Jwala Rambarran: Re-engineering growth - doing business in the new
global environment
Opening remarks by Mr Jwala Rambarran, Governor of the Central Bank of Trinidad and
Tobago, at the 5th Biennial International Business, Banking and Finance Conference, jointly
hosted by the Department of Management Studies, The University of the West Indies, St.
Augustine, 2 May 2013.
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Ladies and Gentlemen, Let me first thank the organizers for inviting me to deliver opening
remarks at this 5th Biennial Business, Banking and Finance Conference. This is my first
official visit to the St. Augustine Campus, where some 25 years ago I entered as a student of
economics, and I am heartened to be "home". I am also indeed proud to see an event that I
helped to conceptualize and plan almost a decade ago now emerge as one of the leading
fora for the exchange of views on critical issues facing emerging economies, particularly
those in the Caribbean. This year's BBF Conference on "Re-engineering Growth: Doing
Business in the New Global Environment" is taking place against the backdrop of a
"threespeed" global economy. Countries are either doing well (mainly the emerging markets and
developing countries), or they are on the mend (such as the United States), or they still have
some distance to travel (such as the Euro area and Japan).
Ladies and Gentlemen, it is no secret that the small island states in the Caribbean are
among those countries with some economic distance to travel. Several reasons account for
the region's relatively weaker economic performance. I would like, however, to briefly touch
on four main challenges facing the Caribbean which find resonance with the Conference's
sub-theme 2 on re-engineering finance and sub-theme 4 on re-igniting growth: austerity
versus stimulus. These challenges are as follows: low growth, high debt, mitigation of natural
disaster risk and managing financial sector stress. Firstly, on growth, the good news is that
the Caribbean has been gradually recovering from the impact of the global financial crisis,
even though the region was ill-prepared to deal with such a protracted external shock. The
IMF estimates that real GDP growth in the Caribbean is likely to bounce back to around 3 per
cent over the medium term, from a cumulative flat performance in 2009 - 2012.
Even within the Caribbean region, growth trends vary. The largely tourism intensive
economies (Barbados and the Eastern Caribbean) still face headwinds from the lukewarm
jobs recovery in North America and Europe. Growth prospects seem somewhat better for the
commodity-based exporters (Belize, Guyana, Suriname and Trinidad and Tobago).
Secondly, many Caribbean countries face unsustainably high public debt burdens, which
jeopardize their medium term growth prospects. In 2013, three countries are projected to
hold exceptionally high public debt at over 90 per cent of GDP, while another seven countries
are projected to have heightened debt vulnerabilities, averaging in the range of 50 to 90 per
cent of GDP. Only two countries (Suriname and Trinidad and Tobago) have public debt ratios
less than 50 per cent of GDP. Thirdly, the Caribbean has the unenviable reputation as one of
the most disaster-prone regions in the world. Over the last 60 years, Caribbean countries
have suffered from 187 natural disasters (mainly hurricanes and floods). The effects on
growth and debt associated with the frequent recurrence of these natural disasters are also
significant.
Sir Dwight Venner, Governor of the Eastern Caribbean Central Bank, captures these effects
quite vividly: "Almost every year, we [St. Lucia] have a hurricane season, which can destroy
the country's GDP. In some countries, it can also lead to high debt levels. Their infrastructure
is destroyed before they paid for it, so they borrow again. Then it is destroyed a second and
sometimes even a third time". Finally, financial systems in the Caribbean are becoming
increasingly integrated with the emergence of major cross-border financial groups. The
collapse of the insurance subsidiaries of the CL Financial Group is perhaps the most widely
cited example of the systemic importance of cross-border financial groups. Another indicator
of the degree of cross-border ownership is that seven of the ten largest firms (by asset size)
listed on the stock exchanges of Barbados, the Eastern Caribbean, Jamaica and Trinidad
and Tobago are financial institutions. Given the multi-faceted nature of the challenges facing
Caribbean small states, no single solution exists to address all of their problems. In fact, I
remain convinced that bold and new regional solutions are absolutely essential to help
individual countries mitigate the colossal challenges associated with their small size. Allow
me to briefly discuss four potential regional solutions which come to mind.
First, we need to find more effective ways to speed up the implementation of proposals and
recommendations stemming from regional initiatives to stimulate and sustain potential
growth. Three noteworthy regional projects are already underway that can help to inform the
Caribbean's growth strategy. These are the ECCB Debt, Growth and Development Task
Force, the World Bank's Caribbean Growth Forum, and the IMF's Group on Small States.
We need champions. The UWI is one such regional champion and well positioned to drive
the knowledge and innovation-based model of growth which Principal Sankat spoke about in
his welcoming remarks. Trinidad and Tobago is another such champion, over the last two
years, we have been actively championing the case for small states in the halls of
international financial community. We are now seeing a new awakening and awareness of
this issue from global policymakers, especially at the IMF and the G-20 Presidency.
Second, we need to consider developing a regional approach to sovereign debt restructuring.
With the exception of Guyana and Haiti, all other Caribbean countries are considered either
not poor enough and/or not severely indebted enough to access traditional international debt
restructuring and relief mechanisms such as the enhanced Heavily Indebted Poor Country
(HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). This leaves fiscal
consolidation as the only option. However, the degree of fiscal austerity necessary to
stabilize and eventually reduce the Caribbean's public debt overhang is neither socially nor
politically feasible. While a few Caribbean economies have engaged in ad hoc sovereign
debt restructuring operations, sometimes more than once, these have not yielded lasting
gains. Further work is needed to assess under what conditions innovative, debt-based
instruments can generate additional regional resources for growth and development.
Third, we need to seriously consider tapping into the wealth of the Caribbean's very own
large, highly educated diaspora. The minimum size of the Caribbean diaspora is estimated at
around 3.5 million people, or more than one-fifth of the region's population, whose annual
savings amount to over 15 per cent of the region's GDP. The Caribbean's diaspora pool
therefore represents a potential alternative source of long-term funding. Diaspora bonds are
viable instruments which enable the region to borrow from its diaspora community. For
diaspora investors, these bonds offer the opportunity to help their country of origin while also
providing an investment opportunity.
Finally, we need to consider a regional approach to managing risks arising from financial
integration in the Caribbean. Growing cross-border linkages requires Central Banks and
other regulators to strengthen arrangements for crisis management, develop mechanisms for
early coordinated intervention in cross-border institutions, and review adequacy of deposit
insurance schemes.
In closing, Ladies and Gentlemen, the challenges facing Caribbean countries demand
innovative economic solutions in the new global environment. I give you the assurance of the
Central Bank's continued support for this Conference and for the wider work of the UWI, St.
Augustine. I look forward to this 5th BBF Conference generating fruitful discussions,
stimulating new thoughts and ideas on re-igniting growth in the Caribbean. As the 1992
Report of the West Indian Commission exhorted some twenty years ago "The Time for Action
is Now".
I thank you.