Is it helpful to describe Latin America and the Caribbean as if it were a single entity? What does this do to the way the Caribbean is perceived?
In recent years, the expression “Latin America and the Caribbean,” or LAC for short, has become a catch-all, used increasingly to view trends in nations that are at vastly different stages of development, in many cases not geographically proximate, and often with very little in common. It is an approach particularly favoured by multilateral institutions seemingly more for reasons of political inclusiveness or bureaucratic neatness.
While the LAC terminology genuinely has a place in providing a framework for political dialogue for those within and beyond the hemisphere, when it comes to economic matters and the Caribbean, it is of questionable utility given the often very different nature of the challenges facing the Caribbean.
In the last few days there has been widespread international coverage of forecasts that the LAC region is about to enter a period of very low economic growth, possibly amounting to a recession. This concern, which has been expressed by many economists and those who work for multilateral institutions, has been underlined by statistics that indicate that growth rates in the LAC region are likely to decelerate further as a result of falling commodity prices and slower growth in the rest of the world, particularly in China.
The point was driven home with the release by the International Monetary Fund (IMF) of a report ‘Jobs, Wages and the Latin American Slowdown’ just before its annual meeting which began on October 9 in Peru. The IMF indicated that the deceleration has been unexpectedly acute in the LAC region where it says average GDP growth is likely to stagnate this year. This is in contrast to its previous forecast of a 1.5 per cent increase for 2015.
However, a closer reading of the report makes clear that these headlines largely do not apply to Mexico, Central America and the Caribbean.
According to the detail contained in the IMF report, the global slowdown is likely to have a differentiated impact across the LAC region. It observes that while its forecast lower growth prospects for the whole region are largely a reflection of world events, Mexico, Central America and the Caribbean – which grew less rapidly during the commodity boom and experienced a more prolonged period of depressed growth after the 2008-2009 global financial crisis – are now recovering faster ‘under the pull of the consumption-led US recovery and favourable (on average) terms of trade developments’.
The report also points out that some South American countries are faring better than others, noting that in Colombia, Peru and Uruguay, estimated growth in 2015 is anticipated to reach about three per cent. This is in contrast to Argentina, Brazil and Ecuador where negative growth is anticipated.
For the Caribbean the difference is important and one that the IMF, other multilateral bodies and financial journalists should be much clearer about; not least because the Caribbean economy is far from being integrated with Latin America.
What the IMF report actually implies is that Caribbean Basin economies that are service sector or US export oriented have much brighter short-term prospects, unless they are largely commodity dependent. That is to say, nations that are strongly tourism oriented, are financial services providers, or are developing newer industries based on technology, innovation and entrepreneurship, and which relate to markets in North America in particular, are likely, to continue to experience growth if competitive, despite the economic difficulties of the advanced developing nations.
Moreover, given the significance of the US as the main driver of the Caribbean economy and its continuing economic recovery, the longer term boost to US growth flowing from the recently signed Trans Pacific Partnership Agreement and the yet to be completed EU-US Transatlantic Trade and Investment Partnership, suggest that demand from the US for Caribbean services will potentially increase.
For the time being at least, a further positive factor for much of Central America and the Caribbean is Venezuela’s continuing commitment to maintain its preferential arrangements on oil through PetroCaribe, while nations try to undertake a more diversified approach to power generation and address their indebtedness.
That said, it is clear that uncertainty continues to surround Venezuela’s economy which is predicted by the IMF to contract by 10 per cent this year as it struggles with declining oil prices, domestic inefficiencies, and widespread shortages. According to the IMF, it now has the world’s highest inflation rate at around 200 per cent, and despite being South America’s second-largest economy, is likely to grow by just 0.4 per cent this year and then to contract by 0.7 per cent in 2016.
Speaking in Peru the IMF’s Managing Director, Christine Lagarde, remarked that the multilateral body was struggling with a lack of information as the Venezuelan government had not published any price or growth data since 2014. Other officials separately noted that in 2015, Venezuela withdrew more than US$1.8 billion from a special holding account at the IMF, something they rarely see.
What the IMF report and others like it indirectly suggest is that while a LAC-wide approach and important new bodies like the Community of Latin American and Caribbean States (CELAC) are politically and administratively helpful for developing political initiatives in the Americas, a pan-hemispheric approach has much less utility when it comes to trying to paint pictures of economic growth or finding viable solutions.
While the Caribbean is undoubtedly tied to what happens in Latin American economies and to broader global economic trends, for the foreseeable future the Caribbean — like its counterparts in Central America — remains likely to be linked far more closely to the economic fortunes of the US, Canada, and Europe, and in future to intra-regional opportunity within the Caribbean Basin.