Port of Spain, Trinidad - The International Monetary Fund (IMF) has launched an initiative with Caribbean leaders to change how it provides loans and technical assistance to smaller countries in financial need. A lack of diversification and low tolerance to shocks in the world economy have made it necessary to come up with a different approach to how financing is structured, according to Saul Lizondo, associate director of the IMF for the Western Hemisphere Department. The gathering of top government officials, governors of central banks and other financial leaders in Port of Spain is the first time Caribbean leaders have worked with the IMF to consider a change in financing policy.
In March, a similar event for smaller nations took place in Samoa for Asian economies in that hemisphere. "Small states have certain characteristics that make them different. It implies a different approach to economic policy and more flexibility of programs. The fund has initiated studies for small states," he said. Lizondo told Guardian Business it was premature to discuss specifics on how IMF financing would be structured under the new plan. Special considerations for smaller states in the Caribbean were addressed at the forum in Trinidad and Tobago aimed specifically at high debt among countries in the region and low prospects for growth.
Taxation reform, improving competitiveness and the question of dealing with debt were key issues discussed during the two-day event. Michael Halkitis, the state minister of finance, and Wendy Craigg, governor of the Central Bank, were on hand representing The Bahamas. While the Caribbean has important strengths on which to build, officials at the conference concluded that decisive reforms to boost competitiveness are "of the essence". Countries with high debt must pursue fiscal adjustments, such as lowering current spending to make way for capital expenditures, reducing tax waivers and concessions and enhancing debt management.
The IMF noted there has been a strong "interconnectedness" in the region. It advised deepening cooperation among authorities and the harmonization of regulations. In the context of rising debt and low growth, Lizondo told Guardian Business it is too difficult to say whether countries in the Caribbean will seek more financing from the IMF in the near term. However, he did say the IMF is ready to assist them. "If countries require a program for the fund, we can provide balance of payment needs," Lizondo said. Deputy Managing Director of the IMF Min Zhu said the world, following the financial crisis, can no longer view the small states in the same way. Zhu said the region's overall growth is "rather weak".
"Because you are small, because you are open, because of the small economic size, it is difficult to handle the external shocks," he said. Warren Smith, president of the Caribbean Development Bank, said the region faces a "deep uncertainty" in regards to its economic prospects. He said the financial crisis poses a "clear and present danger" to the livelihoods of Caribbean people.
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