CXC CSEC ECONOMICS

SECTION 8: CARIBBEAN ECONOMIES IN A GLOBAL

ENVIRONMENT

Concepts, Principles and Approaches Related to Caribbean Economies

Debt Burden
This is the amount of a country’s debt which must be paid off.

Structural Adjustment
This entails altering certain aspects of an economy in order to achieve certain objectives. These
aspects may include the reduction of imports and reduction of the exchange rate in order to
eliminate a current account and balance of payments deficit. It generally involves the reallocation
of factors of production along comparative advantage lines. These programmes are often done on
the insistence of an entity like the IMF.

The requested kind of adjustment aims at ensuring that the country can again service its external
debt. Structural adjustment usually combines the following elements : devaluation of the national
currency (in order to bring down the prices of exported goods and attract strong currencies), rise
in interest rates (in order to attract international capital), reduction of public expenditure
(’streamlining’ of public services staff, reduction of budgets devoted to education and the health
sector, etc.), massive privatisations, reduction of public subsidies to some companies or products,
freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only
substantially contributed to higher and higher levels of indebtedness in the affected countries;
they have simultaneously led to higher prices (because of a high VAT rate and of the free market
prices) and to a dramatic fall in the income of local populations (as a consequence of rising
unemployment and of the dismantling of public services, among other factors).

Economic Integration
Economic integration can be defined as a situation where several states or countries seek to
increase or expand the extent of their economic relationship to facilitate trade so that each will
benefit from access to a larger market and a possibly higher overall level of economic growth.

Protectionism
This entails the implementation of certain policies on the part of countries which seek to provide
some sort of safeguard mechanism for local firms against foreign firms which may have the
advantage in terms of production efficiency and prices. Some of these protectionist policies
include tariffs imposed on imports from foreign countries and subsidies granted to local firms
which enable them to compete with foreign firms.
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Laissez-Faire
This is an economic state/condition which requires that there should not be any interference from
or regulation of the economy by the government. This implies that all economic decisions are
made by private individuals which are done indirectly by signals transmitted via the market
system.

Common Market
This is an economic unit which is created by several countries with the aim of reducing and/or
totally removing trade barriers among themselves. It involves the removal of all trade barriers as
well as the free movement of factors of production among member states.

Economic Union
An economic union exists when there has been an agreement between two or more countries
regarding the free movement of all goods and services, labour and capital including the adoption
of a common currency. It also involves the matching and fusing of both fiscal and monetary
policies, as well as social policies. An example of this is the European Union.

Customs Union
A customs union and an economic union are similar in that the member countries agree to
remove all trade barriers among themselves. However, a customs union has the added feature of
establishing a common tariff as well as non-tariff barriers and policies with regard to goods
being imported from non-member countries.

Globalisation
Globalisation can be defined as the increasing economic integration and interdependence of
countries through expanded movement of goods, services, labour, technology and capital across
international borders with greater penetration than has occurred in the past.

Trade Liberalisation
Trade liberalisation refers to a situation where tariffs and trade barriers are lowered so that
foreign firms can enter the economy of a country in order to increase competition and so that
foreign investment can be encouraged.
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Bilateral Agreement
A bilateral trade agreement indicates that two countries have agreed to trade with each other,
deciding upon certain terms of agreement such as the reduction of trade barriers and/or which
type of goods can be imported and so on. The CARIBCAN trade agreement between the
Caribbean and Canada is seen as a bilateral trading agreement (see below).

Multilateral Agreement
This involves more than two countries – a multilateral trade agreement means that three or more
countries have engaged in some sort of trade arrangement. For example, CARICOM trading
arrangements are multilateral since more than two islands are involved.

International Monetary Fund (IMF)

The International Monetary Fund (IMF) is an organization of 189 countries, working to foster
global monetary cooperation, secure financial stability, facilitate international trade, promote
high employment and sustainable economic growth, and reduce poverty around the world.

The IMF’s fundamental mission is to ensure the stability of the international monetary system. It
does so in three ways: keeping track of the global economy and the economies of member
countries; lending to countries with balance of payments difficulties; and giving practical help to
members.

Caribbean Community (CARICOM)

The Treaty of Chaguaramus was signed on 4 July 973, instituting the Caribbean Community.
CARICOM today is comprised of 15 member states and five associate members. The objectives
of CARICOM are:
 to improve standards of living and work;
 the full employment of labor and other factors of production;
 accelerated, coordinated and sustained economic development and convergence;
 expansion of trade and economic relations with Third States;
 enhanced levels of international competitiveness;
 organization for increased production and productivity;
 achievement of a greater measure of economic leverage; and
 the enhanced coordination of Member States’ foreign and foreign economic policies and
enhanced functional cooperation.
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African, Caribbean and Pacific Group of States (ACP)

The African, Caribbean and Pacific Group of States (ACP) is an organisation created by the
Georgetown Agreement in 1975. It is composed of 79 African, Caribbean and Pacific states.
There are 48 countries from Sub-Saharan Africa, 16 from the Caribbean and 15 from the Pacific.

Some of the objectives of the ACP Group include ensuring that there is peace and stability within
the countries, that unity and solidarity exists within and among the ACP counties and reducing
poverty.
The initial aim of the Group was to ensure that co-ordination and co-operation occurred within
the Group and with the European Union (EU). However, they have now diversified their interests
into other areas such as trade, economics and politics.

Free Trade Area of the Americas (FTAA)

The Free Trade Area of the Americas is a trade agreement which includes 34 of the 35 nations
situated within the western hemisphere. These countries have agreed to remove trade barriers and
investment barriers on almost all of their goods and services. Additionally, they have agreed to
lower the prices charged to customers and to attempt to create more markets for firms.

Association of Caribbean States (ACS)

The Association of Caribbean States (ACS) was instituted on 23 July 1994, with the hope of
encouraging the 25 member states as well as the 8 associate members to have proper and
effective consultation and co-operation. Some of the objectives of the ACS include safeguarding
the environment. Encouraging sustainable development within the Caribbean region and building
up the regional co-operation and integration process among the Caribbean countries.

The member states are Antigua and Barbuda, The Bahamas, Barbados, Belize, Colombia, Costa
Rica, Cuba, Dominica, the Dominican Republic, El Salvador, Grenada, Guatemala, Guyana,
Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, St. Kitts and Nevis, St. Lucia, St.
Vincent and the Grenadines, Suriname, Trinidad and Tobago and Venezuela. The associate
members are Aruba, British Virgin Islands, Curaçao, France (on behalf of French Guiana and
Saint Barthélemy), Guadeloupe, Martinique, Sint Maarten and the Netherland Antilles (on behalf
of Saba and Sint Eustatius).
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Caribbean and Canadian Trade Agreement (CARIBCAN)

CARIBCAN was created by the Canadian government to promote trade, investment and
provide industrial cooperation through the preferential access of duty-free goods from the
countries of the Commonwealth-Caribbean to the Canadian market.

Features of the agreement also include: seminars for businesspersons of the Caribbean region to
learn more about developing a market for their products in the Canadian market, a programme to
expand exports capabilities by Caribbean businesses and also the assistance of the Canadian
Department of Industry and Technology in the Caribbean region for regional trade
commissioners with the aim of trade promotion efforts to the Canadian market.

Caribbean Single Market and Economy (CSME)

The Caribbean Single Market and Economy is a proposed integration agreement involving no
barriers between or among Caribbean countries so that good and services, people capital and
technology can move freely within the Caribbean. All physical, technical and fiscal barriers are
to be removed so that the Caribbean region will operate as a virtual single economy.

World Bank (WB)

Otherwise known as the International Bank for Reconstruction and Development (IBRD), the
World Bank is made up of 189 countries and seeks to improve the welfare of developing
countries of the world. The WB’s aim is to increase economic growth, reduce poverty and
provide health care, water, electricity and education. The WB typically provides loans and
financial assistance to the poor countries of the world. It allows countries a much longer time in
which to repay loans than other typical financial institutions such as commercial banks.

Organisation of Eastern Caribbean States (OECS)

The OECS was created in 1981, initially with seven countries, which agreed to encourage unity
and co-operation. There are now ten members. The aim of the OECS is to ensure that its
members are able to properly integrate into the world economy, that they are able to voice their
opinions regarding regional and international issues and to make sure that there is co-operation
and economic integration.
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European Union (EU)

The European Union is a political and economic union of 28 member states that are located
primarily in Europe. The EU has developed an internal single market through a
standardised system of laws that apply in all member states in those matters, and only those
matters, where members have agreed to act as one. EU policies aim to ensure the free movement
of people, goods, services and capital within the internal market, enact legislation in justice and
home affairs and maintain common policies on trade, agriculture, fisheries and regional
development. For travel within the Schengen Area, passport controls have been abolished. A
monetary union was established in 1999 and came into full force in 2002 and is composed of 19
EU member states which use the euro currency.

Caribbean Basin Initiative (CBI)

The trade programs known collectively as the Caribbean Basin Initiative (CBI) remain important
elements of U.S. economic relations with our neighbours in the Caribbean. The CBI is intended
to facilitate the development of stable Caribbean Basin economies by providing beneficiary
countries with duty-free access to the U.S. market for most goods. There are also tariff
exemptions for the products produced by these countries, as well as tariff reductions for some
products.

Caribbean Development Bank (CDB)

The CDB was established in 1970 with the aim of promoting economic co-operation and
integration as well as growth and development among Caribbean economies. The CDB
customarily provides member countries with financial assistance to develop programmes which
will help them in the areas of economic growth and overall development.

Foreign Direct Investment

This usually refers to any investment by non-residents in another country. It can take the form of
monetary investment in physical assets such as plant, capital investment in a domestic subsidiary
firm in which the investor has voting control.