caribbean and the IMF are very different today from what they were thirty years ago, twenty years ago—or even ten years ago.
You have changed and we have changed. We might have started far apart, but—through the constant motion of change—we are walking toward one another.
On that note, it seems fitting to invoke Derek Walcott once again, who talked longingly about the “days when every street corner rounds itself into a sunlit surprise”. May those days come and never depart. And may this beautiful country and this remarkable region be blessed.
Thank you very much.