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Informing The Uninformed....
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SELECTED SPEECHES
BY
SIR K. DWIGHT VENNER
Governor of the Eastern Caribbean Central Bank (ECCB)
"The ECCU Economic Review 2005"
Presentation by
Sir K Dwight Venner
Governor, ECCB
Radio & TV Simulcast to the Eastern Caribbean Currency Union on January 12, 2005
Good
Evening Fellow Citizens of the Eastern Caribbean Currency Union
On
behalf of the Monetary Council, Board of Directors, Management and Staff of the
Eastern Caribbean Central Bank, I bring you Greetings and Best Wishes for the
New Year.
I
welcome this opportunity, once again, to address you on the economic performance
of the Currency Union during the past year, and to share with you the Bank's
views on the prospects for this year.
The
year 2006 will be one of the most defining periods in the lives of the people of
the OECS and the wider English speaking Caribbean.
The reason for this is simple. It
lies in the wide variety and great intensity of the challenges we will face as
very small states in a rapidly changing regional and international environment.
There
will be tremendous challenges for us in how our political, economic and social
institutions exercise their capacity to respond to new and unexpected
circumstances in a global environment, in which each national entity places its
interests before those of others.
In
fact, recent circumstances, most notably the negotiations on access for our
bananas into the European Union clearly indicate that our small size does not
evoke much sympathy in international economic relations.
This should make it abundantly clear to us that we need to proceed into
the future with an increased sense of realism, objectivity and clarity.
It
is, therefore, perhaps more than symbolic that in 2006 we will be celebrating
the 25th Anniversary of the signing of the Treaty of Basseterre.
This treaty of cooperation between our countries has been in very large
part responsible for their survival and growth over the intervening years.
It
is also important to note that we have been working on revisions to the Treaty,
and that these will reflect our considered responses to the changes which have
been taking place in the domestic and external environments.
The
year 2006 will witness some very specific events and circumstances which will
require new and strategic responses from us as individuals, families, business
firms, trade unions, civic organisations, countries and as a closely connected
group of countries, that is the OECS.
The
major challenges in the international arena will come from the new trading
regimes which are now being negotiated under what is called the DOHA round.
The major issues involved would be liberalisation in the trading of
agricultural commodities and services. These
will have a major impact on the future prospects of our economies for which we
will have to be prepared.
The
Caribbean Single Market and Economy (CSME) will in all probability come into
existence during the course of the year. This
arrangement will pose a major challenge for the OECS countries as deeper forms
of integration are proposed, which will require substantial structural and
institutional changes at the political and economic levels for their successful
participation.
These
events are, and will be taking place against the backdrop of a world economy
which experienced significant growth in 2005 and by all accounts will continue
to do so in 2006. The economy of
the United States has continued to grow at an average rate of 4 percent despite
significant trade and fiscal imbalances; the Canadian economy is experiencing a
boom due to its thriving commodities sector; the United Kingdom and European
Union economies are experiencing moderate growth; and Japan has experienced a
major upsurge of growth after a decade of stagnation.
The
threats to this expanding global economy continue to be international terrorism,
rising interest rates, high oil prices, and the management of the twin deficits
being experienced by the US economy.
A
growing global economy is vital for the progress of our small economies as the
prospects for our leading foreign exchange earner, tourism, depends on continued
and sustainable global growth.
On
the domestic front, there are significant economic and social challenges, which
our countries will have to confront in 2006 before they become endemic and
completely out of our control.
On
the social front the following seem to stand out -
·
Increasing levels of crime and violence
·
The apparent state of social alienation of the young male population
·
Higher levels of drug use and abuse
·
Higher levels of HIV/AIDS infection.
With
respect to the economic issues, the new year finds a number of our countries
facing major challenges.
Another
major issue is the environment, as these small states which are increasingly
dependent on tourism, have to find the resources to deal with the problems of
waste disposal, coastal erosion, and the constant threats of hurricane and
volcanic activity.
One
major event that will bring all of these issues together and focus our attention
in 2006 will be the Cricket World Cup due to be staged in 2007.
In 2006 we will have to complete all of our infrastructural and
commercial arrangements, many of which are very large to host this important
event.
We
must, however, review our 2005 performance before we look forward to 2006 to
determine the strategies we should pursue in order to ensure that we will have
successful outcomes.
The
Currency Union experienced growth in 2005, estimated at 4 per cent which was
approximately the same as in 2004. This
growth was attributed to a sharp expansion in public and private sector
construction activity, partly due to the preparations for the Cricket World Cup
2007. Increased activity in
wholesale and retail trade, transportation and communications, and the banking
sector, also contributed to growth in 2005.
The
performance of tourism in 2005 was somewhat weaker than in 2004.
Stay over arrivals to the currency union as a whole declined marginally,
mainly due to the lingering effects of hurricane Ivan on Grenada.
However, most of the other countries recorded increases in stay-over
arrivals. The number of cruise
visitors declined, but this followed a record level of cruise passengers in
2004.
Output
in the agricultural sector, which on average contributed 6.4 per cent of GDP in
2004, declined significantly in 2005 due to the weak performance of the
traditional export crops. Production
of bananas, sugar, nutmegs, and cocoa fell sharply.
The
rate of inflation in the currency union for 2005 has been provisionally
estimated at 3.5 per cent. This is
explained by a surge in the international price of oil and other commodities
such as cement, steel, lumber and other building materials.
In
the monetary sphere, the ECCB paid particular attention to its objectives of
maintaining currency and financial stability in the currency union.
The
low rate of inflation ensured the maintenance of the purchasing power of the
currency, while the high level of foreign exchange reserves enhanced the
external stability of the EC dollar.
The
banking system experienced growth in its assets, as well as an increase in
capital and high levels of liquidity. No
threats to the stability of the financial system emerged in 2005.
As
we have highlighted at the beginning of this presentation, the year 2006 will
pose significant challenges to policy makers in the Currency Union.
There is expected to be very positive activity during the year,
particularly in the construction sector.
However, our horizons must extend beyond the next 18 months to two
thousand and ten. This is necessary
because we will have to manage our economies, which will be subject to a
significant upturn in growth in 2006/2007 to bring them into soft landings and
sustained growth in the period to 2010.
Beyond
this, the United Nations has set the year two thousand and fifteen as the date
for the achievement of the Millennium Development Goals.
Our success in achieving the objectives we have set for ourselves would be dependent on the following:
·
The appropriate policy and management framework given our particular
circumstances;
·
The highest level of integration among the OECS countries that the
political and social traffic can bear;
·
Our capacity to utilise the two conditions above to successfully insert
ourselves in a sequenced and strategic manner into the international economy.
This
must, of course, given our democratic traditions, be based on the widest level
of consensus among the citizens of the entire OECS.
The
economic history of the last half of the twentieth century has shown quite
conclusively that it was countries with good policies, as opposed to abundant
natural resources that achieved the highest levels of sustained economic growth.
This
is a clear indicator and a substantial encouragement for the countries of the
OECS to develop a strategic approach to economic policy making and the
management of our economies. The
three critical elements which need addressing are:
·
Public Sector Transformation
·
Private Sector Development
·
Financial Sector Development.
These
three have to be addressed within a policy framework and architecture, which
must be clearly outlined and institutionalised at the country level as well as
the OECS level. This will involve
setting clear and measurable goals and objectives, identifying the range of
policy instruments available, and creating arrangements to deliver high quality,
accurate and timely information for decision making.
Monitoring, review and evaluation mechanisms, and agencies must also be
aligned to support the process.
The
biggest challenge in this process would be coordination, collaboration and
alignment at both the country and currency union levels.
There
are quite a number of good policies which have arisen from recent work by local,
currency union and international agencies, but the lack of synchronization
continues to minimize the tremendous impact these can make on both the local and
regional economies.
A
very critical missing element is the capacity to manage, both within the public
and private sectors. This
management issue must be addressed with great urgency if we are to attain
our objectives. A special project
for management training and orientation must be fashioned to treat with this
issue at the earliest.
The
size of these countries poses major problems with respect to economic viability.
Markets are very small and the cost of administration per capita is very
high. Even with the best policies
in place, the potential for the production of goods, which are internationally
competitive is limited if each country did not have access to the international
economy.
Access
is limited, however, by capacity and capacity is constrained by size.
It is for this reason that the OECS countries have chosen to engage in
deeper forms of integration. The
countries have proposed to upgrade the Treaty of Basseterre to encompass an
Economic Union, which is the highest form of integration, short of full
political integration.
The
OECS countries already have a very high level of integration, far superior to
that of the wider CARICOM. This is
manifested in the following:
·
A common court;
·
A common currency and central bank;
·
A common stock exchange;
·
Common regulatory arrangements in the areas of -
- Commercial banking
- Civil aviation
- Telecommunications
·
Close functional cooperation in the areas of
- Health
- Education
- Environment
- Sports
·
Common procurement of pharmaceuticals
·
Joint overseas representation in Ottawa, Brussels and Geneva
Further
deepening of the integration process will have the following advantages:
·
Increased economies of scale in administration, production, marketing and
distribution;
·
The spread of risks across a number of countries instead of a single one;
·
The increased capacity to negotiate with third countries or groups of
countries.
Deepening
the integration process in the OECS will allow us to access and manage the CSME
process much better than we could as single states.
This is critical for the success of the CSME as a deeply integrated OECS
is a necessary, though not a sufficient condition for the success of this
arrangement.
The
CSME is a vital stepping stone for our strategic integration into the
international economy, but we must be able to establish and assert our specific
interests at the level of the CSME, so that these interests could be robustly
represented beyond the region and into the international arena.
Economic
development is not an end in itself, but is reflective of improvements in the
economic, social and human conditions within nations and across the
international community. The
international community through the United Nations, and as expressed in the
Millennium Development Goals, has taken responsibility for improving the human
condition on planet earth. This,
however, does not absolve individual nations and communities within nations from
making efforts on their own behalf. In
fact, the whole concept of development means increased self reliance and
increased choices for individuals, communities and nations.
For
the individual citizens of the OECS this means acquiring education, skills and
attitudes which makes us marketable in a global economy.
It also means acquiring information that will allow us to make important
economic and political choices about our own circumstances, and those of our
countries and region. We must be
able to understand and contribute to the policy choices that our governments
have to make, and to participate in the formation of public opinion on important
issues.
Our
private sector must acquire the managerial and technical skills, as well as the
innovative impulses to participate in business ventures within their own
countries, the currency union and beyond. The
bottom line for the private sector must be the production of the highest quality
products, whether commodities or services, at the lowest cost, with excellent
customer service.
Moreover,
with the removal of trade and other restrictions, the domestic market will not
be easy to distinguish from the international, and so to survive all standards
of competitiveness will have to be international.
Our
governments are faced with some very difficult decisions and choices which they
cannot make effectively without the inputs of the citizens and the private
sector. This is the nature of our
liberal democratic systems which have served us well over these years.
The
questions and issues revolve around responses to the fiscal and debt challenges
confronting very small states; the high price of oil which affects the entire
economy; the provision of the appropriate enabling environment to facilitate
private sector growth, investment and productivity; the provision of social and
administrative services to the community at least cost and highest value
(including social safety nets for the very poor and the indigent); the
maintenance of law and order to protect lives and property; the capacity to
negotiate with third countries or groups of countries with respect to access to
markets for exports and financial services as well as the acquisition of
technology.
To
address these issues effectively, it must once again be emphasized that the
governments should establish a comprehensive policy framework with the
appropriate reporting and accountability requirements, technical capacity and;
consultative arrangements.
The other major issue will be to decide, given the high cost and scarcity of management resources in each country, whether governments should (a) Perform these functions jointly, that is, at the OECS level in an act of shared sovereignty, or
(b)
Perform them singularly at the member state level.
As
we discuss and make plans for our own economic union this choice will become
fundamental to our deliberations.
The
OECS countries have made significant strides over the years and must now
confront the rapid changes in the regional and international systems by making
major and decisive choices. We have
the choice of going forward together as we have in the past with limited
collective arrangements, or deepening our cooperation to respond to a rapidly
changing environment. We have now
reached in the OECS the point of the famous quotation by William Shakespeare -
"To
be or not to be that is the question."
MORE SPEECHES TO FOLLOW. PLEASE STAY IN TOUCH