Meeting of Experts on Growth
and Development in Small
States: Day Two
Summary
18 November 2011
Malta
Meeting of Experts on Growth and Development: Day Two
18 November 2011
Welcome and Opening Session
Hon. Chris Said MP
Hon. Parliamentary Secretary for Competition, Malta
Opening remarks
Mr Said offered to inaugurate and open this second day of the meeting.
He spoke of his
pleasure at being asked to address this gathering of experts, who had come from different
corners of the world. This fact in itself testified to the global spread of small states, which
together made up about 20% of all UN members.
Competitiveness
Economic constraints
Mr Said thanked the Commonwealth Secretariat and World Bank for funding this workshop,
and stressed one important aspect that he considered a major ingredient for economic
success, namely economic competitiveness.
Exports
Small states had small markets, and therefore had to seek export opportunities, which
required them to compete. It was paradoxical that, while their small sizes forced small states
to resort to international trade, their small domestic markets limited their ability to compete
because of the high costs of doing business.
Malta
Malta was one of the most open economies in the world.
The country was exporting to
foreign markets more than it sold to its domestic market. It had to compete against many
other much larger and more resource-rich countries, but was constrained in its attempts to be
competitive. These constraints included:
•
A limited ability to benefit from economies of scale;
•
High transport costs due to insularity;
•
High overheads arising from the inability to spread costs over a large quantity of
output;
•
Technological constraints because technological advances were often geared to
large-scale production;
•
A small pool of human resources;
•
Poor natural resources endowment.
Successes
Singapore paradox
Many small states were seeing better success than other developing countries. Despite the
constraints of Malta just listed, the country had a relatively high GNP per capita and
registered a high HDI score, as did many other small states like Luxembourg, Iceland and
Singapore. Mr Said believed that the reason for this was that many small states had come to
terms with their own constraints. Prof. Briguglio had likewise argued in his seminal paper on
economic vulnerability and resilience that many vulnerable SIDS were doing well economically
despite their inherent economic vulnerability.
He referred to this reality as the ‘Singapore
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Meeting of Experts on Growth and Development: Day Two
paradox’.
18 November 2011
He singled out the improvement of competitiveness as a major enhancer of
resilience. This in turn required good governance, a stable macroeconomic environment and
efficiently working markets.
Governance
Although competitiveness was largely a business enterprise issue, governments had a major
role to play by taking a lead in placing competitiveness on the top of the policy agenda and
taking steps to remove any bottlenecks that occurred. Malta had never been complacent in
the face of its inherent vulnerabilities and had, over time, adopted policies to enhance its
economic resilience. This was also true of many other small states.
Resilience-building
The issue of resilience-building would feature prominently in the day’s discussion.
Mr Said
was particularly interested in the development of the resilience indicator, which could be
useful in identifying which policies were helping states withstand inherent vulnerabilities and
explaining why some countries were able to achieve faster rates of economic development.
Growth and Resilience
Lino Briguglio
Head of Economics Department, University of Malta
Outline
This paper on economic vulnerability and resilience had originally been written in 2006, but
had been developed further in view of the recent global turmoil in the financial sector, and
contracted for presentation at this meeting. Prof. Briguglio had worked with Carmen Saliba in
trying to identify how the recent global recession affected different groups of countries.
Global recession
Country comparisons
By comparing 2009, which had been an extraordinary year, to 2000 to 2007, which were
considered normal years, many small developing states were found to have been adversely
affected. Caribbean states had been the worst hit. They had had an average decline in GDP
of 6.8% compared to the first years of the 2000s. Japan had also been very badly hit, and
the EU had been even worse.
Recovery
Any assessment of recovery was influenced by there being only one year to compare against,
2010. However, it seemed that small states, including Caribbean countries, were recovering
quite well. Changes were a bit slower in the Pacific, but there was an indication that they
would be able to recover.
Economic vulnerability
Exposure to shocks
Prof. Briguglio had been working on vulnerability for a long time, and was collaborating with
the Commonwealth Secretariat on this topic. They had defined ‘vulnerability’ as exposure to
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Meeting of Experts on Growth and Development: Day Two
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shocks for the purpose of this study, and had concluded that this exposure was the result of
three main factors:
•
Openness to trade and vulnerability to factors beyond one country’s control;
•
Export concentration;
•
Dependence on strategic imports, which were mostly fuel and food.
The general finding was that small states were more open than larger ones.
This was
explained by their local markets being smaller, their dependence on importing natural
resources and hence their openness to exports and imports. They also tended to be more
concentrated, depending on a few export items only, as well as food and fuel imports.
Vulnerability index
There were differences in vulnerability, so this study had standardised the variables to
calculate its vulnerability index. Prof. Briguglio shared the well known formula he had used,
which had led to the overall conclusion that small states in general tended to be more
vulnerable in line with the indicators than larger ones.
The least vulnerable states also
depended less on external trade.
Singapore paradox
One of the most open countries was Singapore. It exported 200% of its GDP. That meant
that only a third of what it sold remained in the country, so it was highly dependent on
exports.
It was said that, if other countries were to sneeze, Singapore would have flu; it
would be immediately infected because of its openness.
Prof. Briguglio had tried to find the reason for Singapore’s success. He asked why Malta was
also generating a decent standard of living, even if it was not as successful as Singapore.
Mauritius and Barbados were also countries without any natural resources that were very
open and exposed to shocks. The Singapore paradox might not be a paradox at all, but the
issue remained how this theoretically weak country was managing to produce such high levels
of GDP.
Economic resilience
Definition
In order to answer this question, Prof. Briguglio and the Commonwealth Secretariat had
developed a four-year programme studying the issue of resilience. This had forced them to
concentrate on the issue. ‘Resilience’ was defined as being able to rise again after a shock.
This study had analysed shock counteraction and shock absorption.
Main variables
The study identified four variables thought to enable a country to withstand shocks:
•
Macroeconomic stability.
If a country had room to manoeuvre, it should be able to
absorb shocks better. If it had very high unemployment, inflation and debt, it would
lack that room to manoeuvre. The stability variable tried to measure this.
•
Microeconomic market efficiency. This was about measuring the flexibility to respond
to scarcity. Would prices change or was everything controlled by the government? If
prices failed to respond, it would be difficult to withstand shocks.
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Meeting of Experts on Growth and Development: Day Two
•
18 November 2011
Good governance. As Mr Said had commented, governments should not be involved in
business, but should create the infrastructure, foundation and rules for the market.
Governance was therefore important and indicated in various ways, many of which
were correlated. Small states actually ranked very highly in governance indices.
•
Social development. This was important because, if a government were diverted into
controlling social unrest, its attention to economics would be lower.
There was no indication that small states had better macroeconomic stability, so size did not
matter much here.
With regard to market efficiency, the general tendency was for small
states to have more efficient markets.
They were also found to be better governed, and
likewise had higher social development indicators.
Soundness of banks
The study had been further developed since 2006 to include an assessment of the soundness
of banks.
Market efficiency had been juxtaposed in this recent work.
For example, the
Chinese market had not functioned that well, but their banks were sounder than in the US,
where the market worked better.
This variable was introduced to limit a high reliance on
these liberal ideas.
Vulnerability and resilience
In this framework the risk of being exposed to a shock depended on levels of vulnerability and
resilience.
It showed that many small states were both very vulnerable but also resilient,
which mitigated this risk. Examples where this was the case included Singapore, Malta and
Cyprus. Singapore was at the top of the four groups resulting from the 2006 study. It had
very high vulnerability, but very high resilience too.
Conclusion
Resilience was policy-induced – you could do something about it – whereas vulnerability was
mostly inherent. Singapore was a self-made country. The worst cases were the small states,
which were vulnerable but not governed well. Jamaica was on the verge of moving into this
category. The ‘prodigal son’ group comprised countries rich in natural resources, but not very
well governed. Prof. Briguglio explained that his research was ongoing; they were updating
the indicators with explanations to show how, even when a country was vulnerable, it could
succeed.
Dr Gérard Adonis
Head of the Faculty of Humanities, University of Seychelles
Outline
Dr Adonis’s paper addressed growth and resilience, competitiveness and macroeconomic
stability in small states. It was a summary of a recent paper written for the Commonwealth
entitled ‘Managing SIDS in the Global Economy’, which highlighted a number of issues
pertinent to growth, resilience and macroeconomic stability.
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Meeting of Experts on Growth and Development: Day Two
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Managing SIDS
Characteristics
Their small size, both in terms of land mass and population, lack of natural resources,
remoteness from both sources of raw materials and markets to export products were some
features common to many SIDS. In consequence, SIDS had to depend heavily on trade for
their economic development and social progress.
Threats
Their remoteness from major markets implied that most SIDS had high import costs. This
was a barrier to trade.
competitive edge.
This combined with their small domestic markets limited SIDS’
Several were disadvantaged by their natural location, in regions
susceptible to natural disasters such as volcanic eruptions and tsunamis. Furthermore, the
threats posed by global climate change were becoming more apparent.
Global economy
Financial regulations
In addition, the global financial crisis had left its devastating impact on SIDS as well. Being
vulnerable to change in the global economy, most SIDS did not have the financial might to
weather this storm.
financial services.
Tourism was the economic mainstay of many, followed by offshore
In an attempt to diversify into the latter, many SIDS had been met by
major setbacks in the form of the stringent financial regulations imposed by OECD countries.
In the week of this meeting, Seychelles had been sanctioned by OECD for failing to instate
certain regulations, which even some European countries did not have in place.
External shocks
It was obvious from the evidence that SIDS were more vulnerable to external shocks than
less-developed countries (LDCs), whose economic growth was stronger than that of SIDS. In
addition, the three major shocks of the 2000s had more severely been felt by SIDS compared
to LDCs. Foreign aid donors should not only consider GDP per capita, which was higher in
SIDS than LDCs, because SIDS were more vulnerable to external shocks to their economies.
Piracy
A recent phenomenon that had attracted world attention was the spike in pirates’ attacks off
the coast of Somalia. This was affecting some SIDS, especially those in the Indian Ocean.
Modern piracy was posing a real threat to global maritime safety and disrupting shipping
patterns. Its impact had been felt in the tourism and fisheries sectors in the Seychelles, for
example.
Its overall cost to the economy for 2010 was estimated at around $17 million.
Although the impact of piracy was confined to the Indian Ocean region, the threat it posed
was enormous.
Social development support
Despite their limited financial resources, SIDS would allocate a significant proportion of their
national budget to social expenditure. In view of their vulnerability, it was difficult for SIDS to
sustain this high investment in social development without continuous support from external
donors.
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Vulnerabilities
Resilience
Issues of growth, resilience, competitiveness and macroeconomic stability largely related to
vulnerability, so needed to be assessed from that perspective.
Although on average SIDS’
GDP per capita was higher than LDCs’, this did not imply that they were more resilient.
2001 and 2009, the years of 9/11 and the global financial crisis, had seen record negative
GDP growth in all SIDS regions.
The 2000 recession had been particularly harsh for the
Pacific, African and Asian regions, while the 2009 recession had taken its toll on the Caribbean
and Africa. The African region was more prone to external shock than others. It appeared
that SIDS were able to recover from external shocks quickly, yet their growth averages would
remain quite volatile.
Growth rates
Analysing the trend in average real GDP revealed some inconsistency in growth rates, in
particular in Asia and the Pacific. From a peak of 15% in 2003, the average growth rate had
fallen below 5% in 2006 for the Asian region, and by a similar level in the Pacific.
These
sharp fluctuations were a consequence of external shocks, notably the financial crisis in 2009,
the Indian Ocean tsunami in 2004, and SARS and bird flu from 2003 to 2006.
Human development
The HDI consisted of data on life expectancy, education and per capita GNI, and was an
important indicator of a country’s capacity to develop its people. Slow HDI growth coupled
with emigration had repercussions on SIDS’ socioeconomic development.
had to rely on expatriate labour.
As a result, they
Given their small size, and lack of capacity and capital,
many SIDS found it difficult to keep up with modernisation in different industries, such as
agriculture, fisheries, manufacturing and IT.
Without benefits of scale, it was difficult for
them to compete at a global level.
In spite of their positive efforts, only a handful of SIDS were above the 0.8 threshold on the
HDI. Government spending on health and education was being undermined by international
migration.
A highly educated workforce was a key element in sustaining socioeconomic
development and adapting to changing technological demands.
For SIDS, this could bring
comparative advantages in high-value added services, such as IT and finance.
Trade preferences
The trade preferences afforded to many SIDS were important to sustaining their economic
development. However, many had recently become victims of these same preferences. The
case of Mauritius was a clear example of the divesting impact that the removal of trade
preference could have on a small economy.
Its economy had been dealt a serious blow
largely as a result of the removal of trade preference, on which its growth strategy had relied.
Mauritius had achieved remarkable progress during the 1990s, with a growth rate of over 5%,
but this had fallen to around 3% in the early 2000s, reflecting the dismembering of the
Multi-Fibre Agreement, lower guaranteed sugar prices from the EU and higher costs for import
commodities, especially petroleum and food.
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Meeting of Experts on Growth and Development: Day Two
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Roger Hosein
Coordinator, Trade and Economic Development Unit, University of the West Indies
Outline
The topic for this presentation was small mineral-dependent states, new service market
exports and the idea of diversifying into medical sectors.
The Trade and Economic
Development Unit had been formed specifically for research in SIDS. Dr Hosein started with a
brief discussion on the Trinidad and Tobago economy, before looking at medical tourism and
offshore medical universities.
Trinidad and Tobago
Economy
Mineral-dependent states were a small group among all SIDS.
Trinidad and Tobago fell
squarely into this category. It benefited substantially from its natural resources, particularly
petroleum, producing about 5 billion barrels of oil to date. Production of crude oil, however,
had started to fall and prices had been falling too from their July 2008 peak of $147 a barrel.
This had sent the Trinidad and Tobago economy into a recession that was continuing through
2011.
Characteristics of mineral-dependent states
One of the characteristics of mineral-dependent states, shown in the literature, was that they
tended to be prone to some degree of corruption.
The movie Blood Diamond was a good
example of the type of things that could happen. Another feature of Trinidad and Tobago was
that the petroleum sector had come to monopolise output.
After 2008, the share of this
sector in total output had been consistently in excess of 40%.
Sectoral specialisation
The heavy growth rate between 1994 and 2008 had promoted certain lines of behaviour.
Trinidad and Tobago had introduced a make-work programme that added very little value. It
forced students to start work at 08.00 and finish at 19.45.
heavily dependent on the US for a number of handouts.
The country had also become
Trinidad and Tobago was also a
classic example of an economy rooted in the phenomenon of Dutch disease, in that it relied
on three sectors: a boom and tradable; a non-boom and tradable; and a non-tradable. The
boom and tradable sector had grown during the period of oil price prosperity. The non-boom
and tradable sector, which included cocoa, coffee, sugar and to a lesser extent tourism, had
suffered.
The non-tradable sector, which was the services sector, would have improved.
With declines in reserves of both natural gas and crude oil, it was now imperative for the
country to diversify economically.
Comparative advantage
A transition probability matrix was used to show the change and revealed comparative
advantage for the Trinidad and Tobago economy between 1993 and 2008 and 2010.
It
showed a high persistence of starting and remaining in a state of comparative disadvantage.
This pointed to the need to do something different to transform the economic structure.
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Medical tourism
Suggestions
Two suggestions from this preliminary work were for medical tourism and offshore medical
universities. At least two years ago, the World Bank had observed that, although tourism was
growing towards the $1 billion marker at around 4% or 5% per annum, one aspect, medical
tourism, was growing at 30%. Offshore universities, following the examples of St George’s in
Grenada and UMHS in St Kitts, seemed to have great potential.
Expenditure
In its broadest conceptualisation, medical tourism referred to travel with the express purpose
of obtaining health services.
It had been taking place for many years, but previously the
format was for people from developing countries to visit developed countries. This suggestion
reversed that flow.
A 2007 Deloitte study had indicated that 750,000 Americans travelled
abroad for treatment. In 2012, that figure was projected to be 12,660,000, and 22,090,000
by 2016, which would amount to an expenditure of about $80 billion a year.
Examples
St Kitts had started construction on an 18-bed surgical hospital to be known as the St Kitts
American University. There was a joint venture between the American Hospital Management
Company and the Royal St Kitts Beach Resort Limited – a local and foreign entity had teamed
up to expand a hotel resort with a medical tourism appendage. Likewise Guyana had secured
a credit line of $18 million from India to build a hospital to conduct procedures such as organ
transplants and cosmetic surgeries for tourists looking for inexpensive medical care abroad.
The Indian company would build the hospital and Indian medical specialists would operate it.
Similarly, in Suriname, the L Mungra Resort Hospital had opened a kidney dialysis centre
using resources from the Netherlands. This facility was intended to cater both for people from
Guyana and from the Netherlands.
Industrialisation by invitation
Dr Hosein was reminded of the work of Nobel Laureate Sir Arthur Lewis and his sentiment
that a country could industrialise by invitation.
Americans, Canadians and Europeans were
travelling abroad for value and its equated quality, affordability and accessibility. They were
travelling to make savings, so the treatment had to be significantly less expensive than in
their home country and the quality must be equal or higher. They also required transparency
in pricing and preferred English-speaking clinics and hospitals, and safety in their destination
country.
Some popular surgical procedures included orthopaedic treatment, heart procedures,
transplants, dental treatment, cosmetic surgery and IVF. Existent arrangements pointed to
the possibility of more meaningful participation in this sector by small Caribbean states by
using Lewis’s industrialisation-by-invitation strategy.
One could establish these types of
industries by encouraging large foreign multinationals with established brands to come into
your home country and set up shop.
Trinidad and Tobago had successfully pursued that
strategy in the petroleum sector, where it had become the world’s top exporter of methanol,
urea and ammonia.
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The medical tourism opportunity in Trinidad and Tobago
The growth of this form of tourism could lead to the development of new resorts that were
conducive to recuperation and rejuvenation, present new possibilities for the employment of
highly skilled and specialised health professionals locally and bring back some of the health
professionals who had migrated. It must be part of a move to diversify the economy from
petroleum, and sun, sand and sea tourism.
US interest
US hospitals were also very interested in securing some proportion of medical tourism by
offering procedures at overseas hospitals.
The University of Miami Miller School, the
International Medicine Institute and Johns Hopkins University were involved in this.
Comparative costs
Some rough data showed that, in the US, heart bypass operations cost about $133,000. The
Caribbean benchmark was $9,000. In West Shore Hospital in Trinidad, this procedure cost
$24,500. In Costa Rica, it was $24,000. Costa Rica had carved a niche and was doing well in
medical tourism today. A knee replacement in the USA was $40,000, whereas it was $8,500
in India. Trinidad and Tobago was not too far behind at $10,000. Hip replacement in the
USA was $43,000. This was $9,600 in Trinidad and Tobago and $7,100 in India.
Challenges
The Wockhardt Hospital Group in India had been attracting a lot of medical specialists from
the US and elsewhere to come back home, work, and obtain international creditation and
branch plant partners. There was a private hospital association in Trinidad and Tobago that
could form a public-private partnership with the Ministry of Health and the Ministry of Tourism
specifically to design an appropriate marketing strategy to target certain types of care in
private sector hospitals. There was also a need to work with actual hotels and for regulation
in the sector. There was a political dimension in ensuring local access to healthcare was not
compromised, and a strategy was also required for follow-up procedures.
Opportunities
Tobago had suffered very badly from a fall in standard tourism from about 80,000 in 2006 to
31,000 in 2010. Of the two islands, Tobago had the scenery, greenery and beautiful beaches.
It seemed better suited than Trinidad to medical tourism.
The Scarborough Hospital in
Tobago had recently been completed, so maybe the government should consider instituting
some form of teaching or training at that hospital to extend into medical tourism.
A World Bank study in 2008 had identified that St George’s University in Grenada generated
25% of that country’s GDP. Maybe the time had come for Tobago to be the location of two
large offshore universities producing for the foreign market. The country spoke English, was
safe and relatively crime-free.
It came with a long history of tourism and already had an
infrastructure in place. It could target ageing visitors from the rising BRIC economies.
Discussion
Tihomir Stucka, a World Bank economist, intervened as a discussant, commenting on each
paper separately.
He was impressed by the breadth of indicators used in the paper on
economic vulnerability and resilience, but desired a clearer emphasis on the extensions to
research that this offered. Exploring other measures of openness and export concentration
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might be worthwhile. Equally, one could look at indicators of export sophistication. Papers
published by Marion Jansen from the WTO, or others on the World Bank website, might be of
assistance in that respect.
External debt featured prominently as one of the sub-indicators of resilience, but domestic
debt was left out.
Perhaps the assumption was that the exact levels of small states’ debt
were of continuing dispute.
It would also be interesting to know how the index of bank
soundness was constructed, as surely this involved a daunting assessment of balance sheets
and the intricacies of valuation and risk.
Dr Adonis’s comprehensive presentation had suggested that SIDS were more vulnerable to
external shocks than LDCs, because they were less competitive and had difficulties in
attracting FDI. A more rigorous quantitative method of modelling these claims could strength
these results.
The paper on mineral-dependent states had argued forcefully for diversification into medical
tourism and the services that could be provided by offshore medical universities. The ideas
and rationale had been laid out convincingly, but a more in-depth analysis of the established
competition in this business could highlight some barriers to entry or possibly strengthen the
case for diversification.
Comments
The floor was opened, and the first comment made addressed nurtured resilience or what can
be learned from experiences. During boom periods, instead of saving resources for a later
bust, some countries had spent them on experiments. During the 1990s, Papua New Guinea
had been a mineral-exporting country with surpluses.
Its civil servants had rewarded
themselves with bonuses, and ministers, with perks. When the bust came, they had entered
a decade of absolute recession.
This experience showed that mineral-dependent countries
had to save their resources.
Of the 14 Pacific island countries, only Vanuatu and Papua New Guinea had had some fiscal
space during the recent recession.
Of the 27 EU countries, all but Slovakia, Sweden and
Bulgaria had had deficits during the last decade. In other words, the boom-bust cycle was
not peculiar to islands.
Dr Hosein’s paper had been presented as a new industrialisation-by-invitation strategy. The
presumption could not be of unskilled labour in the health sector in the Caribbean, because of
its high out-migration rates of skilled personnel. One participant wondered why this model
was of countries producing very little, in terms of both resources and skills. What was needed
for it to be successful was a way of keeping trained people from leaving. There was also the
major question of where the money would come from, although this could be one element of
partnership. This same speaker presumed that medical professionals would have to be paid
more to join the private sector, which would separate it from the lower paying national sector.
The concern was how these healthcare enclaves would be sustained.
Tourism of any kind was sensitive to political instability, crime and violence. One participant
queried how safe Trinidad and Tobago was.
People would visit Fiji to spend a few months
doing volunteer medical work, but the new system of registration precluded them from
participating at all, so domestic policies might need to be revisited. India was seeing success
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in medical tourism because it had a stock of skilled people able to deliver at low costs. The
situation might not be the same in Trinidad and Tobago.
A question was put to Prof. Briguglio on the extent to which he had examined the role of
governance in influencing resilience in small states.
Some of the best-case examples, like
Singapore, had specific governance structures that did not match orthodox Western
democracies. Lee Kuan Yew had once stated that a country must be able to afford the type of
democracy that it institutes.
On the issue of medical tourism, there was a need to start focusing on building export
capacity after supplying domestic markets, particularly in small states. Only a few exceptions
were likely to be able to offer that capacity innately, so maybe they should offer a subset of
medical services – health and wellness – that fitted well with their culinary and environmental
attractions.
Dr Hosein had cited Guyana and Suriname, but Cuba perhaps offered a better example of
medical tourism practice, with the institutional framework that had been put in place there.
Cuba was the Caribbean’s flagship medical tourism destination. People visited from all over
the world to obtain medical services, because of its conducive environment and stable
governance structure. That model could be replicated in other parts of the Caribbean.
Closing remarks
The panellists were asked to respond and Prof. Briguglio thought it would help if he gave
some background. In 1985, there had been a conference in Malta where many participants
had asked what the worry about small states was. Prof. Briguglio had thought to himself that
although Malta was doing well, it was still fragile and could lose everything. That had been
the origin of the idea of vulnerability. However, its measures had been abstract, so proxies
had been needed to capture this tendency. His numbers might not be 100% accurate, but
they reflected general tendencies.
They showed that when a small state did badly, it did
really badly. There were small states at the bottom end of the HDI and others at the top.
This was the origin of the idea of resilience.
On measuring the soundness of banks, Prof. Briguglio referred the participant to the
competitiveness indicator, which relied on the views of experts. This was not ideal, but was
the best indicator available. These experts, for example, ranked the Irish banking system as
one of the worst. Exposing this view had consequences for Ireland, and similarly in the US.
In Asia, where people saved more, banks had not been so adventurous.
Another question was about governance. The governance score for Singapore was not very
high.
The country was often considered to be too paternalistic.
In recent times, an
opposition party had started to emerge, so there might eventually be a proper form of
democracy. In the economic and social fields, however, no small state could beat Singapore.
It had efficient markets, high HDI, good facilities and a competition policy. It had it all.
Prof. Briguglio had recently been working with the Commonwealth Secretariat on growth with
resilience. This was one of the pillars of the G20 and an area where the Commonwealth was
well placed to offer advocacy. The relationship between resilience and growth was that the
fastest-growing small states had the highest resilience scores.
policy-grounded.
Resilience scores were
Countries were not born resilient, but made themselves such through
appropriate policy frameworks.
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Dr Adonis emphasised measures that foreign aid and loan institutions should take into
consideration. They only assessed GDPs in deciding whether a state was qualified for aid or
setting the rates for loans.
This could be detrimental to smaller economies.
International
organisations, such as the OECD and WTO, must treat small states fairly. When they imposed
stringent financial regulations on a small country like the Seychelles, which depended on
offshore financial services, this would set them back.
Dr Hosein explained that his presentation was a conceptualisation of some suggestions for
export diversification of the Trinidad and Tobago economy. The industrialisation-by-invitation
strategy proposed first by Lewis in 1948 and repeated here argued that every enquiry into
industrialisation must begin with the market.
If Johns Hopkins or other foreign hospitals
could come to a country and bring their capital, entrepreneurship and brand, and with them a
market, that would certainly help. Dr Hosein accepted that some sectoral disparities might
arise, but was reassured by the initial experiment Trinidad and Tobago had made in the
petrochemicals sector.
It was unlikely everything would go smoothly when replicating that
strategy, but the substantive take was to take Lewis’s suggestion forward.
Approximately 60 million Americans did not have medical insurance, and 120 million were
without dental insurance.
They became medical tourists mainly for elective surgery.
Dr Hosein conceded that the domestic legislation and supplier skills would have to be
examined. People from the diaspora could be used if necessary. This would certainly affect
costs, but Trinidad and Tobago had a hospital and a teaching university that produced medical
graduates and specialists too, so many skills could be supplied in-house in different ways.
Dr Hosein characterised medical tourism as a subset of the health and wellness sector.
In
relation to Guyana and Suriname not being the best examples of success from this sector, he
explained that he had focused more on CARICOM countries, but accepted that Cuba was a
great example from the Caribbean. Costa Rica was another.
Macroeconomic Policy and Debt
Anthony Birchwood
Research Fellow of the Caribbean Centre for Money and Finance
Outline
The topic being presented was on fiscal and monetary rules for SIDS to follow. Mr Birchwood
had recently finished an intensive study on monetary rules.
Included in it was some
consideration that many SIDS, especially in the Caribbean, had very high debt-to-GDP ratios,
for some more than 100% of GDP. The EU’s debt-to-GDP ratio guideline was 60%. Many of
the SIDS selected for this study had debt-to-GDP ratios close to 60%, which was a worrisome
position.
Background
Global climate
The truth was that all advanced industrialised countries, at some point in time, were likely to
have used more resources than they were contributing, and SIDS were no different.
The
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Meeting of Experts on Growth and Development: Day Two
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question was whether that could be sustained. The global international climate had changed
to rely on credit ratings, which affected how attractive countries were to investors.
Theoretical approaches
Mr Birchwood had investigated whether economic theory could provide some guidelines. The
three basic theories were neoclassical, Keynesian, and heterodox, which combined both. In
neoclassical theory, the idea was to have less government involved in the economy and
tighten inflation and monetary policy. This relied on a vibrant private sector as the engine of
growth. Most SIDS, however, were still trying to develop their private sector.
Keynesian theory focused more on unemployment, which had always been a problem for
SIDS. It envisaged an expansion of fiscal policy and relaxation of monetary policy in order to
stimulate economic growth and development. Many SIDS were likely to have been employing
a Keynesian approach, but the problem was it led to higher, and sometimes unsustainable,
debt levels.
The
heterodox approach was
a
mixture
of various
policies,
many
of
which
were
micro-founded, but it also used FDI to stimulate economies.
Development versus stabilisation
One reason for the implementation of fiscal rules was the unsustainable debt levels in SIDS.
However, they needed to develop their economies and infrastructures while simultaneously
bringing about stability.
Should they develop first and then try to stabilise, or vice versa?
That was a very difficult issue in practice.
Expenditure
Another point for any country, as can be seen in the US, was that, once government
expenditure had been increased, it was very difficult to decrease it.
There was little
agreement over whether you could reverse the debt overhang by reducing fiscal expenditure.
In a democratic system, a government could find itself facing tremendous unpopularity by
trying to reverse some of the programmes they had already embarked on.
Fiscal rules
CARICOM
The IMF imposed conditionalities on many SIDS, and those who borrowed from other
international institutions often faced some fiscal rules. The CARICOM had been trying to meet
these and was exploring the idea of converging to a single currency. Not all countries had
been able to meet these fiscal rules at the same time, however.
Legislating and monitoring
One particular rule regarded servicing debt-to-GDP ratios. Many countries had been trying to
implement this, but had been unable to. One of the points to remember from this experience
was that this rule had not been enshrined in many constitutions or laws, therefore meeting it
was only voluntary. As well as adding it to the laws, Mr Birchwood also recommended regular
monitoring to check whether a country was properly adhering. This could be external, such
as through IMF surveillance.
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Meeting of Experts on Growth and Development: Day Two
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Governance
Another point mentioned was that democratic systems of government had electoral cycles.
Competing parties would offer the best terms and, if not guided by rules, they were likely to
violate the norms.
It was necessary to put rules in place that would guide SIDS or their
prospective governments.
Best practice
A recent IMF article had suggested certain fiscal rules for SIDS to follow. It advised countries
to follow not just one but a combination of rules to help guard against short-sighted or
opportunistic governments. It had employed four categories:
•
Balanced budget rules;
•
Debt rules;
•
Expenditure rules;
•
Revenue rules.
Balanced budget rules could be either annually enforced or use another type of cyclicality.
Debt rules were the most flexible, and stated that countries should stick to their chosen
debt-to-GDP ratio. Expenditure rules recommended consistent design and that countries aim
to function within their limitations. Revenue rules basically concerned tax collection.
Stabilisation versus growth
Advanced industrialised countries had the advantage of a more developed private sector.
They could therefore simply focus their monetary and fiscal policy on stabilisation, as the
private sector would lead them to growth, but SIDS often needed investments and fiscal
injections into their economies.
Conclusion
One element to answering the question of how SIDS should embark on development was that
fiscal rules were useful to reduce vulnerability to unsustainable debt and a high dependence
on foreign aid.
That was the primary motivation for using them.
SIDS must always be
conscious of their debt levels and ensure that whichever government was in power it obeyed
the same set of rules.
Twinned with independent enforcement and monitoring, these fiscal rules required effective
data collection and management to guarantee adherence and give some warning of a
country’s ability to meet its targets.
Strong institutional and legislative frameworks would
govern the way that fiscal rules were enforced.
Mr Birchwood suggested some further research in this area. It needed to investigate whether
new independent agencies would be set up if existing bodies like the IMF and World Bank
could be relied on to monitor SIDS and their responsibilities.
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Meeting of Experts on Growth and Development: Day Two
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Tish Stucka
Economist
Outline
Mr Stucka spoke on the subject of fiscal and debt sustainability in Pacific island countries with
trust funds. He intended to define the questions that had motivated this research project, put
that story into context, then look at the outlook for these countries.
basis for considering some policy options.
This would form the
The technical approach and quantitative work
behind this were available in greater detail.
Study analysis
Countries analysed
The study looked at five Pacific island countries with a total population around 300,000,
Micronesia being the largest one and Tuvalu, the smallest.
Three of them received grants
from the US for current spending and also inflows to their trust funds. However, these funds
came with some very stringent fiscal rules that meant that investment income from them
could only be spent from 2024.
previous
three,
and
Kiribati’s
Tuvalu’s donor-based trust was not as stringent as the
was
a
completely
different
animal,
because
it
was
resource-based and stemmed from phosphate mining.
Questions
The study explored:
•
Whether the initial intention of establishing these trust funds – for the countries to
survive on their own – had been fulfilled;
•
Whether they would achieve fiscal self-reliance after the grants either stopped flowing
or decreased;
•
Whether the recent financial crisis had had an impact fiscally or exposed these
countries to a tipping point.
The ‘double whammy’ referred to the decline in value of trust funds, because they were
invested in equities, and also the disparity between increased spending and reduced revenues
in these countries. Also explored were:
•
Whether there was a need to fiscally adjust to achieve self-reliance, and if this was
feasible politically or economically;
•
Whether other policy options were available.
The analysis was being used more broadly to provide some insight into the overall question of
whether donor-based trust funds were a viable development tool.
Context
Comparators
Mr Stucka compared the nine Caribbean island states to Pacific islands with trust funds and
observed two main developments. The first was that gross public debt levels in the Caribbean
were very high, and the second, that these debt trajectories were increasing all the time. The
Pacific countries all had low and declining gross debt levels, and trust funds too. This should
be reassuring.
Marshall Islands and Palau had capital in their trust funds equivalent to
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Meeting of Experts on Growth and Development: Day Two
18 November 2011
between 50% and 70% of GDP. Kiribati and Tuvalu had trust funds the size of multiple GDPs.
However, Kiribati’s fund had once been eight times the size of GDP but had since halved, so
this money could go away very quickly.
Outlook
This picture seemed quite misleading if you looked at the medium or longer term. One should
remember that the growth outlook for these countries was rather bleak, and also that their
economies were public-sector driven, with around 50% of employment being based there.
Their budgets were highly aid-dependent, with domestically generated revenues hardly
financing the wage bill.
Examples
Kiribati was running primary deficits around 10% to 15%. Clearly such a fiscal stance was
unsustainable, even in the presence of trust funds. The situation in the Marshall Islands was
identical to Micronesia: primary surpluses would persist until 2017; grants would discontinue
in 2023; and they were already writing primary deficits, and hence overall deficits.
Rationale
By looking at how much of the primary spending could be financed with domestic revenues,
you could see that the shortfall was huge, at around 30% to 40%. The compact countries
were able to run surpluses because of their grants, but these same grants were declining over
time.
The grants were being kept constant in real terms, but were linked to US inflation,
whereas nominal GDP in these countries was real growth plus inflation, hence the gradual
decline. The investment income coming from the funds, supposedly to cover the difference
from the grants, would not suffice and the revenue gap would explode.
Consequences
Tracing the consequences of this on public debt clearly showed that Kiribati was on an
unsustainable path. They could use the capital from their trust fund now, but they would not
have it in 10 years’ time. By balancing it out, it might last for 20 years, but to keep the value
real this country would need to start borrowing.
lingering around 40%.
Micronesia and the Marshall Islands were
In 2024, their debt trajectory would be exponential and clearly
unsustainable.
Financial crisis
These funds had had nothing to do with the financial crisis.
accounted for this development instead.
Issues of economic structure
At best, all the crisis had done was to advance
developments by two or three years.
Policy options
Self-reliance
This analysis seemed to suggest that the current grants policy did not foster self-reliance.
Moreover, the financial crisis could not be blamed for these circumstances. For quite some
time, these countries had been receiving grants rather than loans, but this was not enough.
Economic structure
The conventional conclusion drawn was that these countries needed to gradually change their
economic structures, but this seemed to ignore several things:
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Meeting of Experts on Growth and Development: Day Two
18 November 2011
•
Whether this was feasible, given their history of implementation;
•
Whether the absorptive capacity of the private sector was sufficient for such a
development;
•
The consequences to growth.
Mr Stucka reminded the meeting that 50% of employment in these countries resided in the
private sector, where wages were twice or three times the size of the private sector.
The
majority outside the public sector was in subsistence fishing, agriculture and retail.
This
presented a bleak outlook in terms of fiscal adjustment.
Corner solutions
One corner solution was to fiscally adjust, nothing else. Another was to continue increasing
grants for Kiribati and Tuvalu beyond 2023. Of course, many other options could be devised,
but these would be the subject of ongoing discussions.
Dr Marielle Goto
Economist, DIFEA Consulting
Outline
This presentation addressed contrasting debt profiles in small states.
It focused on eight
small states from different oceans in the period 1985 to 2009. The global debt situation was
affected by external shocks like commodity price rises, natural disasters and depleting foreign
reserves. Dr Goto presented under seven headings:
•
Weight of external debt;
•
Public versus private debt stock;
•
Weight of concessional debt;
•
Maturity of external debt;
•
Debt service;
•
Arrears and risk of public debt;
•
Type of creditors.
Debt profiles
Weight of external debt
It was more difficult for small states to have external than domestic debt.
Most small
countries studied were above low- and middle-income countries’ levels of external debt in
terms of GNI.
The Gambia had a long history of high external debt; and levels had been
rising in the Seychelles for the last two years. Guyana had very high debt, reaching up to
800% at the beginning of the 1990s, but had progressively reduced to under 100% by 2008,
although this was still high compared to international standards.
Public versus private debt stock
Most external debt was public. The average external private debt in middle-income countries
had been lower than 50% over the last period. Papua New Guinea had a high public external
debt.
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Meeting of Experts on Growth and Development: Day Two
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Weight of concessional debt
It was true that developing countries and small states had high levels of concessional debt.
At the end of the period, 100% of Belize’s total external debt had been concessional, which
was higher than the average for low- and middle-income countries of under 20% in the last
part of 2000. Concessional debt in the Seychelles had been under that average figure at the
end of the period.
Maturity of external debt
Comparing the external long-term against short-term debt stock showed that it was quite
stable in low- and middle-income countries, at a level between 10% and 20%. In Belize, for
example, short-term debt had almost been non-existent in the last years of the sample, while
the Seychelles employed a different structure of related maturity. Their external short-term
stock had been increasing over the period, and reached about 60% of external debt for 2009.
Debt service
The situation here contrasted across different countries and periods. By 2008, Belize had had
a very high level of public and public-guaranteed debt service, above 50%. The same had
been true for Guyana at the beginning of the 1990s.
Arrears and risk of public debt
Guyana showed a remarkable decrease in the quantity of its principal arrears against GDP.
The rest of the countries had very low levels of arrears. There were few debt risk links in lowand middle-income countries, with many small states in the same situation.
Belize and
Guyana were the major exceptions, the latter having seen some major debt episodes at the
end of the 1990s and in 2005.
Type of creditors
There had been a rise in publicly granted private creditors in countries like the Seychelles and
Jamaica by the end of the period. At the end of the 1980s in Guyana, about 70% of publicly
guaranteed debt had been attributed to private creditors but this had since decreased. There
had been an important rise in Belize too. The situation was different for official creditors, and
Guyana had been decreasing its reliance since the early 1990s.
Findings
Overview
The external debt of small states was mostly but not wholly concessional, public and longterm. Dr Goto discriminated two groups of countries: those with external debt below 50% of
GNI, like Mauritius, Papua New Guinea and Tonga; and those with higher levels of external
debt, like Belize, Jamaica and the Seychelles. After analysing these figures, it was clear that
there had been several debt reduction, debt relief and restructuring initiatives, especially in
Guyana, Jamaica and The Gambia.
Case studies
Mauritius had a strategy for low external debt. In 2008, it had implemented a public debt
management Act with a debt target to reach 50% of GDP by 2013. However, it should not be
forgotten that the domestic debt of central government had represented about 45% of GDP in
2009, while the external debt had been about 6%. Total public sector debt in 2009 had been
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Meeting of Experts on Growth and Development: Day Two
18 November 2011
about 59% of GDP, so not as good as was presented with the external debt. Mauritius had
been able to implement a similar reduction package after the 2008 global crisis.
Papua New Guinea was one of the sample countries with the lowest levels of debt.
Their
domestic debt had been 19% of GDP in 2009, and public external debt had been 13%. Global
debt in this country had decreased through the years. In the 2000s, they had experienced a
positive shock with a boom in commodity prices, mainly through coffee or mineral revenues.
Part of that windfall had been targeted at decreasing the debt so that, during the 2000s, the
gross public debt of Papua New Guinea had decreased by 40 points of GDP.
Debt relief initiatives
Guyana and The Gambia had benefited from the Multilateral Debt Reduction Initiative (MDRI)
and the Highly Indebted Poor Countries Initiative (HIPC). Belize had gained from Debt For
Nature 2001, which consisted of debt relief on the condition that Belize protected several
thousand acres of its forests.
Conclusion
Previous speakers had commented on growth rates and the very high volatility of small
countries. In terms of debt, small states were generally performing less well than low- and
middle-income countries.
Discussion
Dr Gooptu opened by summarising his views on the three papers. The first had related to
fiscal and monetary rules, and suggested that small states faced twin stabilisation objectives.
He pointed out that high debt ratios were more of a problem for Caribbean countries than for
small states or SIDS.
As mentioned in this first presentation, credit ratings were a useful indicator of foreign debt
and investors. Domestic debt and investors, as well as the diaspora, mostly brought money
into their countries through portfolio investment flows. That would translate very quickly into
‘flight capital’, so named because it was the first to leave and the last to return to a country.
This implied that a foreigner was more likely to stay in a small country with their debt than a
domestic resident was. Such realities ought to be highlighted, because they showed why it
was difficult to implement fiscal and monetary rules.
The paper had argued for the need to install fiscal responsibility frameworks in small states,
so that they could use their resources more responsibly.
However, fiscal rules were more
often relevant to resource-rich countries or those that could install stabilisation funds and
employ individual policy instruments.
Stabilisation objectives perhaps needed to be more
carefully explored.
Dr Gooptu moved on to the second paper, which he thought had provided a useful description
of the workings and importance of trust funds. It might also be helpful to explain why such
funds were initially set up. The paper had investigated debt sustainability but avoided any
alternative analyses using different scenarios. The trust fund was envisaged as a ‘rainy day
fund’; clear objectives were needed on how to use these resources. Fiscal rules might be a
good idea, but trust funds already had strict sets of rules about when and how the money
could be spent. Perhaps such an approach could be applied across a country’s overall budget.
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Meeting of Experts on Growth and Development: Day Two
18 November 2011
Dr Gooptu suggested further research into the links between trust funds and government
spending. Overall, he found this paper too ambitious and that it lacked any advice to improve
growth prospects.
It needed to show more information about how this money was being
spent, where and what mechanisms were in place to generate growth.
‘Self-reliance’ had been cited as an objective, which related to GDP growth, but this paper had
mainly addressed debt sustainability. Another question explored was fiscal consolidation and
output growth. This would have benefited from some discussion of output growth, elasticities
and incremental capital output ratios (ICORs). The question worth asking was whether fiscal
consolidation and the money being saved would then be transferred into sectors or
expenditure that would generate growth.
The descriptive paper on the debt situation of eight small states had concluded by stressing
the importance of external debt reduction, showing how debt structures had developed over
time and how most of it tended to be grants and concessional.
Dr Gooptu highlighted the
large build-up of domestic debt now taking place, while external debt was being extinguished.
There was a need for a medium-term debt strategy that planned with both the external and
domestic sides incorporated. Some debt relief or prudent management had been achieved in
some countries in the past by MDRI and HIPC, but it was important to ensure they did not fall
into future problems.
Just looking at external debt profiles might distract the discussion from the series of ongoing
crises that countries were facing, including with food and fuel price increases.
space available to small states was declining.
The fiscal
It was clear that concessional and grant
funding were declining too. Primary deficits in all low-income countries were now above 4%,
which was very high.
This last paper could have focused more on a consolidated debt
management strategy, rather than just focusing on the external.
Comments
A member of the audience suggested that the examination of debt-to-GDP ratios could also
have shown contingent liabilities. Governments’ physical policymaking was a very important
process, and the IMF was able to outsource it if they found that conditionalities had not been
met. No government would want that. Recently, Fiji had had to borrow at an interest rate
four times higher than they could have obtained from the IMF because of these
conditionalities, some of which were quite unreasonable, even ridiculous.
The IMF was
therefore also contributing to debt built-up in small states.
Another participant suggested that this debt discussion raised the question of the viability of
independent states. One alternative solution was for more rapid regional integration; another
was peripheral dependence, such as that of Réunion with France.
A third idea was to
replicate the EU-ECOWAS solution of local multi-state development to overcome problems of
small size and fiscal viability.
The discussion continued on the possibilities in the context of limited fiscal space as well as
the political economy of external influence and what donors could do. This was a challenging
area but a possibility for future research.
A recent performance influencing factor analysis
(PIFA) had demonstrated many weaknesses in these countries, in terms of their controls and
accountability mechanisms.
A question then arose about how to impose a hard budget
21
Meeting of Experts on Growth and Development: Day Two
constraint.
18 November 2011
This participant wondered whether rules themselves were enough if the
institutions were not in place to enforce them.
Another speaker explained that the primary purpose of trust funds was to help aid-dependent
countries. That same purpose, saving money for a rainy day, was being followed in Papua
New Guinea, whose export mineral revenues were being placed in trust. If this capital were
placed with the commercial banks, it would add liquidity to the economy and become more
inflationary. The central bank had recently asked if trust funds could be transferred from the
commercial banks to them, so that that money absorption could be achieved with the
inflationary potential reduced.
Island countries, whether dependent on aid or mineral
revenues, had to ensure they kept rainy-day reserves and avoided episodes of boom and
bust.
Regional Integration
Rose Marie Azzopardi
Department of Economics, University of Malta
Outline
This first session on the topic looked at regional integration agreements, the effects of
economic integration and what role regional trade agreements (RTAs) were playing in small
states.
Literature overview
RTA statistics
By May 2011, there had been almost 500 RTAs notified with the WTO – 358 under Article 24
of the General Agreement on Tariffs and Trade (GATT), 36 under the enabling clause, and 95
under Article 5 of the General Agreement on Trade in Services (GATS). Of these, almost 300
were actually in force. If you split them up, 90% were shallow integrations looking at free
trade agreements, and 10% were deeper arrangements, such as customs unions, common
markets, and monetary and economic unions.
Effects
The main assumption was that it was more beneficial for small states to be engaged in RTAs,
because they had no real power in the global environment. The literature on this area defined
two main effects: static and dynamic. Static effects followed Weiner’s conclusions on trade
creation and diversion.
Sapir distinguished between static and dynamic saying that the
former was locative efficiency, allocating what capacity you had; whereas the latter meant
increasing your productive capacity. Dynamic effects should increase specialisation, exploit
economies of scale, stimulate investment, intensify competition and expand markets to create
more efficiency.
Authors like Fernandez and Portes believed that RTAs were good for small states because
they brought credibility, signalled coordination and supplied insurance and greater bargaining
power. Perroni and Whalley had referred to RTAs for small states as ‘safe havens’, whereas
Schiff and Winters saw them more as diplomatic strategies. Baldwin had indicated that there
were other valid political and economic considerations that had not been fully researched.
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Meeting of Experts on Growth and Development: Day Two
18 November 2011
Concerns
A group of researchers from the University of Sussex had maintained that the effects of RTAs
were likely to be stronger and deeper, although 90% of RTAs were actually of the shallow
form. Over the past three decades, trade agreements had gone beyond border measures to
effect changes in domestic policies and regulations. Krugman had warned in one study that
inward-looking free trade areas could actually inflict much more harm on economically small
players. He had called this the ‘innocent bystander problem’.
Small states involved
There were 45 small states concerned. Twelve states in Latin America were engaging in three
RTAs. Fifteen in east Asia-Pacific were in 12 RTAs. Eleven African states were in seven RTAs.
Over the other regions, seven states comprised 41 RTAs. Many of this last group inherited
RTAs from the EU, and likewise for Brunei as a part of ASEAN. Removing these, there were
20 RTAs among the remaining 38 states. Three of the 45 countries did not participate in any
RTAs.
Excluding the EU, 25% of small states were engaged in deep integration arrangements from
customs unions upwards.
The rest were either partial scope or economic integration
agreements. Africa was an example of agreements for small states that dealt only in trading
goods,
whereas
Latin
America
and
East
Asia-Pacific
cared
more
about
services.
Dr Azzopardi’s regional analysis was available in greater detail.
Research
Objectives
Dr Azzopardi had sought to isolate the possible static and dynamic effects for Cyprus and
Malta in terms of economic integration. Her second question had asked what was needed for
these gains to materialise. She had used a quantitative data analysis from the University of
Sussex Centre for Regional Studies, and evaluated trends, studied trade and investment
patterns and forecasted possible scenarios that would come from deeper integration.
Results
Static effects were relatively low, because both Cyprus and Malta had signed an associative
agreement in 1970 that lowered tariffs on many products.
In the manufacturing sector,
tariffs had already been removed, but there was still some trade creation in certain
manufacturing and services, because of this locative efficiency. The study had found trade
diversion in some sensitive agriculture and manufacturing sectors, but the overall effects were
negligible.
The results showed that to achieve dynamic effects there needed to be much more internal
structure reforms on both islands and a longer timeframe for analysis.
There was some
evidence of increased competition and investment. This was mostly linked to the privatisation
programmes engaged in after EU membership, but was insufficient to sustain the drive
towards deeper integration, so why did the people really want to join? Unknown factors were
at play here.
Qualitative analysis
Schiff and Winters had maintained that interest groups could affect international trade policy
and, by extension, regional integration agreements. Following this perspective, Dr Azzopardi
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Meeting of Experts on Growth and Development: Day Two
18 November 2011
had aimed to discover what additional effects key stakeholders perceived to result from
deeper integration.
She had conducted a qualitative analysis holding interviews and focus
groups with employers, unions, government officials, and using HyperRESEARCH as her data
analysis system. The responses had been categorised as a lock-in mechanism, credibility, big
brother and opportunities. What did this speak to?
Benefits
A lock-in mechanism was the idea that countries had to follow the policies that were there.
They had to make institutional reforms and changes in their competition policies. The EU was
seen as a force for change, especially in protected sectors, because of the need to meet goals
like the Lisbon Agenda and EU 2020. This induced high standards.
The credibility issue could be seen on both the international field, with credit rating agencies,
and the local field. The euro had stabilised the economic environment, especially for foreign
investment.
For the locals, governments were now seen to be accountable beyond their
electorate to a higher ‘deity’ – the supranational institutions of the European Commission and
the European Court of Justice.
The big brother issue was one of protection. Small states could not deter insecurity, prevent
illegal migration or halt climate change on their own, but big brother would take care of that.
In the case of Cyprus, big brother would support their internal issue to resolve the island’s
divide.
The key stakeholders saw the EU as offering a myriad of opportunities in terms of: labour
movement as a safety valve for high unemployment; inducing more FDI, which could help
improve educational policy; and networking with businessmen.
Conclusion
Economic integration was seen by Cyprus and Malta as another development strategy in
which they were engaged, whereas most small states tended to use the resources and
markets of others. More research was needed to try to determine other advantages from this
strategy and how best to exploit the opportunities being offered from this deeper integration
process. Dr Azzopardi would be looking at Iceland next, which was an EU candidate country.
She hoped that others would be interested in studying regional integration in some of the
other areas she had mentioned, and would be delighted to reply to requests to share the
same methodological tools and make comparisons.
Sanjesh Naidu
Economic Advisor, Pacific Island Forum
Outline
Mr Naidu was presenting on the broad topic of the role of regionalism in the development of
small states, from a Pacific perspective.
He intended to outline a framework for enhanced
regional engagement, show how it could be applied and where its implementation had already
been attempted, and then conclude with some questions for discussion.
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Meeting of Experts on Growth and Development: Day Two
18 November 2011
Enhanced regional engagement
Challenges
To understand why regionalism was important to the region, first it was necessary to
understand the significant challenges the region was facing, not all of which could be met
through national approaches alone.
Many of these long-standing issues had already been
discussed over the course of this meeting, but the point being made here was that most, but
not all, were due to smallness. They were structural and capacity issues.
Sovereignty
With these ongoing capacity issues in the context of a globalised world, island states were
faced with two major sovereign difficulties.
One was the need to formulate and enforce
effective national policies; the other was to provide essential services to their people. Here
Mr Naidu cited the non-existent competition regulations discussed earlier. Pacific regionalism
would reinforce effective sovereignty which, with enough instruments and institutions and by
increasing access to better services, would improve the economic possibilities of the region.
Theoretical aspects
The theoretical underpinning of regionalism could be examined through club theory. This had
been applied in various contexts, such as military alliances and international organisations.
People were already familiar with 40 years of regionalism as CARICOM.
were gatherings of like-minded groups.
Essentially, clubs
Their most basic requirements were to be
self-sustaining and provide a large pool of net benefits. Success was measured by whether a
club’s benefits exceeded its costs. In the Pacific, just as in the Caribbean or Indian Ocean,
the more remote islands entailed higher costs due to their isolation.
Sub-regionalism
There could be a tension between scale effects and the distance of collective action, in a club
with varied geographies.
The composition of the optimal club varied depending on these
issues. In the Pacific context, the diseconomies of isolation were particularly high, so scale
benefits had to be large for a club to be sustainable. Regionalism was not applicable in every
context; sub-regional initiatives might be more viable in the Pacific, just as they had been for
the eastern Caribbean.
Pacific regionalism
Principles
Mr Naidu highlighted four principles for Pacific regionalism derived from club theory:
•
Intervene regionally where there would be significant economies of scale in order to
ensure sustainability.
•
Intervene regionally where the market could not provide goods or services, and where
there would be significant net benefits over national provision.
•
Sub-regional options sometimes made for optimal clubs.
•
Specific initiatives were essential to ensure that services would be provided to the
smallest members of the region.
For example the micro-states within the Pacific
region would need more support than others, and perhaps targeted subsidies.
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Meeting of Experts on Growth and Development: Day Two
18 November 2011
Mechanisms
A number of mechanisms for Pacific regionalism had been used already, such as regional
cooperation and services supported through institutions like the Pacific Islands Forum and the
University of South Pacific. As just discussed, RTAs were in place as well.
Test
The test was that if the market could provide services well, there was no need for regional
approaches. The second element to that test was that, if a national or local government could
provide services well, regional bodies and approaches should be set to a minimum. Lastly,
the sovereignty test determined whether effective sovereignty was possible through national
approaches.
If not, the management of services perhaps needed to be provided through
regional bodies, although national policymaking would be retained.
Framework
Leaders from the region had agreed to the Pacific Plan in 2005. It had identified a framework
for Pacific regionalism incorporating all of the points mentioned above, but this was work in
progress. The plan provided an effective framework for engagement with foreign countries,
partners and non-state actors.
Application
With his Forum, Secretariat and the regional association of auditors-general, Mr Naidu had
coordinated a governance initiative in regional auditing to show how Pacific regionalism could
be applied. He had partnered with the World Bank and regional aid organisations, who were
committed to this as a modality for supporting strengthened auditing services. Essentially the
programme was just regional support, but it was justified because of the massive problems
with public auditing in the region. Capacity-building alone was not helping, because trained
people would migrate to larger countries.
There were sub-regional approaches for Nauru, Kiribati and Tuvalu, where a few people from
each of these countries were involved in supporting one auditor-general, who ultimately
approved all reports. Through this approach, heavily backlogged government accounts had
quickly been reconciled and some major audits were completed. For example, the pension
fund in Kiribati had not been audited for 10 years, but an audit was done after using this
mechanism.
This was an example of capacity supplementation versus capacity building.
Other examples concerned labour mobility and remittances, but these were works in
progress.
Conclusion
The Pacific Plan provided a framework for regional engagement.
opportunity to tackle long-standing structural problems.
sovereignty.
Regionalism offered an
Key to it was reinforcing effective
Some lessons could be learned from club theory, and three tests could be
applied to decide whether regionalism would be useful.
Best practice could be shared between existing small states regions in the Caribbean and
Indian Ocean. To implement more regionalism across small states, additional research was
required into the political economy issues underpinning it.
As well as the regional audit
service, Mr Naidu had learned some critical lessons from the example set by ECTEL. It was
26
Meeting of Experts on Growth and Development: Day Two
18 November 2011
necessary to identify other areas where services would be better provided regionally as
opposed to nationally.
Discussion
Prof. Baldacchino commented that, together, these two presentations had given a closer
understanding of the economic and political reality and rationale of small states.
This
conversation between the reality of political institutions and key actors on the ground, and the
benefits they hoped to achieve through initiatives like regionalism, had to be maintained, at
the same time looking at the bottom line and seeing what mattered in terms of fiscal
responsibility and making those countries more sustainable.
Although phrased differently as ‘interest group theory’ and ‘club theory’, both presenters had
been referring to vested interests.
The elites, whether industrialist or mercantile, had an
incentive to push for transnational or supranational arrangements for various reasons,
including self-interest.
Some of them preferred protectionist policies and some sought the
contrary, which made for an interesting political agenda. This would make for an interesting
debate about political coalitions, intra-party rivalries or other groups like employer or
commercial organisations.
Another
important
relationships.
dimension
of
regionalist
issues
concerned
horizontal
or
vertical
Dr Azzopardi had primarily emphasised the advantages that a country like
Malta was seeking to gain through membership of a regional trade bloc like the EU, but their
rapport with Cyprus, where they were similarly positioned in relation to EU membership,
might bring about a stronger horizontal relationship too.
It would be interesting to see to
what extent Malta’s and Cyprus’s experiences with the EU could be translated into Caribbean
or Pacific contexts, with their own ongoing negotiations on the Economic Partnership
Agreement, for example.
When the regional card was played earlier, it had not been roundly accepted by many
countries or potential countries, which had wanted first to become countries before being
members of a region. The West Indies Federation had collapsed; and Singapore and Tuvalu
had gone their own ways.
Once these countries had become sovereign, they had perhaps
realised that the effectiveness of that sovereignty had been jeopardised. Nobody questioned
that sovereignty, but how could it be operationalised effectively? Sovereignty provided the
basis for confidence in negotiations, but there were back-up options, in the form of
regionalism, if these countries should want to engage in a more viable or politically acceptable
way.
Comments
Another speaker thought Mr Naidu’s presentation on Pacific regionalism had also applied to a
Caribbean context.
A recent CARICOM meeting had discussed new areas of cooperation
within the region, including common institutions such as a single stock exchange or joint
supervision for commercial banks. The Pacific island states could try to develop the same.
Would that involve some loss of sovereignty or could it somehow be maintained?
Dr Ratuva made a comment on inter-regional cooperation between the EU, Pacific and
Caribbean.
A number of Caribbean and Pacific island states were members of the EU-ACP
(Africa, Caribbean and Pacific Group of States) and were members of the Economic
Partnership
Agreement
(EPA)
or
Pacific
Agreement
on
Closer
Economic
Relations
27
Meeting of Experts on Growth and Development: Day Two
(PACER Plus).
18 November 2011
As a member of the EU, Malta’s political economy was very different from
Caribbean or Pacific countries.
Dr Ratuva asked whether the recent crisis in the EU was
causing a new conceptualisation of regional blocs, in terms of the sovereignty of individual
states and how they linked up to each other. The EU might no longer be the best model to
follow.
Prof. Jayaraman stated that regional integration efforts started with trade in commodities and
services and that integration in the EU had been an example to all aspiring regions. That had
begun from trade in steel and coal, whereas in the Pacific trade in goods and services was not
being seriously considered. Some of these islands traded more with the US, whereas others
looked to Australia and New Zealand.
Trade had been neither an engine for growth nor
integration.
The Pacific Island Countries Trade Agreement (PICTA) was supposed to become effective in
2011, but was still not in force.
Likewise, sub-regional efforts, either for Polynesian or
Melanesian integration, were also seeing delays.
Trade was happening between certain
commodities, but practices were still beset by deficits and disputes.
efforts were not unique, but mirrored in some ASEAN countries.
These half-hearted
The regional integration
efforts that had taken place in Europe had been under the threat of former Soviet
communism, but there was no such threat today, which was why members in the RTA group
were looking outside – for example India was looking for free trade with Thailand and
Sri Lanka, and Australia and New Zealand, through the Trans-Pacific Partnership (TPP).
other words, small countries were being left behind.
In
Greater political will was required to
prevent island countries from having to depend upon themselves or their big brothers.
Dr Hosein posed some questions to Dr Azzopardi on the welfare effects and Sussex model.
He asked if she had meant Michael Gasiorek’s model and if she had examined other
competing models to avoid some of the problems associated with tax elasticities. Lastly, had
she determined what the effects on revenue and welfare were from the integration of Malta
and Cyprus within the EU?
Mr Stucka also had a question for Dr Azzopardi, referring to static and dynamic theory. Her
results seemed to imply that joining the Eurozone did not have any dynamic trade benefits,
but what was the difference between being member of the EU and the single currency union?
Closing remarks
Dr Azzopardi answered generally that she had only conducted case studies for Malta and
Cyprus and their integration into the EU.
More research was required into whether these
results were applicable to other areas. The EU was just one of the 297 RTAs in force; the
other 296 would be void if everybody followed this model. Dr Azzopardi was hopeful that the
EU would be able to counteract its current crisis.
Since 2004, Malta’s level of merchandised trade with the EU had decreased, but other types
of investment and trade outside the EU had increased. Issues of credibility, dependence and
lock-in mechanisms still prevailed, but many of these were supportive of increased trade.
Turning to welfare effects, Dr Azzopardi explained that her primary focus had been on a new
theoretical framework that would bring additional benefits to small states engaging in a bigger
entity, rather than static and dynamic effects specifically.
28
Meeting of Experts on Growth and Development: Day Two
18 November 2011
Dr Azzopardi’s presentation had not sought to distinguish between EU and Eurozone
membership. Iceland was a case of a country that did not want to join the EU but did want
the euro. Both presenters had focused on pooling regional resources so that they could be
more efficiently shared and applied.
Mr Naidu perceived a direct link between regional maturity and sharing institutions.
For
example, a region could not have a central bank until it had resolved many integration issues,
such as regional cooperation and pooled services. The Pacific was working through a number
of issues to do with cooperation and the delivery of services at the moment. While this was
ongoing, there was the possibility of providing support to struggling sub-regions while
allowing them to maintain their individual sovereign rights.
Some work on this topic was
available on the Pacific Island Forum’s website and included pre-feasibility studies on having a
single financial supervisor for the region, a financial ombudsman and a customs controller.
The point was the region was not yet mature enough to move towards that.
Trade was an important spur towards full integration, but the Pacific had only instituted a
trade agreement 10 years ago. People were currently working hard on a trade and services
agreement too, but fundamental structural problems like supply-side constraints were slowing
that process. The world was now talking about aid for trade and was re-engineering towards
supporting suppliers more.
Remittances
John Connell
School of Geosciences, University of Sydney
Background
Focus
Prof. Connell presented a diagram showing the proportion of GDP made up by remittances for
ACP countries.
He was focusing mostly on Tonga and Samoa, where these figures were
highest.
Significance
Remittances were significant in small states and generally more stable than commodity
exports, tourism receipts, aid flows and foreign investment.
A significant degree of
stagnation was suspected after the global financial crisis but, according to World Bank
studies, this was not as great a dip as expected.
Tonga and Samoa
Since 2008, Tonga’s remittances had fallen by up to 20%, whereas Samoa’s had stayed
relatively stable. The difference could be explained by the source of those remittances. In
Tonga, they mostly came from the US, whereas in Samoa most remittances came from
New Zealand and Australia, where the dole was supporting unemployed people. In addition,
the tsunami in Samoa had killed 180 people, but significantly boosted remittance flow.
Volumes
Volumes of remittances varied by destination. The US was normally a better place to be than
New Zealand. The Pacific notion of the ‘transnational corporation of kin’ referred to extended
29
Meeting of Experts on Growth and Development: Day Two
18 November 2011
families across different countries. For the past 40 years in both the Caribbean and Pacific,
remittances had been so big that one pamphlet referred to Tongan migrants as being ‘worth
their weight in gold’, and Tongans were very large people.
Recipients
There were also some uncertainties about remittance flows, because many came as in-kind
payments.
Samoa had switched to driving on the left 18 months ago, so many payments
have been right-hand-drive second-hand cars. The recipients were usually siblings, parents
and children.
Transnational corporation of kin
Prof. Connell had seen a gravestone in Tonga 10 years ago that recorded the locations of the
deceased lady’s eight children.
Three of them had remained in downtown Nuku'alofa; two
had gone to the US, to Spokane and Dallas; two, to Perth and Sydney in Australia; and one,
to Auckland.
Usage
Spending
Many remittances were spent on obvious consumables like welfare, housing, improved water,
toilets, solar panels, education, improving human capital and perhaps future migration. Some
went on ‘luxury goods’, placed in inverted commas to reflect complaints about people buying
naughty things like fridges, TVs, cars and, most recently, mobile phones. Money also went
into social investment, ceremonies, churches and football clubs.
Most would argue that
maintaining society was a good thing, but others would say it encouraged a more stratified
society that was less capable of change. Money increasingly went into investment, whether in
land, agriculture or small businesses, as most people wanted to use their remittances as
productively as possible.
Impact
Remittances were heavily criticised for being part of a Dutch disease – stopping economic
productivity in other words.
The phrase ‘MIRAB’ encapsulated the idea that remittances,
similarly to aid, generated a hand-out mentality or wider sense of dependency.
That was
happening anyway; people would continue to become more modern and move away from
agricultural activity even if remittances were not playing some part.
Equality
In the early years, people had said that remittances were unequally distributed. You could
see which people in a Tongan village were receiving remittances because their houses had
been bigger.
Nowadays, migration had become universal, so access was much wider and
there was less inequality. However, many other factors were affecting this. Remittances had
certainly reduced poverty in Fiji and Tonga, as was found in some recent work by
Richard Brown from the University of Queensland.
It was also clear that they offered an
effective form of social protection, playing an insurance role in response to hazards like the
tsunami.
30
Meeting of Experts on Growth and Development: Day Two
18 November 2011
Future
It could not be known whether remittances and migration would be sustained, but any decay
was likely to be slow.
Relatives receiving remittances would die and other close relatives
were likely to follow migrants out of the country.
Migration
Remittances were also a function of migrant composition. There was some limited evidence
from a study on nurses in the Pacific that skilled migrants tended to send proportionately
more, as a percentage and as a quantity, than unskilled migrants. This explained why many
countries were not reluctant to lose their skilled workers.
If migration should slow in the
years ahead, you would have to ask whether the second generation of émigrés would
continue to remit as their parents had.
Maximising remittances
Maximising remittances depended on maintaining migration and the Pacific’s ‘outward urge’,
as demonstrated by the present guest worker scheme in New Zealand and Australia. People
were saying that remittances were sent by people who knew about local development, just as
homeland associations did, but there was some doubt about that. The identity of departed
persons should be maintained; social media such as Facebook had an uncertain but important
role in that regard. Having skilled migrants helped, so there was a need to consider means of
upskilling people to turn them into valuable ‘gold collar workers’.
Mobile phones and bank cards
Important developments were being made in mobile phones and bank cards.
A large
prohibition to remittances in the Pacific was transaction costs, which varied from 5% to 25%
– roughly twice the global average – with Western Union charging about 14%. If dual bank
cards could be used, transaction costs would reduce to about 5%.
The arrival of mobile phones and Digicel would reduce transaction costs to around 4%, for
those who had phones. Approximately 70% of people in Tonga and Samoa were likely to own
mobile phones five years from now.
Such a system would also enable access to the rural
unbanked, but there would be an opportunity cost in doing that. This was likely to be more
effective if supported by a programme to develop financial literacy, and particularly if women
were able to use phones instead of their husbands. Another advantage of mobile phones was
calling people overseas to ask for the money.
They were perfect for high-frequency
low-volume transactions, which were likely to become more important to the region.
Some people were saying that these methods were likely to increase money laundering, but
Prof. Connell doubted this. People in Papua New Guinea were already using text messages to
gamble, so there were some problems with this system, but it was still expected to transform
the way in which remittances were being sent and used in the region. Digicel was trying to
involve more people; it would be interesting to see Western Union’s response to their
advertising campaign.
Competition was good for keeping transaction costs low in this
business.
Conclusion
Jeffrey Sachs had called the phone the ‘single most transformative tool for development’, and
there was much evidence to show that he was correct.
There was a correlation between
31
Meeting of Experts on Growth and Development: Day Two
18 November 2011
mobile phone accessibility and GDP growth in Africa, so if this worked in the Pacific, it could
potentially boost GDP by slashing costs to the recipient households. It would almost certainly
boost the level of remittances too, as it was known that people were willing to send more
when they knew that that money was being used effectively.
Remittances were of course going to the private sector, but they still needed government
policy formation and support behind them. The private sector was important but not the lone
key to development. Roads were still needed, and a health service and all of those kinds of
things.
More research money and more data were needed to find out about the likely actions of the
second generation. More work was also needed on return migration, social remittances and
skills migration. Prof. Connell was able to offer the services of an enthusiastic PhD student
should financing be forthcoming.
Kenrick Hunte
Department of Economics, Howard University
Outline
This
presentation
outlined
some
features
of
remittances
and
specific
issues
that
Commonwealth countries needed to consider.
The Commonwealth
Common values
Commonwealth nations shared a set of common values – including democracy, peace and the
rule of law – but Dr Hunte was unsure that they were using them as effectively as they could.
Some Commonwealth countries were among the most liveable in the world, but others were
not.
The problem was one of uneven development, creating low life expectancies, poverty
and institutional constraints, which needed to be resolved.
HDI
Of the 54 Commonwealth countries, 15 were at the lowest levels of the HDI, whereas nine
showed very high human development. This meeting should be most concerned with moving
the bottom group up a level. The majority of these countries were in Africa, and they had
been somewhat ignored.
The Commonwealth should not operate as a bipolar system
between the rich and very poor, but should be a coordinated system, if it were to remain a
viable institution.
Fixing human development inequality
What could the Commonwealth, the World Bank and donor governments do to fix this
problem?
•
Currently, donor government projects worked independently of diaspora migrants,
resulting in a disaggregated system, where different donors and governments worked
in
different
areas.
Better
collaboration
would
produce
synergies
for
better
effectiveness.
•
It was also necessary to find meaningful ways to build institutional capacity and share
expertise.
32
Meeting of Experts on Growth and Development: Day Two
•
18 November 2011
Collaborative mechanisms were needed to incorporate diaspora contributions to the
development process.
•
Incentives could be provided for the diaspora to allocate a proportion of their
remittances into investments. Some more data was necessary in this area.
•
Donor funds could be better leveraged if countries worked together in a better way.
Right now, with the financial turmoil and other global difficulties, financial support was
disappearing at a time when many Commonwealth countries depended increasingly on
aid.
Migration and remittances
Questions
Most of the money migrants sent home went into consumption. Apart from meeting everyday
needs, some countries received additional money as international reserves. This generated
risks to local production and food security, as it could interfere with the work ethic and raise
unemployment.
Investment
Dr Hunte recommended that the next phase of development should be focused on the more
systematic investment of remittances.
By leveraging diaspora contributions, working with
donor funds and other agencies, systems could be devised to link aspects together more
usefully.
There
were
definitely
opportunities
for
collaboration
between
migrants,
governments and donor agencies to improve business, stimulate investment and try to
capture more of the remittances beyond spending on consumption, into areas such as
infrastructure improvement, as some South American countries had been doing.
Education
Some alumni associations were sponsoring children by sending remittance money to pay for
schoolbooks, teachers, lessons, etc. Such an investment was building human capital.
Production
Investment of remittance funds would create better trained people, raise employment and
open the domestic markets to exports.
There were potentially large ethnic markets in
diaspora countries where ways had to be found to link them to niche markets or products
being made at home and exported in a systematic way. This would create employment and
provide a new opportunity for investment in the export sector, but some work was needed in
this area. Migrants were also returning home, either as retirees or tourists, who tended to be
richer than people who had stayed. These were just some of the possibilities, but there were
concerns about security too.
Business indicators
Institutional capacity
Remittances helped in investment, but increased institutional capacity was also needed to
help deal with some of these questions.
Dr Hunte had examined the World Bank’s Doing
Business report, which made some suggestions for ways to change investment opportunities.
These included methods for dealing with contract recognitions and protecting businesses.
33
Meeting of Experts on Growth and Development: Day Two
18 November 2011
Inequality
This report had employed a set of indicators to rank those countries that were doing business
well.
The top 10 had included some Commonwealth countries – Singapore, New Zealand,
Canada, Australia and Mauritius – but so had the bottom group – Nigeria, Lesotho,
Sierra Leone, Gambia and Cameroon. Everybody needed to find ways to bridge that gap.
Starting a business
Doing Business had also ranked countries according to new business starts. It was necessary
to find ways to work with some of the countries at the lower end to solve some of their
concerns through training, the exchange of ideas and events like this.
Getting credit
The Doing Business publication had worked through several other indicators. ‘Getting credit’
referred to systems in place for people who wanted to start a business, who needed money
quickly. Dr Hunte was strongly advocating using opportunities within the Commonwealth to
share knowledge so that those at the lower end of the scale could improve their business
processes.
Corruption
There
was
also
some
correlation
between
corruption
and
business
indicators
in
Commonwealth countries. Ways to break this system could help address these concerns.
Other factors
GDP per capita was one measure, but quality of life indicators were also critical and a cause of
migration. When people felt they could not be a benefit to their families at home, they found
ways to leave and send remittances back home.
Other considerations
Crossover opportunities
Big stores in developed countries now contained ethnic sections of products produced in
smaller countries.
There were crossovers of culture, cuisine and customs, which were
avenues that could be explored, but there was not enough information about this at the
moment.
Issues of information
What was the size of investment and employment level in the home country? These factors
were not known; nor was it known how they were related.
Dr Hunte believed it was
necessary to obtain this information then find out how best to use it.
Conclusion
Migration and remittances were about people and their choices – where they chose to live and
work, and with whom they shared their income. Migration was partly a reflection of market
failure, incurring the loss of skills when they were most needed, although limited job
opportunities and a slower pace of growth made this a necessary decision for some people.
The mechanisms migrants were using to transfer skills capital, knowledge and ways to build
capacity in their home countries should be examined. This sometimes involved activities in
culture, sport, education, health, disaster relief, restorative work or funds to support social
safety nets, children, grandparents and others.
Understanding how this was organised
34
Meeting of Experts on Growth and Development: Day Two
18 November 2011
required collaboration between migrants, donors and policymakers.
Consequently, an
assignment on sharing good practices across member countries should not struggle to attain
the next level of Commonwealth progress and development.
Research was needed that addressed migrant markets and opportunities for backward
linkages to production, investment and employment.
Policymakers and donors must stop
seeing remittances as opportunities for consumption and sources of foreign exchange; rather,
they were opportunities for diasporic investment and export.
Effective public institutions
could provide goods and services using procedures that would ensure equal access, fairness,
equity, accountability and efficiency, if research showed how this was best done.
There was room for Commonwealth countries to learn from each other and expand their
shared knowledge.
Its record of cooperation and consensus-building, plus its existing
expertise and success, made the Commonwealth uniquely placed to address these issues.
Discussion
Sona Varma, Senior Economist, World Bank, reviewed the two papers on remittances. She
was reassured that, despite the broad challenges, they indicated some potential for
improvement and further research to find some ways forward in this area.
Prof. Connell’s paper was useful in articulating all the facts on migration and remittances. He
had seemed to argue that they were beneficial but could be more so, particularly by using
mobile phones and dual bank cards. Dr Varma supported this as an area for further research,
in perhaps answering the question of whether mobile phones were going to transform
remittances and their impact. She suggested research could document to what extent these
methods reduced transaction costs and where. Samoa had already seen relative success with
this method. New research could also look at how mobile phones increase financial inclusion,
not only with remittances but also through savings or payments products.
Prof. Hunte’s paper had taken more of a lifecycle approach to migration and remittances,
examining the various issues that policymakers should be considering.
He had highlighted
the need to leverage payments and move them from consumption to investment, into areas
like diaspora bonds.
Here Dr Varma requested further research into what would make
migrants send more money. Were skilled migrants the only target market for this? If so,
how could governments encourage them to raise the volume of their remittances?
This presentation had also addressed opportunities to share information within the
Commonwealth, especially in more straightforward areas. This could be a complex issue and
one worth pushing, but sometimes simply having the knowledge was not enough to make
transformative impacts in a country.
The whole issue of diaspora markets was another area for extensive research. Niche products
were already being introduced into larger Western markets simply to meet diaspora needs,
but there was a possible role for policymakers in making them more mainstream.
Comments
A participant spoke on the importance of financial sector development in mobilising savings
arising from remittances. Money first went to household consumers, then medicine, health
and education. Any surplus would lead to conspicuous consumption or building projects, such
as new churches, which were an indicator of new investments and were likely to improve
35
Meeting of Experts on Growth and Development: Day Two
morality and lessen corruption in the future.
investments, however.
18 November 2011
There was an immediate need for protective
In the Pacific island countries, banks were foreign-owned and
concentrated in urban areas with none in the outer islands.
Fiji had undertaken some
initiatives to send mobile banks into rural areas. Unless surplus savings went into banking
reserves and hence into loans to businesses, it was unlikely that remittances would lead to
more investment.
Banks could also be persuaded, with some concessions, to give higher interest rates on
deposits arising out of remittances. Some South Asian countries had been doing this already.
This participant believed that a government should never rely on a Tobin or Chidambaram tax
on foreign exchange transactions.
Another speaker thought it would help to examine arrangements in American Samoa, which
was effectively a sub-national jurisdiction tied to a colonial power neighbouring a sovereign
state. There was a lot of crossover between American Samoa and Samoa, which might prove
a useful way to conceptualise circular migration, with employment regulations allowing the
possibility of living in one country and working in another.
On the fusion idea introduced by Dr Hunte, there were two recommended paths for
export-oriented initiatives.
One was the authenticity path, where effective branding would
connect the buyer to the geography of the place, therefore making the product less likely to
be subject to competition. It needed to be something that spoke to that culture, history or
diaspora. Another path sought to combine elements of the home country with the migrant
destination as an interesting melange. Both the authentic and the hybrid offered commercial
opportunities.
Some islands in the Caribbean were capturing savings from the diaspora internally by offering
migrants higher interest rates on in-country savings. An increasing number of people were
now saving at home rather than in the US.
Mr Birchwood thought it would be interesting to discover how many migrants had moved their
own businesses with them or contributed to the operation of businesses back in their home
countries.
The impact of this could go beyond consumption; it could create employment.
Such a project could be extended to examine the contributions of those who had returned
home and helped to rebuild.
In Dominica, they were making significant contributions to
employment, construction and maintenance.
There had long been a concern that the second generation of families who had migrated
would not share a connection with their parents’ home country, which might affect the level of
remittances. However, another consideration was that entire families were often able to join
the original migrant through visa systems.
This too could reduce the level of their
contribution. Some were finding that making savings and investments in the home country
were other ways of maintaining that connection. It would be interesting to look at that more
closely.
Another consideration was that people migrating, especially from the Caribbean, were finding
themselves and their children being cultured integrated into Western society, which was often
more individualistic than the extended family they had grown up with. The US Government
had started a new diaspora policy seeking to encourage migrants to the US to invest in the
Caribbean. It might be useful to find out what mechanisms they were using.
36
Meeting of Experts on Growth and Development: Day Two
18 November 2011
A further participant commented that both presentations had been based on the classical
notion of the flow from the metropolitan to the periphery. Perhaps more could be done to
study the reverse. In Nauru and the Solomon Islands, for instance, most aid professionals
were paid for by AusAID with a lot of money going back to Australia. This same reverse flow
dynamic was causing a lot of controversy in Papua New Guinea, so it ought to be included as
part of any ongoing research.
A suggestion for ongoing research was the contribution or negative effects of returned
migrants, either voluntary or forced, on local governance and community development.
Closing remarks
Answering the point on American Samoa, Prof. Connell explained that ethnic Samoans were
divided crudely into the independent state of Samoa in the west, and the US territory of
American Samoa in the east. It was very easy to slop across the border. American Samoa’s
productive economy was based on fish canneries, but these had closed a couple of years ago.
People had started going back to Samoa and remittances from American Samoa had
absolutely collapsed, whereas they had been sustained in Samoa.
Much of the discussion on consumption spend had been rather pessimistic, but Prof. Connell
conceived of it positively, bringing significant welfare gains.
He described the phone as
becoming a ‘mobile wallet’. It would transform the use of remittances and access to them,
particularly in rural areas, where it needed to be used alongside programmes to develop
financial literacy and facilitate access. Within a year in Tonga, Digicel had put 35 agents in
place outside cities, showing they were following the African model and were able to reach
many more people.
Several research articles had argued for more effective use of formal channels of diasporic
investment, yet the people of Samoa and Tonga wanted to avoid the notion. A lot of reports
had also been written on return migration in the Caribbean and Pacific. It had been portrayed
then as evidence of failure, after people had failed in the US or Australia. Now it was seen as
more subtle and complicated than that. People were coming back to establish businesses or
move into the higher echelons of government.
How were they involved in the economy or
social life? A really good study had also just been done on people deported back to Samoa
and Tonga and what their contribution might be.
Dr Hunte endorsed all the comments made and reminded the group that more work was
needed to feel comfortable about what was happening with remittances and make
Commonwealth collaboration a little stronger.
International Relations and Political Economy
Joan Nwasike
Governance and Institutional Development Division, Commonwealth Secretariat
Outline
Dr Nwasike began by asking how all the migration goals being discussed could be achieved
without help from governments and the market. Her presentation would look at how centres
of government contributed to development, focusing on three Caribbean states and their
37
Meeting of Experts on Growth and Development: Day Two
18 November 2011
governmental structures, including prime ministerial support, the functions of the cabinet
office and the finance portfolio.
Features of small states
One of the peculiarities of small states was that cabinet ministers often had to hold several
portfolios. This issue would be examined in the context of Dominica, St Lucia and St Vincent
and the Grenadines.
These countries shared other features in common: they were all
members of the Organisation of Eastern Caribbean States (OECS); and their Prime Ministers
were also Ministers of Finance. Dr Nwasike was also examining whether organic models of
governance were better equipped to deliver development.
Government structures
Implications
It could be instructive for the international community to study governance architecture in
order to learn where a government’s power was located and thus derive maximum impact.
Structure
All states followed a particular architecture depicting how their government was managed and
controlled, and how resources could be used to meet the goals and aspirations of the seated
government.
Policymakers would devise models of governance that suited their capacity
constraints. The UK centre of government consisted of three primary institutions – the Prime
Minister’s office, the Cabinet Office and the Treasury. Such a system had been adapted in
many Commonwealth countries.
Centres of government usually had a role to coordinate and consolidate the government’s
policies, but this was not necessary the case in SIDS, because one centre could comprise
many institutions and several ministries. More than for larger countries, the Prime Minister’s
office became the policy hub instead of the Cabinet office, which tended to hold a minimalist
role or was fused with the Prime Minister’s office.
Architecture
In Dominica, the Prime Minister was responsible for finance, foreign affairs, information and
technology.
In St Vincent, the Prime Minister was responsible for finance and planning,
national security, legal affairs, ports, electoral matters and telecoms, along with some line
ministries.
In St Lucia, the Prime Minister was responsible for the portfolios of finance,
international financial services, planning and national development, physical development,
housing and urban renewal, local government and the environment. What time did this leave
this prime ministers to develop international strategies and connections?
Suitability and flexibility
External debt
The external debt stocks of Dominica were 69.9%; of St Lucia, 47.7%; and St Vincent and
the Grenadines, 37.2%.
Carrying these debt levels left very little money for capital and
infrastructure projects. These debt levels were coming down, but Dr Nwasike wanted to know
whether, by holding the finance portfolio, these three Prime Ministers were contributing to
this decline by instilling better fiscal discipline in their cabinets.
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Meeting of Experts on Growth and Development: Day Two
18 November 2011
Cabinet appointments
A greater number of portfolios being assigned to a Prime Minister might indicate an inflexible
constitution, one that required cabinet ministers to be elected members of parliament.
Trinidad and Tobago allowed the appointment of cabinet ministers who were not members of
parliament, but these three countries did not.
Changes in the architecture
Government architectures often changed with each newly elected government, causing a lot
of fragmentation within ministries. There were often no national strategic plans and it could
be difficult to reach consensus with the opposition on national priorities.
Functions of cabinet
The constitutional functions of the cabinet were to give direction and control.
It was the
principal policy instrument and also had a collective responsibility to parliament. However,
Dr Nwasike had often found that these cabinets performed only their bare functions.
Prime ministerial role
Relationship with Cabinet
When the Prime Minister was also the Chair of the Cabinet, the Cabinet would often change its
role and advise the prime minister of particular government programmes, compromising the
functions of collegial government. Parliamentary accountability was another issue. In some
cases, these countries held less than 50% of the normal number of parliamentary sessions.
Consequently, Cabinet decisions would not be debated in the assembly and discussions of
legislative need would be avoided.
Executive control
The reality was that the executive controlled the parliamentary majority.
Caribbean states
prided themselves on being democratic but, without solutions to the aforementioned
problems, democracy remained uncertain. What needed to be shown was whether, when the
Prime Minister was also the Minister of Finance, this made a difference to the use of resources
and enhancement of economic growth.
It could be argued that this dual role was the
preferred structure, enabling the Prime Minister to get things done easily. This model would
not be supported by investments from the international community into the centre of
government or to create specialised units. A strong centre would allow better coherence and
give the Prime Minister more time for his strategic work.
Conclusion
Research was required on how the structure and functions of the centres of government in
these small states facilitated the development agenda. Were these structures inclusive and
did they legitimise the input that opposition parties could have in national projects?
39
Meeting of Experts on Growth and Development: Day Two
18 November 2011
Donna Lee
Department of Political Science and International Studies, University of Birmingham
Outline
Background
Prof. Lee began by conveying her thanks for the intellectual leadership, that Profs. Briguglio
and Baldacchino had provided, as well as the World Bank and Commonwealth Secretariat.
Much of her analysis had been about how economic negotiations worked within multilateral
organisations – who was influencing what, why and how. Recently she had become involved
in the resurgence of African activism in the WTO, focusing on the Cotton Four of Benin,
Burkina Faso, Chad and Mali, a perspective applied to this analysis of small states.
Trade negotiations
Prof. Lee considered the WTO to be currently drifting inside a ‘lost ark’.
The Doha
Development Agenda (DDA) negotiations had been stalled since 2008. Various explanations
had been given for that, but Prof. Lee and Pascal Lamy had agreed that a cotton agreement
was essential for it to continue.
Agenda
This presentation would look at the role of Africa in small states studies and when size
mattered, in the context of Africa and the WTO.
Small states might be shaping trade
governance processes, becoming subjects rather than objects of negotiations. In the GATT
system, small developing states were largely absent from the negotiations, despite having
been very much at the forefront in some areas over the past decade. Prof. Lee wanted to
know more about the triggers for small state activism within a WTO setting, looking at small
African states in particular.
She would then point to some policy lessons and a future
research agenda.
Africa
Definitions
Students of small states often avoided talking about Africa, because it was quite difficult.
Dr Azzopardi had earlier conceived of 11 small states in the region; Prof. Lee thought there
were 15. It depended on the GDP threshold used. Putting the bar at $6.5 million allowed
Benin to be included, which Prof. Lee conceded was contrived because this was her lead state
in the cotton negotiations. There were many small African countries aspiring to be members
of the WTO, indicating its importance to small states in Africa; 11 of the 15 small states were
already members.
Characteristics
African small states formed a very heterogeneous group making it difficult to come to a
consensus view.
They were all affected by different conditions.
Some were very small
islands; others were land-locked. There was definitely opportunity for further conversations
about the comparability between the Africa group and the Caribbean and Pacific.
Advantages
A 2007 World Bank report on small states in Africa had suggested that, compared to other
situations, smallness was an advantage in Africa. It had made the following points:
40
Meeting of Experts on Growth and Development: Day Two
•
18 November 2011
Growth rates had higher medians and were less volatile among small African states
compared to large sub-Saharan countries.
•
There was a larger service and industry sector.
•
There were higher levels of government spending as a percentage of GDP.
•
There were smaller more urbanised populations, which was an advantage in Africa
because there would be less danger of ethnic fractionalisation.
The meeting so far had discussed the vulnerabilities and resurgence strategies that smallness
entailed, but here smallness was perceived as advantageous.
The role of size
Coalitions
The WTO would often assume that a small market size equalled a small market power, and
therefore less influence on rule- and decision-making. It was certainly correct that a small
market size was detrimental in the dispute settlement system. There was little purpose in a
small African state even putting forward a case when they had to retaliate against America
and had few tools with which to do that.
However, there were compensations for small
market powers in trade negotiations; many small African states were building and maintaining
coalitions. Amrita Narlikar had described coalitions in the WTO as being like a ‘spaghetti ball’,
because there were so many and, almost every month, a new one would appear that was
more significant than previous ones.
Mauritius
Prof. Lee thought of Mauritius as ‘very promiscuous’ and strategic for the number of friends it
sought to have in the WTO, without limiting itself just to the Africa Group or G90. It was a
member of Non-Agricultural Market Access (NAMA), for example, and had led ACP for a while.
This strategy perhaps explained why Mauritius was more influential than some other smaller
states.
Compensating for smallness
It was possible to compensate for smallness within WTO negotiations largely because of the
consensus decision-making structures. You had to be in the room to object to a decision or
agreement.
Small states could use the weapons of the weak in the current climate of
development discourse.
The alignment of the DDA with the MDGs at the beginning of this
century allowed a discourse of development to dominate, which became a weapon for the
weak within development organisations such as the WTO.
Moral sense
Prof. Lee cited Jason Sharman, who had written about offshore financing, on the ambiguity of
dominant ideas and principles such as development and free trade, which constituted regimes
like the WTO.
They gave scope for weak actors to appropriate, subvert and reverse the
interpretations of dominant actors, thus heightening the moral sense of development.
Reconfiguration of power
It could be argued that the WTO provided small states with more opportunities for influence
than the GATT system. There had been a quite remarkable reconfiguration of power within
global politics, specifically the emergence of Brazil, India and China in the WTO. This had led
41
Meeting of Experts on Growth and Development: Day Two
18 November 2011
to the development of some strategic coalitions, most notably the G20, Africa Group and
alignments between some of the smaller African states.
Holding to account
The WTO, as compared to the GATT, showed far more of a North-South dynamic. Perhaps it
was this that had deadlocked negotiations, because it allowed small African states to hold the
big states to account, through discourse, because of this reconfiguration of power and
because of the system of consensus decision-making.
Small states’ participation
Ask questions
One small African state delegate had once asked Prof. Lee what people did in the WTO and
why, seeing that many Africans had learned only to ask questions and say ‘no’. At least this
showed that there was some engagement with the WTO, which could not often be found in
the GATT system.
Develop technical knowledge
Delegates had to learn how to ask why and to ask how, which could be difficult during very
technical and long-winded negotiations.
Small African states had been very shrewd at
developing their technical knowledge and skill within the WTO. They had taken advantage of
the UN Conference on Trade and Development (UNCTAD) and many other NGOs from
Geneva, such as the Advisory Centre on WTO Law, which had been set up to help small
developing countries submit cases to the Dispute Settlement Board.
Invest in Missions
There had been significant investment in Geneva Missions by small African states. Benin, for
example, had doubled the size of its Mission since 2006.
Prof. Lee’s paper provided some
more details on this subject.
Focal point system
Rather than spreading their resources very thinly, small African states in Geneva had
coordinated to form a focal point system. Since you could object by sitting around the table
but could not if you were absent from the meeting, small African states had divided their
portfolios very cleverly. Lesotho, for example, had taken the responsibility of being the lead
African negotiator in various committees.
Process impact
The process impact was very significant. Resistance could not be managed out of the WTO as
it could in a lot of international organisations. Small states could no longer be ignored. The
WTO was more inclusive and transparent than its counterpart, the GATT, but a crisis was
clearly now emerging in global trade governance.
The DDA had been in negotiation for
10 years, and there was no possibility of a new deadline being met.
This has led to
institutional Darwinism, with nation states looking for alternatives to the WTO. Since 2006
and the last fairly effective ministerial meeting, a whole raft of preferential trade agreements
had been signed creating institutional Darwinism. The WTO could and was being ignored by
major powers.
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Meeting of Experts on Growth and Development: Day Two
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Lessons for small states
•
Build coalitions and coordinate approaches as important strategies to compensate for a
small size in large organisations like the WTO.
•
Invest in deliberative capacity and build the skill base to be able to recognise and
negotiate for your changing interests.
•
Use the weapons of the weak in discourses of development and the new diplomacy.
Make use of the heightened moral argument in international economic governance.
•
Make major states accountable to free trade commitments and development promises.
Much of the deadlock over the DDA was due to small and developing states asking
others to implement what had been agreed in the Uruguay Agreement and on
agriculture.
•
Get them to show and tell.
The cotton negotiating committee of Benin had forced
through a new process whereby, at every meeting, certain states had to show how
much agriculture and cotton they were subsidising and how this had changed. Making
them accountable in this way was very significant.
Siva Palayathan
SP Consulting and Marketing
Outline
This presentation addressed the mandate, development so far and the proposals on the table.
A great debt of gratitude was owed to the Commonwealth Secretariat and the World Bank for
the work done to date, especially from areas of the world that could benefit from these
resources.
The mandate
The Doha mandate presented a trap and a risk of not producing results.
responses but do not create another category.’
It said, ‘Frame
This in some way answered Prof. Lee’s
question about ignoring Africa, but Africa contained 42 LDCs – a group for which there were
responses and answers to their problems.
Development to date
Background
Whatever proposals were on the table had started at Lancaster House. After the first meeting
in Qatar, had come the famous emergence of the Small States Forum, with its first meeting in
Valencia. The WTO had done its groundwork and contributed a lot of resources, and this had
to
be
recognised
and
accounted
for.
Important
membership
activities,
such
as
coalition-building, had since emerged, particularly among small states. Small states had high
hopes.
They thought that DDA would deliver some good results, but unfortunately it was
dragging its feet. Nothing was happening and nobody knew if anything would happen.
Work in progress
Against this dismal background, Mr Palayathan could show some work in progress, although
the outcome of this work was not yet known. The proposals from small economies revealed a
system of differentiation, but the mandate prevented the creation of categories, so nothing
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Meeting of Experts on Growth and Development: Day Two
18 November 2011
was available to give to small economies. The four administrative proposals accepted by the
WTO, including Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary Measures
(SPS), basically showed how to organise within regional groupings, reduce costs and work
collaboratively. This should be done in a way that did not upset the rise in obligation, which
placed the burden of following the rulebook with the small economies.
Value
Mr Palayathan personally believed that there was value in the work that had been done and it
should not be discarded.
Resources could be applied to advocacy work in the new
international discourse, in whatever way people were engaged in it – in climate change,
migration, etc.
Small island countries could apply this learning process and technology to
their home systems. He therefore suggested reformatting this work for use especially in free
trade agreements (FTAs), which had been proliferating recently.
Future work
The current agenda was looking more at what had been done with these proposals, and the
impediments and conflicts with existing Commonwealth Secretariat or World Band activities.
There needed to be a clear roadmap showing how to strengthen training and capacity-building
to ensure that all the necessary results could be obtained from the various forums.
The
Barbados Programme of Action, for example, was a treasure of an agenda for the needs and
requirements of SIDS.
Mr Palayathan suggested that the leading hands of the World Bank
and Commonwealth Secretariat were still needed to help engineer this new roadmap.
Discussion
The first discussant was Vince Henderson, UN Ambassador for Dominica, who began by
reviewing Dr Nwasike’s presentation on centres of government in Caribbean SIDS.
He
declared an interest here, having served as a senior minister in the Government of Dominica
from 1999 to 2009, and stated that a true democracy was a very expensive undertaking that
came with some serious challenges. Holding multiple portfolios was not a deliberate attempt
to pervert inherited systems of governance, but often a result of SIDS being unable to afford
true democracies.
One of the weaknesses of parliamentary democracies was a lack of fiscal accountability. This
presentation made the point that the parliament was responsible for this but, in fact, it was
the responsibility of the public accounts committee.
In most Caribbean states, such
committees were often ineffective if not non-existent, partly because of lack of funding.
Opposition parties in most islands seldom received any funding. They lacked resources and
staff, and often only had a small room somewhere in the parliament building. Therefore, they
were unable to provide the kind of oversight that their constitutions contemplated.
Select
committees and the permanent secretaries accountable to them therefore had to take over
this oversight accountability.
The roles of Cabinet, the office of Prime Minister and lead ministries in the Caribbean had
slightly different meanings from the true Westminster system. Mr Henderson conceded it was
unfortunate that, since accepting these constitutions, many countries had done little to study
them to check they were best suited for the realities of their size and economic base.
However, current systems of governance in the region were very flexible. A Prime Minister of
a Caribbean country was very powerful because, unlike the President of the USA, he did not
44
Meeting of Experts on Growth and Development: Day Two
18 November 2011
depend on his Congress. Size again was the primary consideration in defining the reality of
this governance structure.
There were such a small number of parliamentary seats that
margins of agreement were also very small.
In more developed democracies, the portfolios of ministries were almost permanent. In the
Caribbean system, portfolios could be added together that had absolutely no connection with
each other. This might appear to make little sense, but came from a necessity enabled by the
flexibility of the system. In the case of Dominica, three non-elected Members of Parliament
could be appointed as ministers through the senate route. The country did not really have a
Senate, but it could appoint Senators, if it needed people with a particular desirable skill.
The reality of politics in these democracies was very strange. Mr Henderson suspected that
Prime Ministers usually liked to keep the Treasury as part of their portfolio out of insecurity.
The question was more about what other items they were adding. In St Lucia, a minister had
had to be removed, so the Prime Minister had decided that the safest thing to do was bring
everything into his office. If he had not done this, the Prime Minister would have become an
overseer, just looking to ensure that everybody else was doing their work.
The
Prime Minister’s office itself was little more than a fiction serving a ceremonial purpose. The
cabinet basically ensured collective responsibility for decisions taken.
Mr Henderson felt that more work needed to be done on the effectiveness of parliamentary
democracies and the allocation of portfolios. Few Caribbean prime ministers allowed anybody
to interfere in how that was done, because they needed this flexibility in order to deliver
goods and services to the people.
Mr Henderson recalled some of his own involvement with the ongoing Doha discussions. He
had found that, with any multilateral arrangement where decision was by consensus, two
things would happen: there would be no agreed position; and that lack of agreement would
lead to parallel tracks of negotiation. In the Caribbean, several RTAs had emerged, some of
which were not even regional, such as the EPA, APC and CARIFORUM.
At the same time,
discussion on these very important issues must be pushed further.
Prof. Lee had mentioned the WTO’s arbitration tribunal for dispute resolution. Mr Henderson
wondered how small states were made to comply with their decisions. A case in point was
Antigua and Barbuda, and the WTO ruling against the US on offshore gambling.
There was also a question about whether moral arguments really worked. Dominica argued
for preferential treatment from the Europeans in exporting its bananas and sugar, using the
colonisers’ supposed moral imperative to take care of their former colonies. However, after
the start of negotiations, it had become apparent that there was no such connection and
Dominica had given up this request. Mr Henderson was unsure that moral arguments on their
own would work.
They had not helped resolve differences on the accepted rise of global
temperatures.
This brought Mr Henderson to his conclusion that politics was truly local.
With the rise of
multilateralism, it had become increasingly difficult to reach consensus, because Prime
Ministers and Presidents eventually had to go back home and run for re-election. People on
the streets and the fear of losing political power were other realities with which the elected
must deal.
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Meeting of Experts on Growth and Development: Day Two
18 November 2011
Mr Curto continued as the second discussant, offering a high-level view on the subject of
international relations, which had cut across many of the issues being discussed at this
meeting. He saw a great deal of overlap between this and the session on regional integration.
International relations and regional cooperation were not so much goals in themselves but
means to achieve an objective.
It was critical that small states recognised that objective
when choosing whether to engage domestically, sub-regionally, regionally or globally. Thus,
they had to engage pragmatically with a governmental configuration that allowed for a
tailored approach. In adopting this pragmatic attitude, countries should think about building
blocks and whether each needed to be approached alone, or with a regional partner or other
institutions.
The Doha Round included components related to advocacy, negotiation,
implementation, harmonisation and also enforcement. A marriage to one specific counterpart
might not be beneficial to all these different aspects.
These comments on pragmatism were applicable to all countries, regardless of size, so
Mr Curto questioned whether small states justified an approach that relied on more regional
integration, more international relations and fewer domestic policies.
It seemed to make
sense, in an ideal world, for small states to compromise their sovereignty a little for the larger
dividend that came from working together. However, they did not live in an ideal world.
Mr Curto’s next point was about political economy and Mr Dookeran’s book on the pro-growth
coalition and the closer relations between politicians and vested interest. Over-reliance in a
few sectors made this interest stronger. Weak capacity and competition across small states
to attract FDI made it difficult for them to work together.
Such considerations had to be
remembered in discussions of whether to use domestic, regional or global relations to achieve
policy goals. Capacity also dictated the choice of instrument. ‘Capacity’ here meant the skills
and abilities of government, and the influence of the private sector and regulatory authorities.
Success for the larger population ultimately depended on a combination of these attributes.
Mr Curto strongly recommended adopting a pragmatic approach that would deliver a concrete
solution for the population’s needs.
Critical to defining this approach were the political
economy and the capacity of a government and economy. Over 50 years ago, a fully fledged
European Union was not something that had been considered. It had started with steel and
coal agreements.
Those successes had continued to be built on until they had reached a
point where they perhaps needed to take a step back.
It was possibly not productive to
continue to use the EU as a model, with its staged decisions, but to start from a very
pragmatic and selective approach to these issues.
The Small States Forum had kept this objective in mind and was working to identify priorities.
With the help of ministers, it could build knowledge around those priorities to deliver concrete
solutions in partnership with all small states. Regional integration, international cooperation
and political economy were cross-cutting topics that could fit into other discussions or
research proposals.
However, Mr Curto forwarded the blue economy as one of the few
sectors in which small states could truly achieve the multiple gains that the green agenda was
seeking – growth, labour creation and environmental benefits.
It was the ideal basis to
explore a regional solution, although the costs were perceived to be prohibitive at the
moment. Some work on these links could be helpful ahead of the Rio+20 Conference.
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Meeting of Experts on Growth and Development: Day Two
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Comments
Following a point made earlier, a participant noted that, in St Lucia, only two ministerial
positions were mandated to be occupied by elected members. They were Prime Minister and
Minister of Finance. For a brief period in 1982, the Cabinet had contained only one elected
member.
Mr Henderson’s views had confirmed this problem.
This participant argued that
politics was not about the perpetuation of elected persons, but about governance; and
governance could be divided into representation and administration. Empirical evidence from
the Caribbean demonstrated that those skilled at representation were not necessarily skilled
at administration. Khalil Gibran had said that ‘Progress lies not in enhancing what is, but in
advancing toward what will be.’ This participant proposed that research should focus on new
governance structures that used best practices, and looked at resources and affordability, to
enhance the process of governance to specific ends, which were for human, economic and
overall development.
Another participant suggested broadening the discussion to cover the process for designating
SIDS at UNCED. This had placed the issue on the international agenda; it was furthered by
Chapter 17G of Agenda 21.
The most successful model for small states in international
relations could be the Alliance of Small Island States (AOSIS), which had been formed in
1989 and had since been a leading voice in the negotiations on climate change.
This
participant questioned what role AOSIS could take at the WTO.
There were two major themes included in the agenda for Rio 2012, the green economy and
international sustainable development architecture. A critical issue for small states was what
type of institutional structure emerging from Rio 2012 would best represent their interests.
What would the implications of that structure be on WTO negotiations? The WTO had been
heavily influenced by what happened at UNCED, the formation of AOSIS and the negotiations
on climate change, but it needed to be more closely aligned to the UN system generally.
Dr Hunte stated that one of the outcomes of the discussion had been the separation of
matters of state from matters of governance.
programmes
they
had
started
would
be
People often stayed in office to ensure the
properly completed.
The
Caribbean and
Commonwealth structures provided for a head of government and another head of state, but
one of these people would often be overworked, while the other was not doing as much as
they should.
Perhaps the underworked could take on more governance responsibilities.
Institutions helped create accountability and stability in society, but they had to be separated
from the political cycle. Dr Hunte asked if some research could be done on this topic.
Closing remarks
Dr Nwasike was invited to respond and explained that the question she had attempted to
answer was what effect these organic systems of government had on countries’ pace of
development. She was aware of the restrictions in St Lucia. In practice, what happened was
that newly elected politicians became junior ministers.
The same was true of Jamaica,
Guyana and Trinidad.
The Prime Minister had existing functions to which should not be added the everyday duties of
Finance Minister and other portfolios.
It was a Prime Minister’s responsibility to provide
oversight and preside over disputes where necessary.
most importantly, the leader of his party.
He was the leader of Cabinet and,
He had to decide and coordinate government’s
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Meeting of Experts on Growth and Development: Day Two
18 November 2011
strategic direction. It was the duty of Cabinet to look at the policies and advise the Prime
Minister on any submissions received by conducting thorough research. Clear machinery of
government was necessary for development to take place. The other issue was that of the
opposition. Some agreement was needed on national projects to avoid a stalemate situation.
Prof. Lee took over by making two pragmatic proposals on small states’ engagement with the
WTO.
Firstly, consensus decision-making had to remain because it was the weapon of the
weak and granted leverage. Perhaps the WTO should be reformed by stepping back from the
single undertaking in order to complete the DDA early. Pascal Lamy had spoken about this
for the December ministerial meeting.
Let pragmatism rule and let small states focus on
these kinds for an early or modified completion of Doha.
There were many reasons why small and developing states did not use the WTO’s dispute
settlement system, one of which was that a finding in favour only granted a right to retaliate
through trade measures not a right to financial compensation.
Mr Palayathan agreed that the UN should be asked to review the work of AOSIS and examine
all the complexities of that system to learn what benefits could be drawn. He believed that
nothing had been lost yet, because the Doha Round was still open. In fact, the WTO, UN and
other forums might be able to make some gains.
Discussion on Main Takeaways and Research Forward
Review of day two
Ms Strachan opened this final session by explaining that it would mirror that which had been
held the day before, by reviewing what had been discussed and gathering any further
reflections. Everything was beginning to come together as a complete picture. Whereas in
the previous day the focus had been strongly on green growth and integrating sectors to
promote efficiency, one of the key themes of the second day was equitable growth. A key
question emerging from that was how to maintain growth in development despite small states
having a very small fiscal space and growing debt.
There was some evidence of financial
crises causing large impacts on small states but, moreover, successive crises were stripping
their savings, leaving them in a very difficult situation.
Some of the trade preferences established were creating a spiral of other concerns, damaging
the ability of small states to maintain social investment, social capital and safety nets. They
made more push factors for migration at a time when small states were facing significant debt
challenges in the Caribbean and Indian Ocean, and possibly emerging in the Pacific.
Resilience-building was promoted as an effective response to this, being a set of policy
responses to inherent vulnerability. It was argued that resilience correlated with growth, yet
the volatility of that growth remained a significant concern in small states. This recalled the
previous day’s discussion about the middle-income trap.
The presentations had introduced a number of equitable growth policy options. One was to
redistribute the boom-and-bust cycles resulting from Dutch disease and diversify the
economy. Included in this category were medical or wellness tourism and the use of trust
funds, but some difficulties might be encountered there. Secondly, there were opportunities
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Meeting of Experts on Growth and Development: Day Two
18 November 2011
to leverage diasporic investment, particularly through the use of telephones and banking,
which could reduce the cost of remittance flows and improve financial inclusion. There could
also be more of a conscious effort made to elaborate the lifecycle approach to diasporic
investment further.
It was also necessary to investigate a number of key trade-offs between macroeconomic
stability and development. The question there was whether or not small states could have
both.
Prof. Briguglio’s
macroeconomic
resilience
management
framework,
framework,
had
which
was
suggested
a
long-term
more
responsibilities, particularly in the context of debt management.
exactly
broad-based
defined
fiscal
The discussions had also
covered the connections between governance objectives and how regional agreements and
organisations might help facilitate things.
Countries might also be prompted to make structural adjustments in response to their debt
problems. Private sector development was important in allowing small states to bounce back
after shocks. Analyses of efficiency and regionalism had showed how small states could pool
their resources to their advantage at an appropriate level.
However, even if all these governance issues could be effectively addressed, the question
remained whether small and vulnerable economies, with a loss of trade preferences, would
still need grant facilities, special concessions and innovative new debt solutions. Ms Strachan
referred back to Mr Dookeran’s opening remarks about the need for a new diplomacy.
A
mixture of these things and best practice issues was required, with the international
community championing special measures for small states.
Questions and issues for policymakers’ forum
Dr Gooptu suggested proceeding by asking the audience what issues should be discussed at
the forum in May.
This forum would comprise policymakers looking at similar papers and
questions to those debated over this meeting.
The first comment in response was that discussions at that time were still likely to be focusing
on the ongoing financial crisis, especially for small states. The work of this group should be
examining the effectiveness and consequences of those policies. There had also been a lot of
discussion at the international level and at the G20 on the Social Protection Floor.
Policymakers would want to know about the impact of the policies that were implemented and
that Floor.
Another participant stressed the importance of debt management to small developing states.
One important contribution would be to develop explicit strategies that Finance Ministers
could put into effect. Such policies would cover expenditure use, fiscal management, details
about allocation and operating capital ratios.
In response to a question, this participant
clarified that policymakers needed explicit methodologies to prioritise expenditure at a time
when cuts were being made.
Prof. Connell wanted to develop a theme on the private sector that would focus on SMEs and
multinationals, and the role they played within the fiscal and monetary policy, and
infrastructure support, of small states. That role could be through clusters, export processing
zones, business parks and other means. In what ways could government best facilitate the
work of business and its links with banking? The Common Market for Eastern and Southern
Africa (COMESA) was finding that banks had just not been responding effectively to the
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Meeting of Experts on Growth and Development: Day Two
impact of the financial crisis.
18 November 2011
Most business was being done by small firms making loans
between $5,000 and $10,000, and the banks were just not interested in that scale of money.
They wanted to keep their capital assets, but economies were only likely to recover through
better support for new businesses.
In addition, very little was known about the way in which multinationals were operating in
small states and what aspects of fiscal and monetary policy needed to change to support their
links to economic development and employment. This was another important theme.
Dr Goto stressed the requirement for governments to understand how their fiscal policies
affected their debt situation, so that they cold form middle- and long-term positions.
This
would help avoid the middle-income trap that countries fell into when they were unable to
benefit from concessional loans. It was about the trade-off between taking on more debt and
becoming more developed.
Maybe the alternative was to attract more capital from the
diaspora, because ultimately external debt had to be financed through foreign reserves.
Another participant thought governments would be interested in learning how they could
manage
their
debt
and
fiscal
policies
while
transforming
their
public
sector
into
high-performing institutions. Some kind of debt restructuring using private sector input might
be a component of those plans, as well new measures from ministries.
A further speaker summarised that the last two days had highlighted numerous issues; the
underlying theme of many of these was political economy. However strong the strategies and
policies were, converting them to implementation required an understanding of the situation
on the ground. This speaker therefore suggested that this group examine some of the trickier
implementation issues related to institutions, governance and political economy. Small states
across the globe could help by sharing their lessons and experiences. Dr Gooptu thought this
a very broad subject, so asked the speaker to define exactly what was being proposed.
A
good starting point might be to look at some stories of successful transformation to
demonstrate what could be done.
Dr Nwasike asked to look at centres of government and the roles they played in policy
coordination. Another participant suggested green growth strategies and their implications to
climate change, but this had already been covered in the previous day.
A longer-term research objective proposed was a better understanding of how politics was
practised in small countries and what the possibilities for a more democratic framework were.
This could assess the possibilities for a more direct exercise of government rather than the
representational model that had been inherited, with comparative studies across different
regions showing how politicians engaged outside of formal structures. Asked to clarify, this
participant thought it was insufficient to pick countries between regions without comparing
within a region as well.
Grenada exercised its power completely differently to Jamaica, so
neither could stand as a fair representative of the Caribbean region.
There was an addition made to suggest study into the relationship between fiscal policy
responses and debt. As well as the reports being produced by the World Bank and IMF, it
would also be helpful to show the agreed norms for fiscal policy, such as a balanced budget.
Small states had too many other pressing matters to attend to make sense of those reports
themselves, and needed help dealing with those fiscal challenges in a practical way.
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Meeting of Experts on Growth and Development: Day Two
18 November 2011
A further participant focused on the coordinating policies and the greater importance being
afforded to central bank independence. Papua New Guinea’s Central Bank Act of 2001 had
given its Governor enough power to prevent the Finance Minister transferring trust funds from
the commercial banks.
Fiji’s Reserve Bank, contrastingly, had been lending to the private
sector, which was not a normal fiscal action. Dr Gooptu asked how attempts to empower the
Eastern Caribbean Central Bank (ECCB) affected the monetary independence of member
countries. This participant answered by explaining that the Eastern Caribbean states used a
single currency. Similarly only six of 14 Pacific island nations still used their own currency.
Papua New Guinea had created autonomy with this 2001 Act but, in Fiji and the
Solomon Islands, the central bank had largely been the handmaid of the Finance Minister.
Another comment about the debt issue referred to the ‘magic number’ of 60% that the EU
had set as its target, and how this could be unhelpful in discriminating between debt incurred
to pay for infrastructure and innovation, instead of wages, for example. The quality of the
debt merited some in-depth consideration and greater emphasis.
In Europe, there were
lengthy discussions on this topic as part of the Growth and Stability Pact, but the position was
likely to change so as not to punish countries incurring debt in order to develop.
Dr Azzopardi wanted to see research on whether economic integration was a viable
development strategy for all small states and how best to exploit it.
Another speaker requested research on the removal of trade preferences on small economies,
and how it related to both growth and resilience.
It was their view that small economies
depended a lot on these preferences and that they should be maintained, but Dr Gooptu was
unsure what would benefit from such a debate taking place at the non-political level.
The
participant did not believe that any studies were available that measured the impact of these
changes, even though they had made big changes to, for example, the fisheries industry in
the Seychelles.
Background to the meeting
Dr Gooptu proceeded by giving some of the background to this event. The World Bank had
been asked by their clients to be more active in the future development agenda for small
states. Some financing activities had already begun, such as the removal of the minimum per
capita lending ceilings that all countries had with the World Bank. Therefore, countries would
receive a little more money irrespective of their size.
The World Bank was also being called upon to give more active advice on what was needed to
bring about inclusive growth and resilience, and ensure they were sustainable.
include natural resources, exhaustible resources and carbon emissions.
This would
The G20 was
repeating this advice, indicating that small states were earning a louder voice. The last Small
States Forum had held a special technical session on debt, when a proposal had been
announced to restructure debt with private sector development embedded. There was more
information about that approach on the World Bank’s website. Other related technical issues
were currently being explored.
Additional forums like this one were likely to be held to assimilate all the research and
analytical work being done, outside the Commonwealth Secretariat and World Bank, to
support small states. It would help to learn the views taken by the ILO and others on key
issues, so that governments could be better advised and to ensure that efforts were not being
51
Meeting of Experts on Growth and Development: Day Two
18 November 2011
duplicated. Dr Gooptu stressed that, in times of declining budgets, the best thing to do was
to work together and leverage whatever resources were available, just as small states were.
Analytical work required for May event
The World Bank intended to commission six background papers before the May policy event,
without dictating what policy recommendations they had to include.
These papers should
reach conclusions, based on analysis, which would advise policymakers of any trade-offs
allowing them to make informed policy decisions.
There were discussions to have in the
context of the Bank’s lending operations and the Commonwealth Secretariat’s dialogue with
countries, but they were for a different forum. This expert meeting, and others like it, were
aiming to identify what issues would whet the appetite of the policymaking group at their
meeting in May. The objective of that May event was to use these research findings to move
policymakers towards a longer-term agenda of research and analytical work.
Issues for policy-oriented research
Given that background, Dr Gooptu wanted to hear one recommendation for policy-oriented
research from each person, which must not concern the subject on which they were currently
working. Ms Strachan added that she would also be interested in hearing one or two of the
most vital policy changes that would kick start growth in small states during this current
difficult economic environment.
Mr Henderson began by stating that the focus should be on green growth. This captured the
tourism initiative that had been discussed too, and was likely to be of interest to a number of
Caribbean countries. Energy should be an integral component of that. The World Bank was
already working on energy regulation and renewable production in the region.
Another participant questioned how it was possible to have growth with the high levels of
unemployment that had prevailed since the recession.
Concrete policies were needed to
address this.
Another speaker adapted Mr Henderson’s suggestion to sustainable tourism.
This term
captured tourism and environmental issues, as well as alluding to economic and social
inclusiveness.
It reflected work on projects like renewable energy, which needed to be
promoted in energy-poor states. The concept of sustainable tourism also provided a space to
explore alternative kinds of tourism, which would lead to economic diversification.
A further speaker wanted to focus on the role of public-private partnerships to provide public
goods to some of the small regional blocs.
A significant point for governments to consider concerned the diversification of SIDS to
become more resilient to economic shocks. Data showed that the best-performing Caribbean
countries were the most economically diversified, which tended to be on the South American
coast.
Someone else suggested using inter- and intra-regional cooperation and integration as a
development strategy for SIDS.
The next participant echoed an earlier intervention to make climate change a more
mainstream goal of policymaking. He also wanted to highlight the evidence showing the key
difference the diaspora could make to inclusive growth in the Caribbean economy.
New
policies must drive this benefit.
52
Meeting of Experts on Growth and Development: Day Two
18 November 2011
The following comment was merely in support of all that had been said before, pointing out
that good governance was essential to attain responsible growth.
Prof. Connell remarked that the most important element of a sustainable green economy was
achieving and sustaining food and water security, although these were longer-term goals. A
shorter-term policy that might help would be to revitalise agriculture in the Seychelles.
An important issue that had emerged earlier related to social protection interventions in small
island states in response to the global crisis.
Many states had designed some formal and
informal mechanisms already.
The next recommendation was to map countries’ choices for regional integration and
cooperation against their advantages and costs.
The following speaker believed that growth and productive capacities would emerge from
SMEs and the private sector, as long as they had access to financing. The World Bank and
associated agencies could look into a system to provide some sort of support or instrument
that would encourage fund-holders and banks to provide long-term finance to businesses,
which would help improve productivity, and create real growth and productive capacity.
The next participant warned that the days of plenty were over, and a time of austerity had to
be accepted.
Expenditure levels must be kept to a minimum, which required better
coordination between fiscal and monetary policy, in order to prepare for future generations.
Mr Palayathan observed that the best policies emerged out of crises. The US Social Security
Act had come out of the Great Depression; British universal health coverage, from World War
II. Asia’s financial crisis had produced social safety nets, and now people were talking about
crisis again.
The concept of small states building resilience through social protection had
often been repeated. It was a way to generate growth, stop migration, alleviate poverty and
provide social services, and should be the priority for any social policy framework. The Social
Protection Floor had been introduced as the minimum social services provision for every
country.
It contained four categories: basic healthcare, a child and family allowance,
assistance for the unemployed and poor, and a pension scheme for the elderly.
Mr
Palayathan encouraged the World Bank and the Commonwealth Secretariat to define a
minimum for each country.
The next participant moved away from central government to suggest looking at the
important role statutory bodies played in delivering goods and services and minimising
contingent liabilities.
In small states, there was a problem with statutory bodies’ business
model and return on capital, which could add to government liability.
A more appropriate
business model had to be examined.
Prof. Wong added SLR to the recommendation to make climate change more mainstream in
policies.
This had important implications on many small states.
He also reflected on the
previous two days of discussion, particularly on the economic divisions between some of the
small states and their different governance structures, and how no one was directly asking
the people what they considered to be their country’s greatest achievements and failures.
Their leaders might also be interviewed, and their biographies studied, to gain some insights
that might then be used to tweak policies.
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Meeting of Experts on Growth and Development: Day Two
18 November 2011
Another issue proposed for study was the brain drain and its effect on economies.
Brains
were needed to fuel an economy, so small states could not keep on training professionals who
would then leave the country. How to fill that gap was another issue, because people used to
working in the Western world also needed to be paid a Western salary. In discussion with
Dr Gooptu, it was decided that a specific approach to research could be to demonstrate cases
where small states had successfully retained or returned trained professionals, sometimes by
using government incentives.
A further participant suggested looking at the green economy, the use of renewable energy,
and water and waste management issues, particularly as the Seychelles, like other SIDS, had
recently faced a long period of drought.
A follow-up comment to this was about the
sustainable development of marine resources in countries with little land to spare.
Dr Ratuva supported continuing work on the political economy issue and converting good
policy choices into implementation.
This cut across many of the issues that people had
already highlighted here.
The next speaker noted that small states already had a strong record of using ICT in regional
coordination and could use these methods to increase businesses’ participation in the
knowledge economy, particularly for geographically isolated states.
Prof. Briguglio observed that the meeting had adopted a Delphi approach, in which it was
assumed that the experts present knew what the agenda should be. He proposed an element
of humility and perhaps of entrepreneurship. Participants had been reminded that crises were
also times of opportunity, so perhaps a seventh paper could take a more entrepreneurial
approach and propose new forms of governance, just as Mr Dookeran had referred to a new
form of diplomacy. To create this it was necessary to survey as many people as possible and
ask them what should be done in their countries. This might produce some more innovative
and modern ideas that would speak to a new generation, as well as being more democratic.
Dr Gooptu appreciated the suggestion and likened it to some of the work that was ongoing in
the Middle East and North Africa on the Arab Spring to create a knowledge agenda, which had
been discussed with some of the authorities there.
In certain areas, young people were
involved in producing a ‘MENA Knowledge Report’ that took a similar approach to that which
Prof. Briguglio had suggested. The draft document had been uploaded online with a blog, so
that anybody could add their views, whether radical or conservative.
Prof. Lee underlined the importance of tourism as a focus for one of the six papers.
Another participant reinforced the call for a deep analysis into the role of and benefits from
remittances and migration in small open economies. An increased emphasis on tourism was
also likely to kick-start growth and increase in-country spending.
The following remark was that growth could not come before social peace, and that social
peace required a social policy that would provide the bare minimums.
A related comment
was that social protection could be sustained by improving benefits and achieving efficiencies
through management information systems.
The next suggestion concerned the diaspora community and the importance of mapping
where and who they were, what their resources were and their interest in the country of
origin.
This information could come from surveys, through social media or by building
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Meeting of Experts on Growth and Development: Day Two
18 November 2011
partnerships between governments and the diaspora. The same participant also thought it
was important to find a solution that would protect vulnerable workers, such as unemployed
women in the tourism sector.
Another participant related that findings from the literature argued that improved institutional
performance could reduce corruption by 10%, which would immediately have an impact on
growth.
Some basic pointers about how that could be done would help.
His second
contribution referred to climate change and an increase in natural disasters. Mitigating their
effects and finding new ways to fund emergency situations should be examined, as currently
these issues were being addressed in an ad hoc manner and agencies were helping indirectly.
A much more aggressive or creative policy position could be taken to deal with these
problems and manage the risks.
The final participant to make a suggestion drew a link between economic success and good
governance. Comments above about corruption, fiscal prudence and the rule of law were all
related to good economic governance, so maybe they should be grouped under that heading.
It could even include disaster management and infrastructure investment. There had been
two earthquakes of equal strength in 2010. One had been in Haiti; the other, in Chile. One
had killed many thousands and the other had only killed a few. Hence disaster management
was also part of good economic governance, so these issues needed an all-encompassing
term.
Other comments
Participants were invited to make any additional remarks.
One attendee found all the talk
about medical tourism surprising when some countries were failing to meet basic health
standards. They had problems with food and water security, sanitation, shelter and health,
and needed good economic governance without corruption.
The next comment was a request to revisit the development paradigm. The New Economic
Foundation of the LSE had recently calculated the function of expectation of life and life
satisfaction against each unit’s ecological footprint. SIDS had come out on top with the USA
at the bottom.
This body could promote discussions among policymakers about their own
development paradigms and how they accounted for the shortage of land in small states, but
focus should be given to the increasing intrusion of the built infrastructure.
The beauty of
these islands was at the root of the happiness and satisfaction of the local population.
A participant asked whether an exercise like this had been conducted in previous biennial
meetings.
Ms Strachan replied that the first biennial had only been 18 months ago, and it
had not followed the same approach as this meeting. Its agenda had very much been formed
from the issues that regional organisations of small states had brought to the table.
Another speaker noted that discussions were based on the assumption that the notion of
small island states was a given and that everyone was speaking with the same voice. There
was the possibility of reconceptualising the major components of this definition, by building a
framework from the specific commonalities that small states shared. This could link to the
major issues that had been raised as a way of focusing research and thinking.
Dr Gooptu responded that the World Bank’s databases defined small states very specifically.
There was scope for reconfiguring this data as an independent research project, but
ultimately it was difficult to attain cross-regional comparability when different institutions
55
Meeting of Experts on Growth and Development: Day Two
18 November 2011
applied different measures and indicators in their research. However, Dr Gooptu questioned
whether ‘small states’ ought to be defined from the beginning, as a term of reference for what
followed. For example, a paper was going to be produced that defined inclusive growth, so
that everyone’s understanding of this concept was the same and policy sessions did not
become too confused or distracted. Transparency was important here. Ms Strachan added
that the issue of a definition was complex and highly politicised.
Attempting to resolve it
might be more work than it was worth.
Another suggestion concerned ways to achieve more synergies and greater coherence
between the various undertakings and across various forums.
This was very important to
achieving sustainable development. Dr Gooptu supported the objective, but doubted that this
was the appropriate forum to plan for it. This was an analytical meeting to present results on
certain issues of importance, as the first step towards further research. Many other forums
were able to promote harmony and coordinate implementation across institutions, such as the
consultative group meetings, which included participation from all agencies and ambassadors.
This body assisted in the dialogue with policymakers and the presentation of an analytical and
considered view of the options.
The next participant listed just some of the different organisations undertaking initiatives. For
example, there was the Small States Forum, AOSIS, the WTO Small Vulnerable Economies
programme and others.
initiatives.
There should be some form of synergy and overlap within these
Even the Commonwealth Secretariat’s own programme sometimes moved in
different directions.
Mr Birchwood pointed out that, although these were studies for small states, large countries
might also want to do implement some of the ideas mentioned.
This group had to keep
reminding itself of the particular challenges that small states faced and how they differed
from large industrialised countries. Dr Gooptu agreed; explanations for those differences had
to be made clear. Even within the Caribbean region, debt levels varied, for example. What
were the unique characteristics that caused this? Many of these small states were prone to
natural disasters. One storm could deplete GDP by 30%, wiping out any debt relief efforts.
This group had to be realistic about raising awareness of issues like this.
Conclusion
Dr Gooptu had found the last two days very informative and helpful. He explained that the
different institutions were intending to consolidate these discussion points and produce a list
of six topics. From that they would design some specific terms of reference and an approach
to these issues, with the aim of writing a first draft by April. The aim of this would be to whet
the appetite of policymakers, but first it was necessary to ascertain if the correct direction had
been chosen and the right policy questions were being asked. Dr Gooptu hoped this group of
experts would continue working together in developing their analyses.
[END OF DAY TWO]
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