CARICOM Development Fund: Vital Aspect of CSME

With just about a month before the expected January 2006 introduction of the CARICOM Single Market (CSM), Ministers of Finance constituting the Council for Finance and Planning (COFAP), will meet in Kingston to discuss the CARICOM Development Fund (CDF), which is said to be in its final stages of construction by the Caribbean Development Bank (CDB).
The development of the Fund is expected to cushion any shocks faced by smaller and more vulnerable economies and sectors within CARICOM, with the establishment of the CSM.
The meeting, slated for December 12 at the Jamaica Pegasus Hotel, is highly anticipated, since to date, there has been no formal announcement of how the Fund will be financed or structured.
At a COFAP meeting earlier this year, suggestions were made that compensatory figures of US$210 million or US$250 million, should be given to disadvantaged states. The suggestions also included grants and soft loans to be administered through the Fund to sectors negatively affected by the proposed single market.
Another suggestion mooted was that each member state contributes 0.35 per cent of regional Gross Domestic Product (GDP) annually to the Fund, following the model of the European Union’s Structural Fund.
CARICOM Secretary-General, Edwin Carrington, informs that this move would yield US$120 million; a figure that he says, is “probably well beyond the collective capacity of CARICOM at this point in time”.
The Development Fund, Mr. Carrington explains, is part of the special and differential treatment proposed for the smaller economies constituting the Organisation of Eastern Caribbean States (OECS).
“The CARICOM countries have to build into the arrangement for a special and differential treatment for the OECS countries. That includes a Development Fund similar to the EU’s Cohesion Fund from which Ireland benefited,” he says.
However, as the CARICOM Secretariat discloses, there has been no financial contributions from either private sector or public sector interests to the Fund, despite indications of interests, such as the one from the Caribbean American Chamber of Commerce and Industry (CACCI), made in late October.
Factors such as the 2005 Atlantic Hurricane season, with a record number of 24 storms, last year’s Hurricane Ivan, which caused US$1.7 billion in damage, increased regional inflation, rising gas prices and the fact that the CARICOM countries are all developing nation states, have been given as reasons for the slow reaction toward the Fund.
Despite this however, the call is being made to finance the Fund and get the CSME on its feet by Mr. Carrington, government representatives from the OECS, such as Antigua and Barbuda’s Prime Minister, Baldwin Spencer and his Trade Minister, Dr. Errol Cort and former Caribbean Trade Negotiator to the World Trade Organisation and the International Monetary Fund, Sir Ronald Sanders.
In addressing the practicality of the Fund in light of the Community’s economic capacity, Jamaican economist, Michael Witter, who is Head of the Economic Department at the University of the West Indies, advises JIS News that money for the Fund could be sourced from outside of the group. “The group as a whole can access resources from outside of the group itself,” he points out.
Mr. Witter’s suggestion is supported by Article 158, Chapter Seven of the Treaty of Chaguaramus establishing CARICOM, which states that contributions to the Development Fund may be given from public and private sector entities, as long as there is no discriminatory measure set against any member state.
This, however, is just part of the provision under Article 158 of the Treaty. The more primary provision is for ‘the establishment of a Development Fund for the purpose of providing financial or technical assistance to disadvantaged countries, regions and sectors.’
And, it is this mandate that the OECS representatives, including Mr. Carrington and Sir Sanders, are urging the Community to honour as it seeks to establish the Single Market aspect of the CSME by January 2006. Barring that, he said, the OECS countries may not participate in the CSME.
“If we do not get the Development Fund and the review of the trading arrangements in Chapter Seven of the Treaty clearly strengthened by the end of the year, we might have trouble getting the CSME to take off in January 2006,” Mr. Carrington hinted in an earlier JIS News report.
The same sentiments were repeated by Sir Sanders, who is also the former Senior Ambassador from Antigua and Barbuda to the World Trade Organisation. In his recent lecture entitled, The Caribbean 2005: Hope After Disasters presented at the London Metropolitan University, he states, “What is now clear is that no Development Fund will be established by January 1, 2006, and this may mean that the OECS countries will not join the CSME on that date.”
The Prime Minister of Antigua and Barbuda, in his July address of the CARICOM Regional Summit in St. Lucia, noted that in the same way that the region was bargaining for special and differential trade agreements (S&Ds) in the WTO negotiations, the larger economies within CARICOM should allow for S&Ds within the grouping.
The establishment of the CDF, he said, was “not a matter of choice but an awaited project (to) ensure that there are no economic burdens or further debt derived by the OECS in complying with the CSME.”
But, it is the Trade Minister of Antigua and Barbuda, Dr. Cort who is more definitive by insisting that the CDF be funded. “That Development Fund is quintessential to a success of the CSME. To move forward in a constructive way, the Fund has to be funded, not only set up legally. How would disadvantaged countries be able to tap into the resources of the Fund within the whole context of the Treaty if that Development fund is not funded?” he queries.
The OECS is a nine-member group comprising of Antigua and Barbuda, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, the Commonwealth of Dominica and associate members the British Virgin Islands and Anguilla. The associate members are however not signatories to CARICOM.
It is these seven OECS member states, considered the smaller CARICOM economies, which will experience comparatively more economic fallouts from the Single Market, especially in the short term.
The nine OECS countries, which include the two associate members, have a combined population of 600,000 and a combined area of 1,163 square miles, and a total 2004 Gross Domestic Product of around $8.8 billion as well as rising inflation.
Adding to those peculiarities, Sir Sanders notes the vulnerability of the area to natural disasters especially hurricanes such as last year’s Hurricane Ivan. “Over the last 30 years, the members of the OECS ranked in the top 10 in the world in terms of natural disasters per square mile. Grenada alone suffered to the tune of US$900 million, twice its annual income,” he explains.
He advises however, that the Fund be implemented since CARICOM integration is no longer a matter of choice. “Not to proceed with the Single Market would be a disaster for CARICOM and for the wider Caribbean, for what the region requires is more, not less integration,” Sir Sanders affirms.
Although the CARICOM Single Market and Economy (CSME) is slated for a 2008 implementation, necessary groundwork for its fruition is needed before that time and as such, a good deal of CSME compliance is needed by January 2006 -the implementation dateline for the CSM.
And, as that date nears, more meetings to achieve compliance such as the COFAP meeting scheduled for December 12, are being held across the region.