In its aim to stimulate policy dialogue and help policymakers overcome the challenges that hinder Caribbean economies from fulfilling their potential for growth and development, this book is a timely success. By bringing together up-to-date research on the challenges of weak macroeconomic fundamentals and long-standing structural impediments, it provides insights and policy perspectives that can shape coherent answers to these pressing policy concerns. The book’s careful analyses point the way toward opportunities for welfare gains from determined but balanced policy actions targeted at the region’s high energy costs, financial exclusion, high crime rates, and the persistent loss of skilled workers to richer countries. Consideration of the vulnerabilities and opportunities that arise from financial interconnectedness across the Caribbean also informs the book’s reminder to policymakers of the benefits that remain to be exploited by greater regional cooperation in a number of areas. With its relevance and range of evidence-based policy recommendations, this volume earns its place on the bookshelves of practitioners and other students of Caribbean economic development.

—Brian Wynter Governor, Bank of Jamaica

This book provides a comprehensive assessment of three major Caribbean contemporary economic challenges—slow growth, macroeconomic imbalances, and structural impediments. The chapters are skillfully written by Fund economists, who are versed in the various aspects of Caribbean economic issues, to relate the challenges to the vicious cycle. Policy recommendation is an important aspect of the book and addressed at both the individual country and regional levels. This book is a must-read for public policymakers and anyone interested in contemporary Caribbean and small states economic and financial issues.

—Dr. Gobind Ganga Governor, Bank of Guyana

Economic growth in the Caribbean over the last two decades has been slow, both relative to growth in the region over the previous 20 years and in comparison to other small, non-Caribbean countries. Unleashing Growth and Strengthening Resilience in the Caribbean provides a thorough analysis of the region’s subpar economic performance and lays out a practical approach for improvement. The authors highlight key policy changes that merit serious consideration: building greater resilience to increasingly frequent hurricanes; reducing the cost of energy; greater investment in infrastructure; more regional cooperation and integration; microeconomic reforms to reduce the cost of doing business; and countercyclical fiscal policy. But the path to faster sustainable and inclusive growth is different for each of the 13 countries examined in this book, and it’s refreshing to see the IMF embark upon a more collaborative, tailored approach to its recommendations for developing countries. This country-specific approach is part of a broader—and greatly welcomed—philosophical change at the Fund, which recognizes that the best kind of economic discipline does not push extreme measures such as fiscal austerity in a one-size-fits-all manner, but rather commits to a pragmatic, longer-term growth strategy that is both vigilant and flexible. This important publication is a must-read for anyone who cares about the creation of policies that encourage greater economic prosperity for all segments of Caribbean society, and anyone interested in the development of deeper understanding between these island nations and the global economic institutions that exist to help them achieve stability.

—Peter Blair Henry

Dean, NYU Stern School of Business, and author of

Turnaround: Third World Lessons for First World Growth

This book takes a refreshing new look at contemporary problems of Caribbean economies and makes a substantive contribution to the existing dialogue on both analysis and policymaking related to the region. It merits serious attention and careful study by policymakers, researchers, and the general public.

The analysis is focused on identifying sources of the region’s long-term weakness in economic performance relative to other “small” states and regions in the world economy. It adopts a multi-faceted approach that integrates a range of social, institutional, and environmental factors (brain drain, violent crime, natural disasters) with issues of chronic debt accumulation, provision of public infrastructure and social services, tax incentives, supply of and access to finance, energy costs, and the trade regime, correctly placing emphasis on the interaction and feedback effects among them. It skirts around some important issues, such as competitive structure and operation of business enterprise, and the problem of governance at the national level, but it recognizes weaknesses in regional cooperation among states on economic matters. Problems in the tourism and financial sectors are given special attention.

What emerges from this diagnosis is a complex picture of factors that have operated to retard the region’s progress in catching up with living standards in other relevant nations that have moved ahead. As to what needs to be done about this, there is no simple linear formula here, or magic bullet, that leads from macroeconomic stabilization to sustained improvements in economic efficiency, broad-based growth of income, and social inclusion. By implication, “unleashing growth” requires a multi-pronged, systematic, and sustained effort focused on addressing a wide range of factors arising at both macro and micro levels of the economy. Broad policy recommendations are offered, while choice of policy priorities and details of a specific strategy or plan are implicitly left to be determined by action on the ground.

As the product of a group of technical experts in the IMF, this book represents a significant advance in reporting on the Caribbean region by the IMF. It provides clues into observed weakness in the expected “pass-through effect” from IMF structural adjustment programs pursued in the past; and it offers useful insights for guiding development of the policy framework adopted by the IMF for management of economic programs operated under its purview in this region.

—Donald J. Harris

Professor Emeritus of Economics, Stanford University

Unleashing Growth and Strengthening Resilience in the Caribbean

Trevor Alleyne

İnci Ötker

Uma Ramakrishnan

Krishna Srinivasan

© 2017 International Monetary Fund

Cover design: IMF Multimedia Services Division

Cataloging-in-Publication Data

Joint Bank-Fund Library

Names: Alleyne, Trevor Serge Coleridge, editor. | Ötker, İnci, editor. | Ramakrishnan, Uma, editor. | Srinivasan, Krishna, editor | International Monetary Fund, publisher.

Title: Unleashing growth and strengthening resilience in the Caribbean / edited by Trevor Alleyne, İnci Ötker, Uma Ramakrishnan, and Krishna Srinivasan.

Description: [Washington, DC] : International Monetary Fund, 2017.

Identifiers: ISBN 9781484315194 (paper)

Subjects: LCSH: Economic development—Caribbean Area. | Caribbean Area—Commerce. | Economic indicators—Caribbean Area.

Classification: LCC HC151.U543 2017

ISBN 978-1-48431-519-4 (paper)

978-1-48431-891-1 (ePub)

978-1-48431-924-6 (mobipocket)

978-1-48431-925-3 (PDF)

Please send orders to:

International Monetary Fund, Publication Services

P.O. Box 92780, Washington, DC 20090, U.S.A.

Tel.: (202) 623–7430 Fax: (202) 623–7201

E-mail: publications@imf.org

Internet: www.imfbookstore.org

Contents

• Foreword

• Contributors

• 1 | Unleashing Strong, Sustainable, and Inclusive Growth in the Caribbean

  • Daniel Leigh, Krishna Srinivasan, and Alejandro Werner

• 2 | Reinvigorating Growth in the Caribbean

  • Marcos Chamon, Joshua Charap, Qiaoe Chen, and Daniel Leigh, with support from Franz Loyola and Lulu Shui

• 3 | Caribbean Tourism in the Global Marketplace: Trends, Drivers, and Challenges

  • Sebastian Acevedo, Nicole LaFramboise, and Joyce Wong

• 4 | Cuba Awakening: Potential Risks and Opportunities

  • Sebastian Acevedo and Joyce Wong

• 5 | Fiscal Challenges in the Caribbean: Coping with Natural Disasters

  • İnci Ötker with Franz Loyola

• 6 | Tax Incentives: To Use or Not to Use?

  • Meredith A. McIntyre

• 7 | Managing Economic Citizenship Program Inflows: Reducing Risk and Maximizing Benefits

  • Judith Gold and Alla Myrvoda

• 8 | Debt Restructuring in the Caribbean—The Recent Experience

  • Joel Chiedu Okwuokei and Bert van Selm

• 9 | Financial Development and Inclusion in the Caribbean

  • Joyce Wong

• 10 | Financial Interconnectedness in the Caribbean: Challenges for Financial Stability

  • Elie Canetti, Kimberly Beaton, Qiaoe Chen, Fabio Di Vittorio, Udi Rosenhand, and Kalin Tintchev

• 11 | Problem Loans in the Caribbean: Determinants, Impact, and Strategies for Resolution

  • Kimberly Beaton, Thomas Dowling, Dmitriy Kovtun, Franz Loyola, Alla Myrvoda, Joel Chiedu Okwuokei, İnci Ötker, and Jarkko Turunen

• 12 | Loss of Correspondent Banking Relationships in the Caribbean: Trends, Impact, and Policy Options

  • Trevor Alleyne, Jacques Bouhga-Hagbe, Thomas Dowling, Dmitriy Kovtun, Alla Myrvoda, Joel Chiedu Okwuokei, and Jarkko Turunen

• 13 | Energy Diversification: Macro-Related Challenges

  • Meredith A. McIntyre and Ahmed El Ashram

• 14 | Emigration and Remittances in the Caribbean

  • Joyce Wong

• 15 | Violence in the Caribbean: Cost and Impact

  • Heather Sutton, Laura Jaitman, and Jeetendra Khadan

• Index

Foreword

The Caribbean countries—endowed with some of the greatest beauty on this planet—sustained several decades of strong growth following their independence in the 1960s and 1970s. Their success was underpinned by the development of strong democratic traditions, sound institutions, and an active debate of public policies reflecting the aspirations of the Caribbean people. More recently, however, many of the countries in the region have fallen into a trap of low growth and high debt. In addition to the costs posed by frequent natural disasters, which have contributed to low growth, the region has also endured deep macroeconomic, financial, and structural challenges. A large public debt overhang, combined with high energy costs, violent crime, constrained access to credit, a high cost of doing business, and brain drain—to name just a few—have undermined regional growth prospects.

The IMF’s focus on small states, in general, and the Caribbean, in particular, has been growing over the years, notably through dialogue and collaboration with key stakeholders. I personally have had the pleasure of engaging through the years with policymakers from the Caribbean during the Annual Meetings of the IMF and the World Bank. In addition, the IMF, with strong support from the donor community, has made significant strides in enhancing technical assistance to build capacity in the region. In some countries, our engagement through IMF-supported programs could even be considered game-changing.

It is my distinct pleasure to be part of this effort to disseminate the analytical work on the Caribbean that has been conducted largely in the IMF’s Western Hemisphere Department. This book is timely and important in many respects. With a primary focus on how to raise the region’s growth potential while balancing it with stability, it provides rich analyses of key macroeconomic, financial, and structural impediments to growth, and recommends feasible solutions for the Caribbean. The chapters draw on the vast academic literature, and synthesize a substantial amount of analytical work on highly topical issues for the region. The book also broadens the reach of our policy advice to a wider audience across the region and globe.

This book serves as a fresh platform to further our close engagement and policy dialogue with the region. I hope that it will spark a healthy debate on the economic challenges of the region and further research on the path to unleashing sustained higher growth and job creation.

Christine Lagarde

Managing Director

International Monetary Fund

Contributors

Sebastian Acevedo is an economist in the IMF’s Western Hemisphere Department and works on the Ecuador desk. At the IMF, he worked for six years on the Caribbean, covering topics related to natural disasters, economic growth, productivity, tourism, debt, and exchange rate regimes. He holds a B.A. in economics from Universidad EAFIT in Colombia, an M.A. in international trade and economic cooperation from Kyung Hee University in the Republic of Korea, an M.A. in economics from Georgetown University, and a Ph.D. in economics from the George Washington University.

Trevor Alleyne took on his current position as an assistant director/division chief of the Caribbean I Division at the IMF’s Western Hemisphere Department in September 2013. He is responsible for the economies of the Organisation of Eastern Caribbean States. His previous Caribbean experience at the IMF was as division chief of the Caribbean II Division during 2008–12, serving also as mission chief for Jamaica, Barbados, The Bahamas, and Suriname. Mr. Alleyne has been at the IMF since 1992, with assignments mainly in the African and Western Hemisphere Departments. Most recently, he served as mission chief for Nigeria and Zambia (2012–13). Prior to joining the IMF, he was a principal analyst at the US Congressional Budget Office from 1986 to 1992. He is a professional economist with over 25 years of experience and was educated at the University of the West Indies (B.Sc.), University of Pennsylvania (M.A.), and University of Maryland (Ph.D.).

Kimberly Beaton is an economist in the IMF’s Western Hemisphere Department, currently covering Panama. Previously, she was a senior advisor to the Executive Director for Canada, Ireland, and the Caribbean. Prior to joining the IMF, she was an economist at the Bank of Canada. She is a graduate of Queen’s University in Canada.

Jacques Bouhga-Hagbe is currently a senior economist at the IMF and has worked on many countries since joining the IMF in 2002. He holds a Ph.D. in economics from Cornell University, New York, and an engineering degree from the Ecole Centrale de Paris.

Elie Canetti has worked for 25 years at the IMF, where he is an advisor in the Western Hemisphere Department. He has also worked on Asia and on financial stability issues. His Caribbean experience includes heading the Financial Sector Assessment Program for The Bahamas and serving as mission chief for Trinidad and Tobago and St. Vincent and the Grenadines. He was adjunct finance professor at Johns Hopkins School of Advanced International Studies and worked at PIMCO with Mohamed el Erian. He holds degrees from the University of California, Berkeley; London School of Economics; and Princeton University.

Marcos Chamon, a national of Brazil, is deputy division chief in the Caribbean III Division of the IMF’s Western Hemisphere Department and mission chief for Guyana. He holds a Ph.D. in economics from Harvard University. He has published on a wide range of topics, including sovereign debt restructuring, currency mismatches, economic growth, consumption and savings, early-warning models for balance of payments crises, the design of capital controls and macroprudential policies, monetary policy, and foreign exchange intervention in emerging markets.

Joshua Charap, a national of the United States, is IMF resident representative in Suriname. He holds a B.S. in physics and an M.S. in economics from the Massachusetts Institute of Technology and a Ph.D. in economics from the University of Pennsylvania. For most of his career, Mr. Charap has worked on countries supported by IMF programs, including as resident representative in Afghanistan, Cambodia, and Yugoslavia. Prior to joining the IMF, he was an economist in the Chief Economist’s Office at the European Bank for Reconstruction and Development.

Qiaoe Chen, a national of China, is an economist in the Caribbean II Division of the IMF’s Western Hemisphere Department. She holds an M.S. in economics from the Tsinghua University of China. Prior to joining the IMF, she worked for many years in the Central Bank of China, covering international financial cooperation and banking supervision issues. Her research focuses on economic growth, financial supervision, and monetary policy.

Joel Chiedu Okwuokei is an economist in the Caribbean II Division of the IMF’s Western Hemisphere Department. He holds a Ph.D. in economics from the University of Benin, Nigeria, which he attended as an African Economic Research Consortium scholar. Before joining the IMF, he worked with the federal government of Nigeria for several years. His research interests include economic growth, fiscal policy, monetary policy, and financial sector reform.

Fabio Di Vittorio, a national of Italy, is an economist in the IMF’s Western Hemisphere Department, where he has worked extensively on Eastern Caribbean Currency Union economies. He holds a Ph.D. in economics from New York University. His research covers financial economics, banking, financial regulation, and macroeconomics.

Thomas Dowling is an economist in the IMF’s Western Hemisphere Department and works on the Barbados and Trinidad and Tobago desks. He has worked at the IMF for eight years on the United States, Canada, and the Nordic countries prior to joining the Caribbean Division. His research interests include international trade, financial intermediation, fintech, and nowcasting.

Judith Gold, a national of Canada, has served as advisor to the Canadian Executive Director to the IMF, representative to the Paris Club, and mission chief to Guyana, Panama, Trinidad and Tobago, St. Kitts and Nevis, and, presently, Barbados. She holds an M.A. in economics from the University of York in Toronto. She has contributed to and published several economic articles and, more recently, co-authored an IMF Working Paper titled “Too Much of a Good Thing? Prudent Management of Inflows under Economic Citizenship Programs.”

Laura Jaitman is an economist at the Research Department of the Inter-American Development Bank (IDB). She joined the IDB in 2014, where she previously coordinated the research agenda for the Citizen Security and Justice sector. Her principal areas of research are the economics of crime, development economics, and political economy. Before joining the IDB, she worked for a decade as a consultant to the World Bank, the IDB, and J-PAL in the evaluation of public policies in various Latin American countries. Ms. Jaitman holds a Ph.D. in economics from University College London. Her work was published in international peer-reviewed journals, such as The Economic Journal and Journal of Economic Behavior and Organization, among others.

Jeetendra Khadan is an economist consultant at the Inter-American Development Bank (IDB). He currently holds the position of country economist for Suriname and researcher in the Caribbean Economics Team. He has written and published books as well as academic papers in peer-reviewed journals and the IDB’s working paper series on issues ranging from international trade, regional integration, private sector development, macroeconomics, and applied economics, to other contemporary policy issues. Mr. Khadan holds a Ph.D. in economics from the University of the West Indies.

Dmitriy Kovtun, a national of Kazakhstan, is a senior economist in the IMF’s Western Hemisphere Department. He also worked in the African, Strategy and Policy Review, and European Departments of the IMF. He holds a Ph.D. in economics from the University of Kentucky (Lexington). His research has focused on macro-financial linkages, nonperforming loans, and monetary sector issues.

Nicole LaFramboise attended the University of Western Ontario in Canada and the London School of Economics, receiving an M.A. in economics in 1987. She worked in the research department at the Bank of Montreal, the United Nations Development Programme in Mali, and then at the federal Department of Finance in Canada. She was seconded to the Office of the Executive Director for Canada at the IMF and joined the staff of the IMF in late 1996. Nicole has held various positions at the IMF, including in the areas of policy development and review, as a desk economist on country teams in North Africa and Central Asia, and as a speechwriter for the Managing Director in the Communications Department. As deputy division chief in the Western Hemisphere Department, she has served as mission chief for Barbados, Grenada, and now Bolivia. Recent projects include research on the macroeconomic impact of natural disasters, the determinants of tourism flows to the Caribbean, income and price elasticities of tourism arrivals, and a tourism sector price index.

Daniel Leigh, a national of the Czech Republic and the United Kingdom, is deputy division chief in the Caribbean III Division of the IMF’s Western Hemisphere Department. He holds an M.Sc. in economics from the London School of Economics and a Ph.D. in economics from Johns Hopkins University. Prior to joining the Western Hemisphere Department, Mr. Leigh worked for several years in the IMF’s Research Department on the World Economic Outlook. His research focuses on economic growth and monetary and fiscal policy.

Franz Loyola is currently a consultant for the World Bank Group’s Independent Evaluation Group. Previously, he was a research analyst in the IMF’s Caribbean III Division of the IMF’s Western Hemisphere Department. He is a Ph.D. candidate in economics at George Mason University and holds an M.A. in economics from the University of the Philippines.

Meredith Arnold McIntyre, a Grenadian national, is a deputy division chief in the IMF’s Western Hemisphere Department. Prior to his current assignment, he was coordinator of the IMF Caribbean Regional Technical Assistance Center. Mr. McIntyre holds a B.Sc. (Econ) honors degree from the University of the West Indies (Cave Hill campus, Barbados), an M.A. in economics from Yale University, and a Ph.D. in economics from the University of Toronto. Prior to joining the Western Hemisphere Department, Mr. McIntyre worked for several years in the African Department, including serving as the IMF’s resident representative in Ghana for three years.

Alla Myrvoda is an economist in the Caribbean I Division of the IMF’s Western Hemisphere Department (WHD), where she covers the Eastern Caribbean Currency Union economies. Before joining WHD in 2014, her previous assignment was in the Asia Pacific Department, working on Lao People’s Democratic Republic, China, Hong Kong Special Administrative Region, and Macao Special Administrative Region.

İnci Ötker, a Turkish national, is the IMF’s mission chief for St. Kitts and Nevis and division chief of Caribbean III of the Western Hemisphere Department (WHD), which covers Aruba, Curaçao, Sint Maarten, Guyana, Suriname, and Trinidad and Tobago. She holds a Ph.D. in economics from Carnegie Mellon University, Pittsburgh, and a B.A./M.S. from the Middle East Technical University, Turkey. Before joining WHD, she was an advisor in the Monetary and Capital Markets Department, and senior advisor/deputy director at the World Bank. Her research covers financial stability, systemically important financial institutions, capital controls, exchange regimes, inflation targeting, financial crises, and global risks, including climate change, natural disasters, and pandemics. She has co-edited books on credit growth and financial sector resilience and has worked at the Central Bank of Turkey.

Uma Ramakrishnan is an assistant director in the IMF and Division Chief of the Caribbean II Division in the Western Hemisphere Department. She has been mission chief for Jamaica since May 2015. She previously held the position of mission chief for El Salvador and has worked on several countries in Asia and Europe. She has also worked extensively on IMF lending policies. She holds a Ph.D. in economics from Georgetown University.

Udi Rosenhand is a research analyst in the IMF’s Western Hemisphere Department. A graduate of Tulane University, Mr. Rosenhand’s interests include game theory and monetary policy.

Krishna Srinivasan has been with the IMF since 1994 and has served in several departments across the institution. In his current capacity as a deputy director in the IMF’s Western Hemisphere Department (WHD), he oversees the institution’s work on several countries as well as WHD’s research activities and flagship publication Regional Economic Outlook: Western Hemisphere. He previously served in the European Department as the IMF’s mission chief for the United Kingdom and Israel and, before that, in the Research Department, where he led the IMF’s work on the Group of Twenty. He obtained his Ph.D. in international finance from Indiana University and an M.A. from the Delhi School of Economics and has published several papers at the IMF and in leading academic journals. He is co-editor of Challenges for Central Banking: Perspectives from Latin America and the lead editor of Global Rebalancing: A Roadmap for Economic Recovery, published by the IMF.

Lulu Shui is a research assistant in the IMF Western Hemisphere Department. She holds a M.A. of International Economics from Johns Hopkins School of Advanced International Studies. Before joining the Fund, Ms. Shui worked for several years at the World Bank on international trade issues.

Heather Sutton is a research consultant for the Inter-American Development Bank (IDB) on issues of citizen security. Her work has involved designing, implementing, and analyzing surveys of victimization and violence against women. She has published a book and academic papers in peer-reviewed journals and the IDB’s working paper series, focusing on issues of crime and violence, with special attention to prevention. Prior to joining the IDB, she worked for over a decade as a consultant for the International Center for the Prevention of Crime, the United Nations Office of Disarmament Affairs, and Brazil’s Instituto Sou da Paz.

Kalin Tintchev, a national of Bulgaria, is an economist in the Caribbean III Division of the IMF’s Western Hemisphere Department (WHD). Prior to joining WHD, he worked for more than 10 years in the IMF’s Monetary and Capital Markets Department, where he participated in Financial Sector Assessment Programs and technical assistance missions on stress testing. He holds a Ph.D. in economics from the George Washington University and an M.B.A. with a concentration in finance from Vanderbilt University. His research focuses on financial stability, contagion, and macro-financial linkages.

Jarkko Turunen is deputy division chief in the IMF’s Asia and Pacific Department. Previously, Mr. Turunen worked in the IMF’s Western Hemisphere Department as mission chief to The Bahamas. Before joining the IMF, he was principal economist at the European Central Bank and visiting scholar at the Economics Department of the Massachusetts Institute of Technology. He holds a Ph.D. in economics from the European University Institute. His main research interests are in macroeconomics, monetary policy, and labor economics, with publications in the Journal of the European Economic Association, Journal of Economic Perspectives, IMF Economic Review, Journal of Economic Dynamics and Control, Empirical Economics, and Economics Letters.

Bert van Selm is a deputy division chief in the Caribbean II Division of the IMF’s Western Hemisphere Department. He was the IMF’s resident representative in Jamaica from 2013 to 2016. He holds a Ph.D. in economics from the University of Groningen in the Netherlands. He has published several articles on international economic issues and one book, The Economics of Soviet Break-Up (Routledge, 1997).

Alejandro Werner, a Mexican citizen, has had distinguished careers in the public and private sectors as well as in academia. Most recently, he served as undersecretary of finance and public credit of Mexico (December 2006 to August 2010), professor of economics at the Instituto de Empresa in Madrid (August 2010 to July 2011), and head of corporate and investment banking at BBVA-Bancomer (August 2011 to December 2012). Previously, he held the position of director of economic studies at the Bank of Mexico and professor at Instituto Tecnológico Autónomo de México. He has published widely and was named Young Global Leader by the World Economic Forum in 2007. Mr. Werner received his Ph.D. from the Massachusetts Institute of Technology in 1994.

Joyce Wong, a national of Portugal, is an economist in the IMF’s Western Hemisphere Department. She holds a Ph.D. in economics from New York University. Her research has focused on drivers of female labor participation, financial inclusion and development, and immigration.