Kenny’s Hopes Shattered?

Dwight Venner

Sir Dwight Venner – Governor of the Eastern Caribbean Central Bank

As if we needed another reminder, the governor of the Eastern Caribbean Central Bank, Sir Dwight Venner, recently acknowledged that the very existence of Saint Lucia and her sister OECS territories was threatened by the on-going financial crisis!

Moreover, that not only were our problems not primarily about money but the solutions demanded a radical shift in our approach and our thinking.

In any event, at last Friday’s Chamber luncheon lecture, Venner warned that results should not be anticipated before 2015. In short, that much of what our leaders have been telling us about quick fixes and imminent “better days” was plain wishful thinking!

On Friday he said he was scheduled to address “a very special meeting” of the monetary council in Grenada in three days (Monday this week.)

“For me,” he said, “this is probably one of the most important meetings we are going to have. What we have done is strip down the agenda so that questions posed and answered can lead to decisions. Saint Lucia and the countries of the Eastern Currency Union face tremendous challenges which will require new approaches in strategies for their successful resolution. We have always had to deal with fundamental structural issues of being small and vulnerable. But these continue to be exposed and exacerbated by the global crisis and that is the rock of the situation.”

Venner said the luncheon presented him an opportunity for conversation, not just to deliver another speech. His great hope was that from here on, in the Currency Union, following Monday’s meeting, there would be a series of discussions all over the Union aimed at dealing with its problems.

This crisis as we know it began in the fall of 2007, he said, but was first felt in the Currency Union in early 2009. “Now, it takes about twelve to eighteen months for these crises to be communicated to us because of the nature of our economies,” he said. “By the same token it takes that amount of time after they have caught back up for us to catch up as well. So the lag goes both ways, at the beginning and at the end.”

This has posed “tremendous challenges” for governments, the private sector, financial institutions, civil society, trade union organizations, community organizations and ordinary citizens, he said.

He added: “Current circumstances pose a very real threat to our actual existence as independent nations and require major approaches to changes in the way we think and solve our problems at all levels.

“We must recognize certain fundamental issues which constrain our behaviours. For example, the fact that we are very small countries with limited resources, this in and of itself does not limit our possibilities but we have to understand that to overcome such limitations we have to seek solutions that will expand our access to resources, the resources needed to achieve our goals.

“Suffice it to say that in our current circumstances we just have so much land and so many people and they can produce only so much in goods and services.”

Using Saint Lucia with its 238 square miles as an illustration, he pointed out that despite having much arable and coastal land, keeping in mind the output from the land, it could be considered a limited resource.

When it comes to the other resource—the population of 170,000—in terms of productivity those under 18 and over 70 cannot be counted.

Moreover: “If you have twenty percent unemployment they are not part of the actively productive labour force. So in effect you do not have a workforce of 170,000 people. All of them are consumers; few are producers.”

On the other hand, living next door to the highest consumption society in the world, we demand a lot of things. Consequently we suffer from what Venner referred to as “the demonstration effect.”  We see a certain standard of living that we want for ourselves.

“The other problem we have is that we live in multi-party competitive societies where,” said Venner, “to win an election you must make promises. And here again demands and wishes outweigh resources. You end up with two imbalances: an imbalance in your balance of payments, because imports always exceed exports, and you end up with an imbalance in the Budget. Expenditures always exceed revenues and in recent times those lines are not meeting. They’re going in the wrong direction.”

By Venner’s account, the reality is that banks in our jurisdiction only lend people money deposited with them. “Governments can only spend what the citizens pay to them—or what is extracted from the citizens—in the form of taxes.”

If we understand those two things, he said, we can then start to talk about solutions.

He added: “Over the last three decades there has been a very clear evolution of an international economy based on what has been described as market fundamentals and this must bear some responsibility for the global crisis.”

To drive home his message, he cited the historical development of the islands’ economies, first having received concessions on things like sugar and bananas as well as preferential access to markets. Then came concessional aid, access to funds from such as the IMF and the World Bank, and later the introduction of the WTO.

He observed that with the opening up of the markets to free trade and the breaking down of the protective barriers came some of the issues.

“All the crutches are being removed and consequently the policies that existed in the past are certainly not attainable today. Over the last three decades what we have had is a decline in growth. In the 1980s we did very well but we had all those other things. In the 1990s it fell to about three percent. Prior to the world crisis, it went up a bit but now there has been a steep dip. In fact we have averaged negative growth over the last four years,” said Venner.

Three scenarios now confronted us: maintaining our current policies while external conditions remained the same; changing our policies with the environment remaining the same; or we can change both.

He recommended changing policies over which we have control—before the international economy looks up.  “We need to put institutions in place that allow for the management of these economies on a collective and not individual basis.”  Besides, “rapid transformation” will be needed by 2015.

“We in the OECS have gone through a particular period, so that post federation what we had to do was try to fend for ourselves in arrangements first of all put together by the British, then by ourselves, because larger countries took the view that they could make it on their own.

However things do not happen by osmosis, said Venner. “People make things happen. Even those countries that have oil have proved resources are not the total answer. A lot of these countries are in the category referred to as having ‘the Dutch disease.’ Their economies are destroyed by this windfall and they are not able to manage. So whether you are small or large it comes down to two fundamental factors: leadership and management.

“Resources are always finite, except those in your head. So that for physical resources you have decreasing returns to scale but for things to do with the mind you have increasing returns to scale. I say that to suggest that if you are in a small country you have to be very mindful that your people have to be the most educated and the smartest to work with the limited resources you have. You have also to understand that you have to identify resources in front of your face, and not be inclined to see through them.”

He cited the examples of Tokyo and Japan, where the resources of the sea are maximized beyond just catching fish.

“When we have big problems,” he said, “we have to devote a reasonable amount of resources to solve them. And that’s our problem. We think we can always do things on a shoe string and that we must spread resources evenly over everything. That is what people demand but that does not work. That is the problem we have had.”

Finally: “What we have to  do is identify the problems and identify the resources we are going to use to resolve those problems. It won’t be done on a shoe string. Which brings me to what I call the mindset problem, the mind-trap problem, and that has to do with the space that you have to resolve the problem.

“So I am in Saint Lucia and there is this problem. I am looking to solve this problem within the confines of Saint Lucia alone and if I look deeply enough the resolution does not lie here. Saint Lucia is the point where the problem manifests itself but that is not exactly where the solution can be found. Problem solving has no national boundaries.”

He offered a personal anecdote: his family had become friends with another family, having shared Easter vacations in St Vincent and Christmas in Saint Lucia pre-independence, moving without hindrance between the two islands. Come post-independence, however, one of the family matriarchs was stopped and delayed at the airport for simply not indicating where she would be staying.

“So we have put up all these barriers and now we are having to systematically remove them. Because it is now in our economic interest that we do so. Somebody went off the rocks somewhere and now we are having to put Humpty Dumpty together again. And we do not have much time.”

He said that the United States, the UK and Europe have some of the same problems confronting our region.

While there were “many good programs going on around the region,” the ECB Governor said, some of them are just not adding up. “We have two problems: one is measurement. We have to have some index of what success means. You don’t just launch things with no  criteria for success.  Somebody must be regularly assessing, so if you are not achieving your goals you are sent
back to evaluate them. The other thing is the adding up problem. If I start a project here and there, do they come together to complement each other?

“The biggest problem in the islands is coordination. It has nothing to do with money. So I come back to the leadership and management part. You must have a critical number of people to throw at the critical problems as identified so that we can complete them, resolve them and move on to other things,” Venner said.

One area, according to Venner, where the Union needs to work more closely together is tourism “where they all compete for a mere one million tourists instead of coming together to attract another four million potential visitors.”

Yet another problem confronting the region has its roots in math. “The problem is that division and subtraction seem to be positive things and multiplication and addition negative sums. If you can’t do arithmetic you can’t progress. It is simple as that,” said Venner.

He recommended the further development and investment in the private sector, while strongly debunking the suggestion that what will resurrect the economy is construction.

Said Venner: “The only time you have real economic activity is . . . if you take tourism . . . when the season is off economic activity goes down because foreign exchange is required. What pushes the economy is not construction. Wholesale or retail, those follow on the foreign exchange that comes into the system.”

Last April, the finance minister prophesied that Saint Lucia’s imminent economic resurrection
would depend largely
part on an envisaged “construction boom” generated by certain government concessions. The prediction has not yet come to pass!

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