Published: Friday November 21, 2008
The international financial crisis is putting a squeeze on cash-strapped governments across the Caribbean as the region braces for a steep economic slowdown.
A severe spillover from the crisis will be seen in the Caribbean's important tourism market during the winter high season, with the economic deterioration in the United States and Europe causing hotel bookings to plummet, analysts say.
The leisure industry will also lose business as airlines have cut flights and raised prices, prompted by the surge in oil prices earlier this year.
Making matters worse, the region is just coming out of an active Atlantic hurricane season that killed about 800 people in Haiti, the poorest country in the Americas, and caused an estimated US$10-billion damage in Cuba alone.
Crop destruction from the busy storm season caused food prices to spike throughout the region.
"It's really been a double whammy. The Caribbean has been hit hard by the tropical storms and hurricanes," said Kal Wagenheim, publisher of the 23-year-old Caribbean Update newsletter.
The full force of the economic turmoil, in the form of lost jobs, is only just beginning to be felt by Caribbean residents, said Maurice Odel, an economic adviser to the Organisation of Eastern Caribbean States.
He pointed to a November 13 announcement by the iconic Atlantis Hotel in Bahamas that it had laid off 800 workers, or roughly 10 per cent of its work force due to decreased business, as a concrete example of the coming effects on regional employment levels.
"The impact is slowly accelerating. Hotels are beginning to make layoffs, so the man in the street is more likely to be without a job," Odel said. "We feel all sectors will feel the pinch. The retail sector will see people buying less and may have to reduce jobs."
Meanwhile, the International Monetary Fund (IMF) said last month that the global economic problems are already decreasing remittances sent home to the region by Caribbean migrants in the United States and Europe. The Dominican Republic received US$3.12 billion of remittances in 2007, Haiti US$1.83 billion and Jamaica US$1.97 billion, according to the Inter-American Development Bank.
The economies of Jamaica, Haiti and Guyana are among those most heavily reliant on remittances, Odel said.
"The worsening global financial conditions are increasingly clouding the regional outlook," the IMF said in a recent report.
"With the large shock to US financial conditions still playing out, the effects of the financial tightening in the United States on growth in the region could still be in the pipeline," it said.
Real economic growth in the region is expected to be 3.25 per cent for 2008, the IMF said, with most of it fuelled by a strong first half, but still down from the average four per cent from 2003-2007.
Even Trinidad and Tobago, the twin-island Caribbean nation that has seen growth averaging 9.2 per cent per year over the last five years, said this week that it now sees growth at no more than 3.5 per cent in 2008.
The IMF sees growth slowing to two per cent in natural gas-rich Trinidad and Tobago in 2009.
Big resort construction projects have been halted or delayed in the Dominican Republic and the Bahamas recently, and in Bermuda Finance Minister Paula Cox said the country faced "unprecedented economic challenges" that could delay capital projects as the government looks to save cash.
In Jamaica, meanwhile, the two main Wall Street credit rating agencies, Standard & Poor's and Moody's Investors Services, have put the country's debt on credit watch for a possible downgrade because world market conditions are expected to erode the government's fiscal position.
Moody's said Jamaica's debt burden exceeded 125 per cent of gross domestic product, leaving it very little room to absorb an economic shock of the current magnitude.
Puerto Rico, a US territory that sells bonds just like other local governments across the United States, had to turn to its Government Development Bank for cash to fund its operations when the floor fell out of the market in September.
It was shut out of the market for more than a month before it could place a US$1 billion issue of tax revenue anticipation notes on November 6 in the tax-exempt market.
Source: Jamaica Observer