Florida

Roger

CARl

THE

ACLI-Stetson

SELECT

ON

Law

DEVELOPMENT

School

M.

Coastal

ECONOMIC

Groves

IMPLICATIONS

BBEAN

Caribbean

School

Associ

GLOBAL

of

Law

Law

Professor

Program

WINTER

IN

INITIATIVES

at

the

2011

THE

Cayman

OF

Island

I / —I

Zm

-Q m m fl’, . ‘Ii

I a -‘‘9 ci.

I. I

ri. 4nn. Hum. Gene!. (2001), 65, 137—151 137 Printed iv Great Britain

MtDNA from extinct Tainos and the peopling of the Caribbean

C. LALUEZA-FOX’, F. LUNA CALDERON’, F. CALAFELL’, B MORERA AND J. BERTRANPETIT’ Secció Ant ropologia, Dept. 3Bioiogia Animal. Facuitat de Biologia, Universitat de Barcelona.. Barcelona. Spain ‘Depa4ta.mento de Antropoiogia Fi’sica, Museo del Hombre Dominicano, Santo Domingo, Replblica Doininicana; Universidad T\Ta,cjo?jaiPedro Henriguez Ureña, Repüblica Dominica.na Unita,t de Biologia. E’voiutiva, Faculta.t de Ciències de la Saint i de la Vida, Universita.t Pompeu Fabra, Barcelona, Spain

(Received 10.7.00. Accepted 30.11.00)

SUMMARY Tainos and Caribs were the inhabitants of the Caribbean when Columbus reached the Americas; both human groups became extinct soon after contact, decimated by the Spaniards and the diseases they brought. Samples belonging to pre-Columbiari Taino Indians from the La Caleta site (Dominican Republic) have been analyzed, in order to ascertain the genetic affinities of these groups in relation to present-day Amerinds, and to reconstruct, the genetic and demographic events that took place during the peopling of the Caribbean. Twenty-seven bone samples were extracted and analyzed for mtDNA variation. The four major Amerindian mtDNA lineages were screened through amplification of the specific marker regions and restriction enzymatic digestion, when needed. The HVRI of the control region was amplified with four sets of overlapping primers and sequenced in 19 of the samples. Both restriction enzyme and sequencing results suggest that only two (C and D) of the major mtDNA lineages were present in the sample: 18 individuals (75 %) belonged to the C haplogroup, and 6 (25%) to the D haplogroup. Sequences display specific substitutions that are known to correlate with each haplogroup, a fact that helped to reject the possibility of European DNA contamination. A low rate of Taq inisincorporations due to template damage was estimated from the cloning and sequencing of different PCR products of one of the samples. High frequencies of C and D haplogroups are more common in South American populations, a fact that points to that sub-continent as the homeland of the Taino ancestors, as previously suggested by linguistic and archaeological evidence. Sequence and haplogroup data show that the Tainos had a substantially reduced mt.DNA diversity, which is indicative of an important founder effect during the colonization of the Caribbean Islands, assumed to have been a linear migratory movement from mainland South America following the chain configuration of the Antilles.

during his first discovery voyage, in 1492, he was INTRODUCTION greeted by indigenous people who called them- When Christopher Colombus reached two of selves Tairios. At that time, Columbus was the Greater Antilles (Bahamas and Hispaniola) convinced of having arrived in either Japan or China; later he changed his mind, and, believing Correspondence: Jaume Bertranpetit Unitat de he had reached India, called the abor Biologia Evolutiva, Facu]tat de Cienciesde Ia Sa]ut i de Ia Vida, Universitat Poinpeu Fabra, C. Dr. Aiguader 80, igines ‘Indians’, a misleading name for the 08003 Barcelona, Spain. Tel: (+3493) 542 28 40: Fax Native Americans that has remained in use to (+3493) 542 28 02. E-mail: jaume. bertranpetit@cexs. upf. es this day. Thus, the wrong and biased perceptions

American

Caribs

ward

Jamaica,

Islands,

1993). name).

Puerto

Caribs

groups

Spanish Americas.

want

groups

we

found

lations,

the

slaves, population

from

admixture

group. genetic

have

rural

concluded Despite present-day

labour,

ginning

decreasing

(Kiple,

and

(Tjbelaker, process

authors know

diseases

the they

generations

the

collided.

back

of

138

By

need

Westerners

highly

harsh Tainos

the

The communities

Islands

disappeared Belize

—

to

were

7

(whose

to

were

how

illustrates

in

The

in

Rico,

disruption,

was

The

chroniclers,

1984),

while

claims

since

the

the

to

they

time

they

of

of

groups know

latter

million

However,

the

the

relation

admixtured

that,

which

of

treatment

rely

many

clearly

Tainos

culturally

study

1992;

Bahamas,

human

thought

after

the

extinction;

extinguished

Tainos

(Monsalve Spaniards

the

name

of brought

Island

and at

the

who

very

Caribbean,

could

of

about

group

the

Columbus,

on

after

(called

the

Taino

16th

least

is

this

east

people

of

in

Caribs Crawford.

forever

the

to throughout

of

came

Guadeloupe

ancient

substratum

there presumed

is

as

first

we

genetic

limitations

have

the

inhabited the

about

Caribs African

—

first

related

the

the

500 Caribbean

with

of

and

original

modern

of century,

agricultural

16 heritage

sometimes

Mainland

don’t

brought

&

east

to

according

the

were

were so-called

moment

inhabited

source

Cuba,

the

other

years

contact,

the

numbered

of

as

iii

and Hagelberg, them.

DNA

constitute

the

with

affinities

of

to

Spaniards

to 1992).

the

origin. a

Turks

really

two

just

Tainos,

Caribbean

killed

Caribbean

in

according

Cuba,

survival

some

of

Spaniards,

distinct

Ia

derive

the

of

peoples

(Rouse,

to

of

C.

aborigines

and

African

It

the

analysis

Caribs), West

called

17

working

main

both

Black

decimated

cultural

the

Hispaniola,

is one

LALuEzA-Fox

and

to

replace

the

and

At

know

during

Therefore,

Caribbean.

mainland

sequences between

it

probably difficult

Caribbean

the

of

from

and

region’s 1997),

different

must

African

human

and

in

Island

the

cultures

Caicos

Wind

human

or

of

mining

people

to

Caribs

popu

1986,

major

slaves

these

if

that

some

with

what

since

the

the

the

and

date

the

this

we

two

the

be

the

be

by

to

a

2

migratory

of

possible

chain.

pushing

the

one

Greater

island

to

undertook

Tobago, populations

Orinoco

ancestors Caribbean

however,

Archaeological

land

original

relationship

the ence

ily

Carib

languages,

Equatorial-Tucanoan

contrast, belong

Island

among

languages

the

tants

so-called

there

Lesser

villages,

ferocious

game

inhabitants,

establish

Tainos

organized

agricultural were

the

AND

The

the

Guanajuatabeys.

(Greenberg,

language

another

Guianas,

of

to

If

South subfamily,

Caribbean

were

of

established

Lesser some

Antilles.

names

Caribs

courts.

to

scholars;

OTHERS

west

to

homeland

this

Antilles,

another,

Valley,

West

expanding

around

it

movement

the Arawaks,

of

nomadic.

consisted

area

see

a

some

they

which

other

into

the

has

words

the

that,

hypothesis

of

that

long

with

the

techniques

America

with

Mainland

the

and

Antilles

of

Cuba.

spoke

was

the

1987; In

In

been

Equatorial

chiefdoms;

Tainos

the

spoke

had within

evidence

progressing

groups

it

the

pre-existing

settlements

are

next

1000

eventually

series

of

with

addition

Island

with

migrated hunters

the

the

already ceremonial

seems

mainly

inhabitants

contrast,

from

The

from

Guianas

the

Arawakan Caribbean

of

to

suggested

Ruhlen,

classified family

Guanajuatabeys,

island and

is

clear

are

is

the

Caribs

three

Mainland

might

B.C.

at

take

of

Taino

islands

Caribs

that

the

hierarchical

South

that

correct.

Columbus’

that

more

settled

to

Ge-Pano-Carib

voyages,

a

from

shows

they

in

sub-family,

from

Caribbean

(Ruhlen,

from

South

Thereafter,

place Tainos

in populations,

mixing or

exceptions,

source

the

1991).

of

have

allowed

squares

spoke

both

groups

into

raided

poinìts of Venezuela.

that

groups

East

are

languages

the

Trinidad

controversial.

had

the

there

the

thousands

by

Trinidad

Caribs.

Caribs

the

as

through

so

come Tainos

the

migratory

and

that

the

The

5000

Caribbean

mainland

from

to

times:

of

peopling

the

to

with

1991).

advanced

a

in

close

origin

and

them

and

societies

to

North

Macro

Lower

inhabi

linear

in

a

Caribs,

debate

direct

main

exist

Taino

from

it

they

B.C.;

close

fain

like

and

that

were

The

one

the

and

the

and

The

ball

the

the

to

the

or the

is

In

in

to of West, Antilles

peopled

analysis. can studies mitochondrial genorne cell present-day genolne. molecular contain

mutation recombination special

that lations

at. 1986; rntDNA Haplogroup 663, ‘B’, the genic at genome residual imitations

This found has correlation

terized,

tutions; control different in

the Eskimo-Aleut a Bering

+

Therefore,

In

np Greenberg

16517 rather

populations

with

AluI

been

first be 1992;

most

lineage, haplogroup

the

‘C’,

9bp

13262 Stoneking, following

in

falls

evolutionary

from

Islands.

has

several have

Straits

reliably

a

at

sequence region fifth markers

in

FIaeIII, (Torroni MtDNA

recently

The

site some

rate Americas,

deletion,

single tool high

migrations

of in

‘D’),

between 1993b,

the

its

into

a

human

and

A

whether

South-America

the

ancestrally

the

at

et better founding

DNA

been

vast

relative

is

and

for

European basal

from Americas.

peopled

speakers)

thousand

rntDNA

the at.

four

markers, np copy

haplogroup

Control

defined

primarily

explored and

B mtDNA 1993).

(Schurr

described

data

reconstructing has et

haplogroup

maternal

populations, 1994; (1986)

5176.

(mtDNA).

these

majority

based

by

chain

chance properties,

many

North

major

level,

at.

or

the

of

(Amerind,

to

been (Ward

haplogroup,

the a

the

not

related by

Region

diversity

1993o).

populations,

lineages

16223T-16278T copies

nuclear Sequence

it et

from

COII/tRNA’’5

such

of mtDI’L4 postulated

Horai configuration

with

on lineages

studies by

America.

(Bandelt

nuclear an of defined

is Americas. has

al.

D the

inheritance

widely

Amerindian

et of a

This

recovery,

by

HaeIII

some C

the

1990;

hypothesis

at. Asia such

only to

I

as

Caribbean of by

by

ancient

ancient

the

An

of

and the DNA,

et Na-Dene — the

in

1991) the from

cytoplasmic

have

data genome virtue (named

analysis

named the an

by

used 1715 et

RFLP

been

as

at.

history

absence

Torroni across

additional that

particular one

site is

lineage

However,

at.

AiuI

mtDNA

mtDNA

a

since

specific

lack

(Avise,

charac of

show

showed

shown

substi

extinct

PoPu 1993). DNA

DNA

1995).

iiyler rapid

found

of

at DdeI,

single

as that

three

was

‘A’, ‘X’, the

can

and site

and

its the

np

of

of

of

of

X et a

a

a

than tribe, Caribbean model. widespread that few,

linguistic American stricted 1993;

single successive

would Ferrell, founding scenario

at. lations, both among

from present-day Hispaniola the Islands, struct demographic genetic this of Caribbean the DNA migrations on can

Columbian the 25 style Dorninicana) island;

The

Twenty-seven

1996).

km

a

genetic

the

whole the

project

constitute

most

genetic but

that

suggesting

smaller

Torroni

ceramics,

extraction

initial

purpose

the

have Subsequent

east pre-Columbian

1996).

thus

drift

Native present-day the

(Merriwether

to

along

pre-Columbian

family.

relatively

migration

pooi,

mtDNAs

important irocess expected

Indians

migration Islands.

affinities

similar

MATERIALS

of

(Dominican is

along

bodies

produced migration any and

mainland

scale. complicating

site events or

et

From were

to

Santo

of

ornaments

a American

at.

and

with

a

bottlenecks.

analyse

different

ethnohistorical

this

case

bone

The particular

much

to

the of

1993a,

genetic

of

analyzed.

to

are

that of

waves, amplificat

during

in

Domingo

deep, from

that

study

peopling

process;

the Native et

Taino

provide these

study

the

AN])

into Amerinds ubiquity

La continent

buried at.

Asia

samples

Taino

more

the Republic) common

rntDNAs

of remains

and

possible 1993b)

demographic

the

the

studies 1995; differences

was

is

that

lineages

METHODS America,

groups

genetic

Polynesia,

Caleta

necropolises

to The

on

suggested

The ethnic

ion

complex

tools

American

city, if

a

interpretation of

with

a

three-migration

recover

process, data

remains

clear

ancient

of

successful,

Merriwether more

from

demonstrated

rnitochondrial the

and

future

site

and

(Horai

in

(unpublished existence to

and

clustered

from

composition

the

Boca

that

(Repibliea

relation (Forster instead

group Caribbean

picture

to is

plausible

observed

ascertain

scenario

although

the

mtDNA

not

is

Native

that

such

located

human events

aim

recon

popu

in

one

et

were other

Chica

from

139

pre this

re

al.

the

in or

of

to

of

as

&

of of

of

et

a of The Taino People of the Caribbean Are NOT Extinct Page 22 of 25

Last Edit: February 29, 2008, 08:39:44 pm by Bianca ‘. Report Spam Logged

Your mind understands what you have been taught; your heart what is true.

Bianca Re: The Taino People of the Caribbean Are NOT Extinct Ser,1çmber e Reply #12 on: February 29, 2008, 08:44:51 pm e Posts: 41646 http://www. hartford-hwp.com/a rchives/41/O 13 html

A Note on Tainos: Whither Progress?

By José Barreiro, from Northeast Indian Quarterly, pp. 66-77 Fall, 1990

Author’s note: An appreciation is due John Mohawk, who contributed to an early version of this article.

References in the body of the text refer to the Select Bibliography which follows this article.

All illustrations except the photograph on page 76 are taken from Onello Jorge Cardoso, Los Indocubanos. Havana: Gente Nueva, 1982.

Christopher Columbus, whose name literally means “Christ-bearing colonizer,” wrote in his diary shortly after the landfall that he and his sailors saw “naked men” (there were also women), whom they found “very healthy-looking.” Landing at Guanahani, in the Bahamas, and sailing on to Cuba and Bohio (Haiti/Santo Domingo), renamed Espafiola, Columbus soon noted a widespread language and system of beliefs and lifeways. Conferring with various caciques (chiefs), he heard them call themselves “Taino.” (Tyler 1988)

Taino culture was dominant throughout the Caribbean, a sea and island world that was in turn cradle of Taino civilization. In agriculture, seafaring and cosmology, Ciboney and Guanahatabey (western Cuba), Macorix and/or Ciguayo (Bohio) and even Carib (Lesser Antilles) all followed the material and much of the psycho-spiritual framework of the Taino. The original Caribbeans spoke Arawak. The people of the Arawak language family still comprise one of the more widespread American Indigenous cultures, with relatively large kinship nations in the Amazon and Orinoco river basins of South America. Throughout the Caribbean, usually in remote mountain ranges and coastal promontories, remnant groups and communities of Taino-Arawak and Carib descendants survive to the present. Aspects of the animistic and material culture of the Taino-Arawak have been adopted by the mestizo populations of the Caribbean and are interwoven into the Euro-African fabric of the islands’ folk universe.

The word Taino meant “men of the good,” and from most indications the Tainos were good. Coupled to the lush and hospitable islands over millennium, and a half, the indigenous people of “La Taina” developed a culture where the human personality was gentle. Among the Taino at the time of contact, by all accounts, generosity and kindness were dominant values. Among the Taino peoples, as with most indigenous lifeways, the physical culture was geared toward a sustainable interaction with the natural surroundings. The Taino’s culture has been designated as “primitive” by western scholarship, yet it prescribed a lifeway that strove to feed all the people, and a spirituality that respected, in ceremony most of their main animal and food sources, as well as the natural forces like climate, season and weather. The Taino lived respectfully in a bountiful place and so their nature was bountiful. (Jane 1930)

Last Edit: March 01, 2008, 06:08:26 am by Bianca e Report Spam Logged

http://atlantisonline.smfforfree2 .comlindex.php?topic75 59.0 11/11/2010 The

http://atlantisonline.

Taino rr.cJ’4’. Superhero Bianca posts: SuperheroMen-iber Bianca Posts: 41646 41646

People Member

of Your The They The and The ceiba), trunk The fifteenth millions that lasting be the detail. clothing unimaginable intervening dwellings American were Your physical practice; metals. neck. smfforfree2.comlindex.php?topic7559.O the ‘4 built. mind South mind adventure naked Tainos Taino houses was

Caribbean could Re: rarely and a Re: Some What Reply untreated a Reply understands of Men understands for The appearance century, canoe reasonably “for The along eyes. thatch The world, Pacific royal people build lived centuries (bohios) #13 warmth. taller had #14 we and wood we to Taino and Taino that on: They rivers do and on: us, a in tattoos. for lashed are women islands. as what than as Columbus what dwelling

Are of March fishing the know March and, could long other close. the were a They was People informed the you that painted People you inland tropical five shadows

NOT 01, together most 01, have chiefs is as consistent The indeed, Royal have we carry (and legends liked useful 2003, feet from that 2008, ninety first been and of their been may of people part, it paradise. are Extinct often six Palm to 06:09:40 the their more of 06:11:13 does the a sighted taught; palm on the in taught; bathe single at never a bodies years. inches today had a with Caribbean the diverse Caribbean is lived sea. biological wore world rectangle than them trees, your still am your some am coasts. It often, tree lived again the among 1 with Theirs which in was gold one a heart today would heart much forest small, appearance from (the of in earth transformation know which not hundred what or in They Are what would the an was Are Dominican considered harm,” appear the sometimes Royal which so heaven clean Is island is appearance dyes NOT how true. a NOT were prompted biologically ears true. make land people. Palm) bohios of villages wrote to the and Extinct world Extinct a and on other and of us, handsome the them land a earth, adorned of generous and nose, circle Queen as a by of Cuban that their most of Indians remarkable Spanish or it rather rainforests the from neatly did but the modern or pattern. world resistant Isabella. hundreds themselves Cuajiros) people as to abundance several it life of small royal appointed was pendants-around the the was of as imaginations The and who Spanish the one to to Their law Americas. to others Report of so made modern tropical islands tropical with be land thousands of had forbidding complete by thatch general those almost Spam global of of (gommier, shells no appeared

Page still palm the They North rot, weather, ascribe need places the

11 in terms. have and could the Logged tree,

23

/ the of

11/2010 in to

of

25

http://atlantisonline.smfforfree2

The

Pages:

Taino

[1]

2

People

3

4

Go

of

Up

Your

among

The

often

skill

torts.

sunlight-tight yucca,

all

canoes The

seashore chairs,

construction,

they

hammocks), types

genitals

mats, type

parts short

wore

hunger

people From

the

recently

mind

Taino

Taino

in

used

of

astonished

short

In

of

in

all

of

Caribbean

hammocks

finding

beans

the

bowls,

stored

of

understands

tunic

or

Cuba front

and

one

trees

early

camps,

the

were

for

islands

want.

islands.

swept

cotton

they

village,

large

on

.comlindex.php?topic75

and

the

storage dyeing

Canary

and

their

and

baskets

and

in

descriptions

a

ceremonial

The

at

water-tight

Spanish

what

royal

sea-going

fruit and

were

clean,

provided

long

skirts

fishing

Santo

plants

Once,

way

finding

Are

sailors

Tainos,

cotton,

you

Islands,

sheds

small

and

orchards

palm

in

totally

around

where after

have

Domingo,

NOT

Personalized

from

a

back,

sailors

nets

Sweeten

other

lone

the

a

canoe

found

Jump

occasions,

people

sails

with

for

sheds.

the

been

whose

vast

taking

who

natural

and an

Tainos

they

their

and

Indian

covering

buildings

to:

jocuma

Extinct

woven

found

and

taught;

shelves

estimated

of

array

large

were

good

and

some

Further

your

color

that

=>

saw

Taino

a

world.

numerous

MY

about

were

permanent

fishermen

but

what

your

the

took

cakes

of

mats

neither

and

hooks

it

many

whole

packed of

was

and

business

M&M

edible

fell

men

they

Bahamas,

heart

They

a

upriver

the

floral

it,

pride

they

the

59.0

(in

healthy

specific

of

olive-brown

over

The

made

kinds

valleys.

what

followed

caciques,

saw

S t

‘bejucos

white

fine

guama

this

with

fruits.

visited

sailing

judged

and

man

in

Candie 4 -

Taino

muscular

cards

in

is

Bermuda,

no

their

wax, of

art

of

true.

people

thousands

other

the

nor

faunal

but

The apparent

drying

They

large

for

in

one

him

they

to

had

village

villages,

courage

or

black.

a

to

the

in

trees

making

be Arawaks

local

another

fiber who

from

copper,

shoulders.

walked

range

others

fish

Cuba

flourished),

plenty

tubers,

open

excellent

or

of

He

Aø

need

for

product.

showed

bones.

ropes.

island

on they

&

dried

clan

of

rope,

noted

ocean

all

the

of

through

boats,

made

constantly.

reminded

the

grains

5,800

to

cotton,

the

saw

and On

West

nets

to

(Tyler

cassava

Inspecting

cover

the

high

no

cotton

their

(Rivero

as

specific

people

island

some

spears,

large

nation

species.

signs

and

Indies

the

jucaro

and

he

ocean

which

Columbus

their

thick,

1988)

Report

Columbus

made

cloth

squares

herbs,

(casahe

islands,

small

fields

until

1966)

went

of

use

chiefs,

digging

<<

deserted

for

breasts

The

as

they

distress

Spurn

previous

black

(for

one

his

of

fishing

of

underwate

well

naked.

and

jagua

of of

the

many

or Page

wove

corn,

way

wore

was

of

11

tools,

hair,

villag

the

or

as

cazat

from

wom

thel

/

PRINT

Logged

next

11/2010

thi

In

trt

a

ml

24

I

of 25 kwabs.corn,caribbean

httw

//wwwkwahs.com/tainos

history,

gained

of Bahoruco

history people tainos,

the research.

there However, fact early Indies. Arawak/Tainos,

mortality destruction Arawaks slavery, sociological

The immunologically that every

that political of fever,

Before stable bountiful other political between

The offered rulers

were contact

widespread

transition matrilineal

Dutch

Haiti.

caribs.html the

near

Arawaks

came came

nearly

Arawak

16th was

native

that

classes,

European

is smaller

caribs his

were of island

It

and

the a

war Spanish

a

The

and

extinction

rate

Anse

had those mountains

fell

harvests

hierarchy classes

a Taino century.

from

little

from killed

freedom to

but

of

extinct. disaster.

Spanish

American very

against

in

from tribes English.

succeeded was were social name

to

populations,

plantation

social

lots more

and

the a

pockets

the

the

much

Europe

prepared.

lots

face

disease

brutality

descent.have

Pitres. rapid

the was a

and

part

obsolete

of of

By west

lowest of

Spanish

of

which

structure.

of probable

more

and The

the

back

than

conquest,

the parts South Aside

structures,

deities

arrival

less

In

they

back

the

the

European

abundant of

apparently decline

of

with

coast European.

It

and

and by

the

the

European

agriculture. the

their

to main

survivors

are

end

of town scattered.

permitted is

of

complex.

had

to

America

because

of

Tainos/Caribs conquest

the

their

parallel of .

global THE which even

South near

2

massacres

right

17th

Caribbean

A

now

of

Caribbean

of

the

of

no

to Columbus

been

element

the

Spanish.

associated

class

in Africa

fish, the

that

the

3

CARIBS eldest

previous

minimal. Jacmel. came

part the

pressure do to

and

America.

native

was diseases

By

million

to

were large-island

the Mainland

one

disruption

Their

Arawak Arawakan-speaking identified

was combined

century,

;—$- not

of live

Caribbean.

the

have

comparison,

of

directory 18th

with that composed development

governing

sister’s

hereditary

brother

cannot

the

able

American They make

and

directory

social

an

with to

In

contact

with

social In

been

exerted

F-:-1c- followed

for

new

South

a

Cuba, ecological,

centuries population

Arawak to

the

this

island

few

lost

the through

with of

his

this

structure. whom

ecosystems,

survive

because negate

eldest

in one,

Spaniards.

structure

with

their

matrilineal

broader

of thousands

the

the population

East chiefs

this

followers contact

some

the

piece

on

Arawak

each

of

slaves.

traded

such

the

they

biological

Blacks

they

son.

food the them antropologic

the

compact

an of Department

catastrophic

political

their

groups

ruled

groups

pathogens

of

revolt,

picture

the

with

as

were

European elaborate

was fact

were

Tainos

For

with Religion made

supply,

society, offering

Conflict in

and by

by

slaves

groups

yellow

West

three most

that

and the

and

the Page

the

also and the

the

not

of

of are as the

in

11/11/2010

a

4

of

7

/, kwabs.com,caribbean history, tainos, caribs Page5of7

Caribs Indian still living in the Caribbean

KARIBS I CARIBS or KARIBE tribe of Native American of the Caribbean linguistic stock, occupying various regions of South and Central America. The Caribs, who probably originated in the valley of the Orinoco River, were noted for their ferocity. .During the late 15th century the Karibs inhabited most of the islands of the Lesser Antilles and the coast of what is now Venezuela, territories from which they had expelled the Arawak Indians.

From Caniba or Canima to Caribs, Cannibal, Caribbean.

Columbus talked about the Caribs in his log of Sunday, November 4, 1492. On that day, the log says, he showed some gold and pearl to the Indians. He was told that an infinite amount of gold could be found by going to the southeast in a place called Bohio. The first mention, all be it vague, about the Caribs came immediately after in the next sentence of the log which says the following: “I also understand that, a long distance from here, there are men with one eye and others with dogs’ snouts who eat men. On taking a man they beheaded him, drink his blood and cut off his genitals.” The next reference about the Caribs is a little more specific. It is part of the log book entry of Tuesday, December 111492, which speaks about a continental land behind La Espagnola where the people of Caniba lived. The entry in the log is the following: “They (the Tainos of Hispagnola/kyskeya, Bohio, Haiti) indicate that there is a continental land behind La Isla Espagnola, which they called Caritaba. They say that it is of infinite extent, which supports my belief that these lands may be harassed by a more astute people, because the inhabitants of these lands live in great fear of the people of Caniba.

So I repeat what I have said before, the Caniba are none other than the people of the Great Khan, who must be very near here. They have ships that come to these lands to capture these people and take them away. Since the people never return, it is believed that they have been eaten.” The name Caritaba which Colombus referred to as the land of the Caniba was in fact the land surrounding Cap Haitien in Haiti. The chain of islands forming the lesser Antilles where the Caribs lived starts beyond La Espagnola and the the island of Boriken (Puerto-Rico). The mistakes of Columbus about the Caribs people were due to the erroneus context governing his interpretation of the facts. He thought he http ://www.kwabs.comltainos caribs.html 11/11/2010 time Switzerland,

hunter-gatherers 1

mal ing Wages of from spoken.

came morning,

Fred Poignantly other binge.

890s

My

the It

so

speech

of

was

Hirschy, the

to

white

and

that fellow

in

Blackfoot

Among

tana, his

He

admire A

coarse the

therefore Levi

proceeded

featured TEENAGER,

they

arrival,

brought

was

schoolchildren,

Fred

local

farmhands working

FARMER

and

too his

him.

miners—being could

the was

Indian

had

curses, saloon.

damn

staggered

much

a strings

first

home

still

to

come

shocking

for

devote

develop

were,

tribe

I

Indian

the

living

of

one an

Among CHAPTER

to

SPENT of

to

had

the

ship elderly

in

curses,

their me

named

has southwestern

for

polite,

there.

disappointment

with drunk been

original

one

the

that the

stood the

8c

THE

weekends

farmernamed

and

taught of

whom

Indians’

Levi,

most POWER

gentle,

farmhands,

brought

and

the

SUMMER

out

who Native

4

paErt,

cursing

who

first

Montana to

I

in

responsible, to

had

spent

perspective

view

you

my

to

farms

squandering-

tough American

behaved

spent

though,

me

Fred

memory: after

OF

their

from

as

as

the

in

when, whites

1956

much

Hirschy.

a

a

weekdays

the

Switzerland!”

very

sober,

heroic

teenager

on

was Saturday-night

population

“Damn

area.

their

one

what

whose

time,

IN

differently

a

conquest and

member

Born

Sunday

MON

week’s At

work

in

I,

and

nor

you,

well

the

the

like

of in

It

I

pies

humans

able

tion Figure

proximate duced

chapter understanding nents pendently consume only gathering

led quent those termed riors? neer

acquired from grant of

Fred geographic remaining

tory. hunter-gatherer or humans

and of

rectly

The

Different For

hunters the

die

to

to

of eating

for

farmer

Hirschy’s

within

the

Some,

who

white

became

a

American

all for

4.1.

contrasting

most

first

conquer

continental out,

food

prerequisite

will

domestication,

evolved

on

ancestors

it

the food

them.

wild

bands

factors

and

did,

the

Schematic

by

connection

variation

from

Earth

thereby

who

farmers.

peoples

such

the

of

trace

advantages production;

farmers

rçsulting

people

how

plants, famous

that

themselves,

some

the

other

At

lifestyle. 8

in

last West.

of

had

neighbors.

as

fed

(such

the

6

axes).

areas

of

current

hunter-gatherers

time

fates.

they

geographic

acquired

for

ending

Aboriginal

(for

How

in

11,000

succeeded

peoples,

the

themselves

overview

to as

•

main and

warriors

Fred

partly

s

the

whether,

as

livestock

with

dispossess

since

the

that

produced

the

For

example,

living that

GUNS,

Before

guns,

rates

did

herders

development

while

our

Hirschy’s

connections

most

But,

Biackfeet

years

example,

food

many

enabled

because

from

the

the

is,

of

great

differences

under

had

of

Australians,

millions

horses,

exclusively

and

or as

domesticating

direct

the we

GERMS,

ancestors

production

farmers

he change,

others

explains

Levi’s

themselves

that

ultimate

wild

will

we’ll

when, been

apes,

crops.

chains

family

Pizarro

the

difficult

devote ancient

still

diverse

one:

and

some

abandon

plant

through

of

of

robbed

(Figure

resulting

see,

(including

around

within

in did

win

the

guns, to

AND

years Today,

factors

diseases) by

of

of

availability

was

never

food

to

at

Chinese)

food

epidemic

and the

peoples

conditions.

in

or

a

peoples

causation

modern

our

hunting

wild

capture

different

large

4.1). of

the

which

germs,

proud

their

the that

STEEL

of

7

animal

crops production

next

acquired over

-

most

production

its

(such

million

19th

next

corrirnitment

enabling

ancient

animals

extent

ways, lands

someone

turned

of

developed

diseases

wild

humans

of

of

food

the

six

Atahuallpa, and

and

people

leading

as

times

different

But

species

century.

decade

more

him,

years

famous

the

by

disintegrate,

animals

it

chapters

steel.

their

livestock

production

Levi’s

to

Egyptians) and

some

arose,

at

in

was

the

orienta

of

else

on

as

consum-

diverged

up what

-

suit

the

ago,

it

prebis

all.

subse Hence

to It

plants

conti

a

irnrnj

Earth

inde

peo:

to indi

war

tribe

pro

and

pio

was

this

few

and

the

Of

to

all is

- ‘3 helped PRo)aJTE

selves,

tic

FACTORS

FACTORS

anjmils

and

feed

Factors

partly

themselves.

dense

Underlying

societies because

horses

FARMER

I

I I 1.11.1 I

the

in

the

which

swords

diseases

guns,

steel

POWER

Broadest

technology

many

epidemic

evolved

large,

and

ocean-

going

stratified

ships

food

domesticated ‘

Pattern

food

animal

dense,

8

surpluses,

from could

+

+

storage

7

/

organization,

societies

species

of

sedentary,

political

writing

Hasest

germs

maintain History

plant

ease

spreading

of

of

+

the

species

them

as

epidemic

diseases

domes

J

1+

we

only

it dangerous

for ers the prepare

fires applied milk ties’

plants ways over pigs, puffing the Most

meat. instance, ple acre. and able

of today still In ing reasons:

Bactrian typically,

on

brute

possible

In

yaks

addition,

Big In

By

land

can

farming.

cow,

produced

tribes

in

biomass

knows

death-cap

in

calories

products a

major

human

sheep,

their

to

As

numbers

addition,

species

selecting

in

four small

to

domestic

traditional

plows.

eat,

as

and

is

increase

(very

most

sheep;

they

camels.

a

Americans

increase

10

gained

in

fertilizer.

to

for

lifetime

result,

distinct

by

source

so

and

sheep. some

minority

the

Those

societies

to

on

mans

hurtt

are

are

societies

such

by small

people

First

experience,

mushrooms),

was

that

and

goat,

the

100

8

form

an

crop

chickens,

Those

mammals

over

useless

chemical

indigestible

big

food

societies.

8

one

(rhinoceroses).

Manure

plow the

as

than

ways:

of

growing

acre

and

largest

they

Even

more

times

nuts),

tendLto

horse,

possessing

are

of

production.

butter,

domestic

to

hunter-gatherer

first

is animal

acre

mammals

production

wood

most

till

of c9nstitute to

still if

animals

edible with

GUNS,

by

people.

more—than

crop

with

difficult

of

they

domestic

factories,

also

reindeer,

has

us

land,

can

land

low

get

those

cheese,

animal

furnishing

directly, many

(like

and

the

protein,

as

mammals

yields

game to

been

domestic

most

were

interacted

feed

in

were

that

thereby

food,

we

First,

Most modem

GERMS,

Among

humans

leaves,

few

bark),

by

90

nutritional

to

military

and

manure—especially

water

valuable,

mammals

obtain

the

such

many.

can

tribes.

of

domestic

had

just

gather

pulling

the

percent

hunter-gatherers. species

as

replacing-

for

biomass

meat,

yogurt.

their

served

yield

animals,

most

major

poisonous

any

be

availability

wild

cow,

previously

or

as

slaughtered

buffalo,

with one

AND

advantages

more

far

greatly

worth

venison

(larvae

plows

modern

animal

too,

milk,

of

several

rather

value

of

animals

plant

horse,

interacted

or

Milked

as

more

(living

source

domestic

plants which

STEEL

wild

livestock

herders

more

sources

as

yak,

hunting

and

increased

(jellyfish),

and

(monarch

of

and

than

been of protein

just

times

a

water

gardener

edible

and

game.

that biological

mammals

became

source

we

of

and

of most

and

synthetic

That

of

fertilizer

thereby

animal

a

and

with

0.1

cows,

of

plants

crop

uneconomical

cannot

fed

the

food-produc

more

consumed

rare

or

buffalo, Arabian

animals

calories

milk

from

insects),

Today,

strength

by

percent

of

more

gathering.

tedious

farmers— butterflies

following

or the

domestic

fertilizer

delicacy.

but

manure

making

calories

fuel species

matter)

fertiliz

include

in and

farmer

digest.

and

cows,

socie

peo

also

Bali

two

that

and

per

for

for

by

or

of

to

as

of

of 15 southern

coast, Bantu

itself

rains, year South Eastern

politics quickly

whites

Bantu since possessing tlers

When

herders, then in

wars

ceeded than

ing

geographic tain inherit

newly Europeans nearly

deeply TN

That Versa. Prehistory:

That

1702,

Thus,

Dutch

the

is

in could AT’S

few

one

the

and people, 500

in

Africa. and

it whites

could

independent

too

Now

10,000 in

today. on origin,

summer-rain

seeming

killed 1652 Dutch

African

which

was

not

a

the

prior

mile

wild

establishing

miles 175

HOW thus

ships Africa’s

period them.

dry

supply

accident. happened

why

HOW

problems

let’s

claim

with the

not finally

had

Instead,

per

One or

years

the

arrived

years plants

rights

had

for

the

east

THE had

areas detail

Europeans Xhosa,

The

infected turn

the

of

year,

Xhosa

to

troops

AFRICA present. agriculture: a

consequence Bantu

prior correctly

Namibia

for spread of faced ago.

desperate

The

dense

crops

Bantu of

contend

much

suitable unsuitable

other themselves

to

at

of the

to

of

Cape

to

the their

stopped

rights

Cape inherit

plant Just

homeland modern had the

from

summer-rain

or subdue

such

Cape

population

from east were

Cape

heavier were

way

BECAME

that

reminded Town.

remaining driven

armies,

as still

only

for Town

fighting

to geography

it

their

fierce

was

winter-rain to

the

for

has at

able

is,

at

their

around it.

the they

South

Khoisan

not the

domestication;

encounter

the

with

of

the

That It’s

consequence after Bantu sign

secure

off that,

with

a

ones resistance? advancing

to

Xhosa.

spread

the

had

Fish BLACK

me, ancestors

began.

Mediterranean crops

Cape not of

Africa

engulf question

the

“Goering a

claim

all,

is

their

Cape had once

agriculture. to

steel-equipped didn’t

sparse

occupied Africa’s

base

River that

especially crops

Cape’s

beyond

at

colonize How the

do the

Even

enormous

stem the

winter-rain needn’t

South

Khoisan

all,

the at

at

not

of

breadbasket

was

inhibit Xhosa

on

in

the population

Khoisan, from

Street”

an could

the

past

if

though

at Khoisan Cape 5,000

our

South

3 the

the

grow.

those

African

that

Bantu

average

sub-Saharan

The

least

surprising,

betaken climate

Cape,

9

has

their

happened

puzzle at whites

Fish Cape

implications whites

7

of

Banns

in

years

the southernmost

Africa’s

crops

first the

Europeans By in

instead

stamped

Good

the

happened

population,

it River. ancestors

of whites

of

part

rate

Dutch

before

Fish

of 1652,

took of few

from seriously,

have

capital

modern ago;

IChoisan

farmers. of

winter

because

African

to

from south Hope

of

Africa.

of

Near

River

arriv

nine itself

con had

dis

suc

the set

the less and for

vice

by

to

of of

a 8 • GUNS, GERMS, AND STEFL

Africawas the solecradle of human evolution for millionsof years,as well as perhaps the homeland of anatomically modern I-fomosapie,js.To these advantages of Africa’senormous head start were added those of highly diverse climates and habitats and of the world’s highest human diversity An extraterrestrial visiting Earth 10,000 years ago might have been for given for predicting that Europe would end up as a set of vassalstates of a sub-Saharan African empire. The proximate reasons behind the outcome of Africa’scollisionwith Europe are clear. Just as in their encounter with Native Americans,Euro peans enteringAfrica enjoyed the triple advantage of guns and other tech nology, widespread literacy, and the political organization necessaryto sustain expensive programs of exploration and conquest. Those advan tages manifestedthemselvesalmost as soon as the collisionsstarted: barely four years after Vasco da Gama first reached the East African coast, in 1498, he returned with a fleetbristling with cannons to compelthe surren der of EastAfrica’smost important port, Kilwa,which controlled the Zirn babwe gold trade. But why did Europeans developthose three advantages before sub-Saharan Africanscould? As we have discussed,all three arose historicallyfrom the development of food production. But food production was delayed in sub-Saharan Africa (comparedwith Eurasia) by Africa’spaucity of domesticablenative animal and plant species, its much smaller area suitable for indigenous food production, and its north—southaxis, which retarded the spread of food production and inventions. Let’sexamine how those factors oper ated. First, as regards domesticanimals, we’vealready seen that those of sub Saharan Africa came from Eurasia, with the possible exception of a few from North Africa. As a result, domestic animals did not reach sub Saharan Africa until thousands of years after they began to be utilizedby emerging Eurasian civilizations. That’s initially surprising, because we think of Africaas the continent of bigwild mammals.But wesaw in Chap ter 9 that a wild animal, to be domesticated, must be sufficientlydocile, submissive to humans, cheap to feed, and immune to diseasesand must grow rapidly and breed well in captivity. Eurasia’s native cows, sheep, goats, horses, and pigs were among the world’sfew large wild animal spe cies to pass all those tests. Their African equivalents—suchas the African buffalo, zebra, bush pig, rhino, and hippopotamus—bave never been domesticated, not even in modern times. been cated—that war to other

have pean thrown domesticated

Sahel, fewer

between starting agriculture Fertile

that about start equator

people the

development of billion

moves main climate,

axis mals Hence at had

north—south

k’s

become

A

Thus,

development.

The

the

The

total

against

tamed.

provided Africa’s

great

and is

second

horsemen.

moved

species. true,

varieties

axes

one-third Ethiopia,

same Crescent.

for

mean

crops along north—south, the

slow remaining

that

material

as

habitat,

sub-Saharan

population high

more

difficulty

Eurasia.

of Roman

of may far

is, Hannibal

Rome,

latitude HOW

was

easily

passage

more factor

area axis and

and

compared a

course,

these But

diversity

selectively an than

as

north—south

have

of

useful

and

Rhino-mounted

occupied

rainfall, plant

suitable

unstoppable

ridden, had

animals

is

none

AFRICA

between factor

competing Empire.

its

and

But, grew

continents.

is

in

and

only

whereas

or of

West

enlisted

begun that

area

important

Africa

and a

moving

to

lay

complete Africa

ancient

all

with

of

sharing

in

bred

corresponding,

behind

they day

humans.

about for

domesticated some by

with

falls

Africa

animal

other

It Eurasia. Eurasian

those

several

BECAME

axis,

farmers

never tamed

Eurasia’s Eurasia’s

and societies

length,

plant

in

cavalry

is

would

to

Like

within

Eurasia,

Egyptians

large

similar

half

captivity consequences.

less

things halt

Africa’s Bantu

tamed

other

one did

domestication

Eurasia

Had

happened.

thousand

African

Because domestication,

societies

that

than

and and

that

of

African

not

yield

to traverses

and

BLACK the

is

is

climates being

parts.

or

Africa’s crops

shock

not

cur animals though

of

east—west herders

slower the

diseases

only

and

of

sub-Sabaran may

700

inventions,

acquired

in

indigenous

elephants

the

with of

through

thousands

Eurasia.

years

different

equal,

animals

and

in

genetically dotnesticable

the

million, troops have For

have

zones

Americas,

rhinos and

was •

contrast,

rate

before less Africa.

was

livestock of

limited

example,

later even

(Figure

in

more

3

fed

day concerned,

crops

tamed

the

in extreme, of

differing

hence Furthermore,

have

actually could

9

one orientation

zone

compared crops,

and

of

1000

his

armies than

A

Africa’s

lengths. post-Pleistocene

9 ranks

modified

variety

land

miles

crops

Africa’s

third

and part

10.1). along unsuccessful

occasionally

hippos

giraffes

a

plants.

north

the

have

B.C.

that

faster

but

and

greatly

domesti

disparity livestock.

of

apart but

of

the

Mediter

factor

and

of

earliest

Africa’s

As

Today,

with

Euro

of

many of of

Africa

major

so

over

been more

head

wild

only pace also

and

The

ani one

the

the

the but

as

in is

4

Europeans. kingdom

technology.

Africa,

in

goats

never

to sion

did Egypt can

(possibly millennium thereafter, the

mounted Equatorial which

asian to little and

acquired

millennium spread

reach

oped

advance European

southern never variation

ranean

In

Egypt

cross

Similarly

wait

Africa’s

most

not

wild

little

through

or

short,

agriculture.

had

and

spread reached

Africa

around

Africa’s

south

where

crops

for no

reach

the

of

by

productive

from

from

West

Africa

mammals

of

in

or

already

colonists

North

north—south

seasonal

Africa’s

they

large-scale

Europe’s

Bantu

Pottery,

Serengeti

slow B.C., A.D.,

3000

day

Meroe,

no

by

that

the of

south

the

it

the

the

Arabia), 4

African

1800

climate

land

the

but

seasonal

was

length

did

it

in

0

equatorial

long Similarly,

African

B.C.

became

Cape

agriculture.

Mediterranean

reached

tsetse-free

tsetse

took

variation

spreading

0

Sudan,

through

recorded

brought

are

could

staples

colonization

not

B.c.

and

routes.

instead and

boat

and

after

kingdoms is

axis for writing

‘

until

resistant,

more

flies,

eminently

variation

cross

reach

Egypt’s

and

although

species

not

the

spread

the their

GUNS,

traffic

beyond

of

their

also

forest.

them

They

the

Sahel

in

around

in

brought

carrying

down

Bananas

tropical

than

grow

northern

transformed

Sahel

the

day

did

southern

the

germination.

seriously

tsetse

domestication

until

of

climate staples

across

proved

of

in

in

apparently

zone

which

in

Although

GERMS,

2,000

suitable,

not

length

Sahara

Sudan

alphabetic

Africa’s

Africa

at

an crops

livestock.

A.D.

1652,

daylight.

in

African

trypanosomes

the

the

fly

and

failed

arise

alphabetized

edge

the

require

from Africa.

at

impeded

devastating

they

years

1.

zone. were

first

Cape

adapted

and

had

other

to

North

and

the

north—south

Indian

Although and

independently

of AND

horses

Those

to

did

agriculture,

the

encountered

millennium

drive

nothing writing Sahara

The

Egypt’s

brought

in Cape

beyond

the

the

winter

While

survive itself,

which

tropical

not

Asia,

the

outside

African

to

STEEL

Ocean.

Serengeti

cows

Khoisan

crops

had

to

form the

of

summer

arrive

to

spread

thereby

around

writing

cattle, rains

which

to reached

wheat

that

the today

because

Good

by

axis

intoduced

already

rise

Asian

that

do

were

were

to

A.D.,

by

the

warfare

Bantu summer

in

until

for

and

never

of

with

the

was

in

native

of

sheep,

Arabs

rain

Hope

are

halting

and

the

8000

Bantu

developed

the

‘Ethiopia

livestock.

unable

unable

the crops

livestock

and

they

seasonal

cavalry-

Nubian

reached

the

human

expan among

rest

differ-

and

barley

Bantu

devel

third

soon

Afri

n.c.,

rains

Eur until

they

and

and

into

first

had

the

for

of

to

to

to 1j assume. plant ences

in Africa

particular,

between

and

and

Rather,

animal

Europe

HOW

to

European

it

the

was

species.

stem

AFRICA

continents’

due

ultimately

and

That

to

BECAME

African

accidents

is,

different

from

the

peoples

of

different BLACK

differences

geography

areas,

themselves,

axes, historical

•

in

and

4

real

and

0

biogeography—

as

X estate.

trajectories

suites

white

of

racists

wild

of 0)0 r)

D(D

D.

-3 (Dr+

‘I- 5:0— (Pb)

0)

Cr,

6 [19701AC1111,p 1116,

5 (1821) Nag 2 Con 371, p380

4

Allot,

AN, The

Lire qfLaw, ji 1980, London: Eutterwoeths,

pp

109—10.

p 11955] 3 All 646, ER CA, 653.

2 SeeChapter2.

Commonwealth

CarIbbean’s

Sea,

also, the exceptions

made for

‘hybild’

legal

systems.

I

See the discussion

in Chapter

2 (‘Legal

traditions types of lea1 systems — In the

most former

British

colonies

the English

common ... law

is incorporated

as

Similarly,

In

Kaadesevaren

v

AG, 6

Lord

Diplock explained that ‘in the case of

consequence

of which he may impose on them what laws he

pleases.

lives

the of

people

conquered

gains

a right and

property In

such

people;

in

When

King the of

Ongland

conquers

a country

the

Conqueror saving by ... the

affirmed by Lord StoweU in Rudling v Switck

This view

is supported

by a

1792

Memorandum by the Master of the Rolls,

because were they made to niigrate 4

this to be

the governing

metanorm. At bottom, then,

these laws migrated

is that

the metropolitan

legal

system for its own

purposes

and

reasons

declared

If

we

analyse

the

legal

reasons

why

the common law migrated in such cases, it

contends,

for

example,

that

the

common law was forced

upon the

colonies:

history

of the

Caribbean,

which

was neither peaceful nor

benevolent. Allot

description

‘imposition’

is more

in

keeping with an accurate

record of

the

example, for

Lord Denning

used the term ‘transplantation’.

Indeed,

the

doctrine of

‘Inipoaltion’

or

even

‘transplantation’ instead. In

Nyali Ltd

nAG, 3

nomenclature

of the term ‘reception’,

clhning that it should

be labelled

the

jurisprudence,

the

reader must

aware be that some writers question

the

very

Before

examining

the

applicability of the doctrine Caribbean to

which

result

from

mere contact or interplay with each other. 2

discussion

the

influences

from

other legal traditions in any particular

country

exported

to another

environment.

This definition eliminates

from

our

phenomena

which

were

developed in a given environment are

consciously

The reception

of law

doctrine

describes process the whereby legal

of the reception law. of

transplantation

process

is important,

since it is the foundation

the of doctrine

colonialism,

during

which law

was transplanted to

region.

the This

law legal

tradition. 1

These

legal

systems were born of out the

experience

of

to

the common

law legal

tradition,

with some historical linkages

to the civil

As

discussed

previously,

the legal systems in the Caribbean belong essentially

SIGNIFICANCE TO CARIBBEAN JURISDICTIONS

THE RECEPTION

OF ENGLISH LAW AND ITS

C}IAPThR 4 Commonwealth Caribbean Law end Legal Systems The Reception of English Law and its Significance to Caribbean Jurisdictions

part of the domestic law of the new independent State because It was imposed • One interesting difference is the right to land. In Levy and Wood v upon the colony ...‘. Adminisfrtitor of the Cayinan Islands,10 a case from the Cayman islands —a

- contest We see, therefore, that English law was Imposed on the Commonwealth settled territory, still a British colony the Court of Appeal held, in a Caribbean. In St Lucia and Guyana, civil law was also imposed and retained. for title to land, that ‘ownership by the Government was the natural The reader should further note that in the case of Trinidad and Tobago, consequence of the introduction of the common law of England by the first Guyana and Jamaica, traces of Indian law were also received. This mainly settlers of the Islands’.11 This was precisely because the Cayinan islands was a occurred during the time of Indian indentureship. The reception of other legal settled colony. Accordingly, there was no evidence of land being previously traditions has left some impression on Commonwealth Caribbean legal occupied by anyone. systems. For example, as we saw previously,7 Hindus are allowed to marry The settled territories of the Commonwealth Caribbean include Anguilla, according to the tradition and customs of their own law. Some of these Antigua, the Bahamas, Barbados, British Virgin Islands, Montserrat, and St traditions have even been incorporated into local legislation. In the main, Kitts.12 These countries received the English common law at the end of the however, this is of cosmetic effect only8 and the English common law 17th century. A settled colony is commonly described as one where there was tradition can be seen to be the dominant one in Commonwealth Caribbean no previous inhabitation by indigenous or ‘civilised’ peoples, or which had jurisdictions. The discussion on reception thus centres around the been inhabited by peoples from imperialist countries who had subsequently transplantation of the English common law. abandoned the territory or had been destroyed.’3 Nevertheless, when one The attitude toward the reception or imposition of English law is considers the historical reality of the Commonwealth Caribbean, which very important in deciding to what extent English law informs or should inform acknowledges the existence of indigenous Amerindian peoples, the conquered territory refers to the law of the Commonwealth Caribbean in form and substance. In particular, definition is suspect. Conversely, the concept of a was the dynamic potential of legal sources in Commonwealth Caribbean legal that which was first held by one imperialist power and which conquering power after systems is considerably influenced by the view that Commonwealth subsequently transferred to another imperialist, Caribbean judges and law makers take in relation to the reception question. battle. In the Commonwealth Caribbean, the term ‘imperialist powex’ usually who fought several battles for This is particularly so in relation to judicial precedent and the constitution, refers to the English, French and Spanish, discussed in later chapters. While the original dependency and ‘Britishness’ of ownership of the region.14 The total contempt with which conquerors biases in the our law and legal system is accurately attributed to the colonial policy of regarded ‘uncivilised’ peoples and their laws betrays the inherent imposition, it cannot fully excuse the continuance of these attitudes in reception of law doctrine. modem, independent societies. The conquered territories are Dominica, Beliae, Guyana, Grenada, St Lucia, St Vincent and Trinidad and Tobago. The status of Jamaica is • controversial, It can be considered as conquered since, at the time of the SETfl.ED COLONIES AND CONQUERED COLONIES arrival f the British, there were Spanish settlers there, albeit without any rational institutionalisation of law. However, with regard to the reception of English law, it is best regarded as settled, as discussed below, p62. Since the doctrine of reception or imposition is closely related to the historical of St background of the region, it is important to make a distinction between those The reception doctrine and process is more complex in the cases territories which were conquered or ceded and those which were settled.9 The Lucia and Guyana. There, the common law was imposed on essentially civil process of political transformation was directly related to the manner in which law systems. This was a difficult infusion as the civil law endured. This law was received and implemented. This has further implications for how law is interpreted.

10 11952—?9]CILR42. 11 Ibid,p45. 7 Chapter 1. 12 See Patchett, KW, ‘The reception of law in the West IndIes’ [19731 JLJ 17 for an of in region. 8 WIth the esception of the civil law in St Lucia and Guyana. See Chapter 3 (‘The hybrid authoritative hisloricnl account the reception of law the legal systems of St Lucia and Guyana’). 13 See Tucker, SC fed), B1ackstvne’ Cainmentnries 1803, Vol 1,1969, New York Keuey. 9 For the purposes of reception, there is no practical distinction between conquered and 14 In the case of St Lucia, ownership actually changed hands between the French end ceded territories. English 14 times.

60

61

17 RevIsed Laws of Domlntca 1961.

of In law

Jamaica’

(19791 p

2WILJ

43.

further below,

61, wluih affirmed

this

latter

rule.

22

For

further

discussion

of the

pp 16 particular Op

cit, of rage Tucker, fn

Jamaica,

13,

196-07. see See Morrison,

El,

Campbell The

v (1779)

reception Hall

1 Comp

204,

dinised

21

Jocquet

v

Edwards, 1

Jam SC p DecIsions 414. 1994, Brussels: Bruylant,

15.

(1770)1 20

Caribbean’,

Coomp in

294, J M Doucet,

p212.

and

Vanderlinden,

(eds),

La

ltde9lfion

des

Systlmcs

Juridiques,

KD,

‘The

reception

the of common p

(1769)4 19

law by

Barr law clvii

systems 2492,

in

2500. Commonwealth the

15

See Chapter

(‘The 3

hybrid

iegai

systems

St of Luda

and

Guyana’).

also, See,

Anthony,

Wray,

IC,

Commonwealth

Colonial

Law

1966,

London:

Stevens,

pl 5 1.

18 p

Op Patchelt, elf,

In 12,

18.

For

this

assertion, he relies on the legal historian, Roberts

the for

enjoyment

of the benefits of laws the of our realm

of England

Jl’

person All

inhabiting

in our

colonies may confide ...

in

our royal

prosecution

by

Crown the

and

it was to

treated be

reception as a

of

settled

colony. 2 ’ by proclamation

as

evidenced

by

the 1763

Proclamation:

the

basic

law

and

the

right

a

to

representative

(b) legislature By

way proclamation: of

could

not

be

t)ominica, altered Vincent St

and Jamaica

examples are

prerogative in

the proclamation

of

14

December

1661. From

that

time

onward,

existing

a at

particular

date, shall

Therefore,

be deemed the to

be

common in

force

law

in came the territory.

to

Jamaica

the via

exercise

of the

Crown’s

territory

makes

specific

provision power that

had the been common lost when law

of the England,

Representative

Assembly

restored

was

1620.

in

(a)

The

use

of

incorporation the

clause

government. this

is where

Afterwards, legislation the —

however, of

a the Crown

conceded that

its legislative

representative

institutions

had

been common made was law allowing achieved

a two via

form of

maia self- methods:

did

assert

the

right to

legislate

English

common

for the

and law

colony English

even

statute after law. a

This grant imposition

of

English of

was

uncertain

how

far

its prerogative

Two

types or English of royal

power

law

were extended.

imposed

The

on Crown the

Caribbean.

They were the

was

that

it was one

of the

first

colonies

be to conquered. As

own such,

the

Crown difficulty.

accepted

by the

Supreme

Court

of

Jamaica. 21

Part

the

of

problem

reception

with of the

Jamaica

common

law.

Still, we as

will

see

below, is this

without not

its

Hall, 20

the

island

was treated

as

settled

and

this

historical

fact countries

has have been

introduced

legislation

defining

the

date and scope

of

the

until

further

arrangement

could

be

made,

R lit

v

Vaughan’ 9

distinction

and

Campbell between

v

conquered

and

settled

territories

is

less important

as most

and

law.

It was

therefore

not

possible

for

this

previous

system

to These

continue the

are orthodox

English

roles

the

on reception

of In law.

practlce

the

force of

arms which

destroyed

completely the

previous

system

of goverament

date which

Jamaica

the

Crown

provides

directed a

unique English that

example, law come

since into it operation. came into

British

control

by

hybrid

system

legal

to emerge.

In such form cases,

of governmental date the

of reception

the

and is legislative

control was

set up’. 18

was

this

arrangement

of

convenience

‘some which

made adequate

it possible

communal

for the

organisation

to

for call

legal

regulation

and

some

English for

law

intnxluced. to

be

If we consider

the

term ‘established St Lucia, for

example,

colony’

it

refers to

the

situation

where

the

colony

had

system

was

retained

until

time

such as

other law or

arrangements legal

authority could

made

be during

the

interim

period.

The better

view may

be

that

only

in

so far

was

it as not

repugnant

nevertheless natural to

justice. accepted

The

existing

that

this does

not

mean that

Islands the

were

without

(b)

For

conquered

territories,

the

colonists

colonists retained

arrived existing

the in

legal 1666 system

but

the

legislature

was not

set up

until 1774.

It is

without

historical

contradiction.

was

date the For example, reception. of in

the British Virgin

Islands,

constitution

or

some

authority

condition

which

of had

the

infant the colony. power

to The

legislate. date

This the of establishment

is not of

the

colony

could

describe

a

colony much as

established

of the

English or law

settled. as was There applicable should

have to

their

own

been a situation

and

the

was It

also

necessary

(a) to

With have some

respect

to settled

semblance

colonies,

a of legislature colonists the before one carried with them

only so

of

inhabited areas must Caribbean have been by two forrnalised. methods:

Crown

authorisation,

recognition

of

The

English

unauthorised common law

settlements was introduced and

annexation into the

Commonwealth

dominion.

Secondly,

the settlement

must have

been established,

that

is,

been

received.

First,

the

territory

must

have

been brought

within

Crown’s the THE METHOD

AND DATE

OP

RECEPTION

Two

prerequisites

must

be present

before English law can be said to have

circumstances or needs of the colony.

and

further the

requirement

that law all discussed received in must a separate be

suited chapter,’ 5

to

the

that

is,

that

territory

a

may

enact legislation

endurance,

which

abrogates which

was

the the

common impetus for

law, the

creation

hybrid

of

legal

systems, is

The

reception

English of

law was, however, subject to statutory modification,

Commonwealth

Caribbean

Law

and

Legal

Systems

The Reception

of English Law and its Significance to Caribbean Jurisdictions

64

65

29 Ibidp415. the in Justice indies, West

1626, First p61. Series,

33

Report Second of the Commissions of Inquiry on Administration the and of (1966)IOWJR4r32. Civil Civil 28

case of in Chapter law (‘The common 7 and the law of

doctrine

judicial

precedent).

32 pill. Ibid. See discussion the of and this other in cases of context the bindingnature the

(1970)17WIR 31 107.

(l%3)6W1R36. 30

courts. English as statutory defined interpretation, the by

law common tradition, but law common precedent principles, both legal and

and not was what a merely binding received that accepted clearly was English law been received the in territories?

were courts, Indian on binding

court addressed. West as The not

Johnson

different are We faced still with the ultimate question, to what extent

has

law, English

the reception and that of attitude law English

accepting toward

more general matters on reception. The confusing today situation is hardly

issues yet the case, effect of the

that

on independence political

the have might

the relevant data of reception, the substance of his complaint holds true for

was

Here, post-independence Ombudsman’).

that to enough this note it

is a

founded it upon be will often contradictory’. 33 was While

he

concerned

with

(‘The Caribbean Chapter is courts, hierarchy

the of office in discussed of

17

reception ‘so vague was and so little understood in colonies, the that decisions

precedents of House as by the such courts, Lords,

lie which the outside

the 1823, Attorney General for Dominica that said rule relating the

to

Commonwealth

problem of The

Caribbean themselves binding judges

to

West Indian jurisprudence. a is debate it which still rages today. Indeed, in

example good

of

the on debate the of question the relevance of reception to here. 29

The contrast between the

above cases should,

therefore, noted be is accept must, judgment and view, our whatever its own law declaratory a of the as ...

so the ait in law prevailing we common interprets of and, England, far law it, duty.

England,

decision any and

as must of since be Lords House of regarded the the

For him, date the consequence or of

reception

was

secondary this to judicial

Act

of as which Judicature incorporates the our part

law common lalv

of

a formulate

jurisprudence

to

‘suit the needs

our ever-changing of society’. 3

In 3

the s of Against Offences of view

and of Person

a Ordinance 12 the the

found but also law, the

duty that of court a in an

independent

country

was to

I

the English defined by West on courts,

Wooding ladies. the saith

unclear as whether to the of principle unjust

enrichment

existed

English

in

as the

English imposing saw common both judge

law,

and statute

as that

J,

and Jennnot cases. Crane example, for noted that the English

courts

were

the lies decision with

was reasoning, its in

which

an based English

on case

the attitude of

the judges was clearly different to

that

exhibited

in

Johnson

the

J

a In Johnson Wooding R, 28 v of restrictive for difficulty view

trial

The murder.

Although court the decide did that the remedy th was

law of part

in

Guyana,

This view favour found always has Caribbean

with not

the Consider judges.

of a from goods recreation dub even after

club the

was

closed

down.

necessary

deviate moulding to the from,

suit common

societies. law to our

Money was being deducted from the wages employees of

to

support payment

as merely viewed should a

foundation be

upon where to build, which and

whether was the remedy of enrichment unjust of was

part the law

Guyana. of

jurisprudence

needs.

own

common reception Rather, our reflect to the

law of

this restrictive the view of of doctrine reception. The

relevant issue

case

in this

imposed

Caribbean formulation restrict us, upon

in this

a of our us not should

The court in case the Persaud of v Versailles 31 Plantation

did not

agree

with

English have although Ideally, received we has law, been It rather or

legislation.

following from abstracts by illustrated the

the cases.

statute of general application which had not been

abrogated

by local

the

law common of

any transplanted is particular was

territory, to

ably

Imperial Parliament in in force England on 1848 1 March and

that a

was

it

doctrine inherent difficulty The the

reception, of

in much in how deciding

Tobago legislation. The court found that the a was Gaming statute Act of the

constitution, the This, in see we this later shall as therefore, book. was a reception law of clause the embodied Trinidad In and

in

is precedent judicial as England. interpretation This as true

the for is of for it

been enacted and to

been in in have force Trinidad.

Rather, common principles of to are

rigid as these tied (hey law declared the

that Parliament

in

force were In England on date shall that deemed to have be

not flexibility courts

to the adept to

needs. the possess law do local common

equity of and doctrines of statutes

General

Application

of

Imperial

the

common

to Taken principles. law

conclusion, logical

its judges Caribbean

and

March 1848 end any to eoactment passed the that after

date

law

common

courts English

to judges and which find and declare the authority have

these

Subject the to provisions any of enactment operation in the on first of

day

difficulty

jurisprudence. Caribbean Intellectual is for

presumes It

only that it 1962 provides that

the While be may theory

legal a

does

present Lt fiction,

certain a

the Act apply. should Section 12 of the and Trinidad Tobago Judicature Act of

Commonwealth jurisdictions received. Caribbean Gaming of the Act applied IlK to Trinidad and Tobago. The court held that

containing

principles. immutable the is This legal law common which Consider, further, Jemmot v Phang. 0 Here the issue was whether of sIB the

Commonwealth

and Caribbean Law Systems Legal

The Reception English of its and Law Significance Caribbean to Jurisdictions DECISION

ISOLATION:

COMMERCE

TO

TRADE

THE

OR

Mat

#40703398

John

AMERICAN

A

INTERNATIONAL

TiNsAcTIoNs:

William

Michael

John

H.

PROBLEM-ORIENTED

The

Peter

Stetson

and

Ralph

COURSEBOOK

Wallace

A

BUSINESS

George

Tenth

Mary

Thomson

University

University

A.

University

Professor

Professor

WEST®

Wallace

CASEBOOK

L.

Kirkpatrick

Lou

I..

Washington

Spanogle,

H.

Reuters

By

of

Fitzgerald

Dasburg

Edition

of

of

of

San

College

Folsom

Florida

Law

Law

business

Professor

Diego

University

Professor

Gordon

of

SERIES®

Law

Jr.

of

of

Law

Law ‘36

-

beyond

were

anyone

food,

her

was

owned

different

climate

society’s Westia,

themselves.

society, Tropica,

island

had

natural

of

island

its

assist But

basis

and

remember,

people

reasonably

to

the

ocean

maximum

emerge

To

needed

South

the

Long

were

as

accumulated

housing

of

population

those

collectively

where

Egalia.

nation

the

else.

little

quite

and

resources,

tended

no

society

far

each

distribution

borders.

than

paid

after

east

of

to there

But

good

in

CoMMERcE

amount

person

more

unable

But

traveled

and

people

industrious

capacity.

individual’s

Westia

live,

stretching

in

for

different

the

made

of

there

to

the

was

natural

had

medical

than

by

more

considerable

either

Westia,

their

and

creation

provide

to

in

of

worked

DECISION

the

as

governing

of

were

involved

everyone

been

some

work.

natural in

The

each

Tropica

Westians than

efforts.

resources

locations

group.

Westia

across

resources.

and

Westia.

care,

efforts.

on

far

an

mass

of

CnAITER

for

several

hard

was

Westia. No

the

independent.

the

more

with

allocation

OR

with resources

contribute

wealth,

elite

Each

Some

those

had

one

the

or

expected

and of

third

Families,

to

Some

world,

on

and

2

small

the

poor

no

Tropica.

hundred

The

ISOLATION:

The in

survive.

middle

seemed

TO

person

ever

Tropicians;

became

the

who

major

one

Westia

population

ownership

but

of

of

than

three

were

climate

climate

scale

some

to

T1]E

planet.

ventured

the

rather

having

the

For

were

1

Tropica

was

of

to

produce

There

land

In

miles

in

quite

similar

identifiable

agriculture.

had

people

society’s

the

live

of

as

Westia.

was

Egalia,

none

entitled

was

unable

than

mass,

what

existed

In

very

of

ever

long

planet.

wealthy,

was

lay

quite

was

beyond

extremely

according

property

Westia

temperate

worked

to

had

THE

the

much

they

ventured

Tropica,

As

resources

much

was

as

everything

Westia,

to

to

mainly

well.

with

societies

ever

A

leaders

in

It

anyone

receive

Egalia. others

few

provide

produced

the

more

there

the

for

had

disease

was

ventured adequate

hot.

to

Egalians

but

and

persons

a

beyond

case

a

island.

others,

his

on

of

began

many

what

than

Most

could

large

poor.

very

poor

were

was

The

the

the

for

the

the

or

of in to CiI.1 Tm DECISION TO TnE 3

As the people of Westia became more affluent, with a significant and comfortable middle class, they had time to devote to activities other than providing for necessities. Culture and thought occupied the time of a number of Westians. New ideas of exploration caused small delegations to be sent across the oceans in search of what lay beyond. When a group of Westians arrived in Tropica, they were surprised to discover a population living in much less affluence than in Westia. Tropicians were very interested in the better quality garments and farm instruments possessed by the Westians. They asked if they might obtain some of them. It took a Tropician five days to make a garment, but the same garment of better quality could be made in Westia on something Westians called looms in only a half day. At first the Westians offered to give the Tropicians some garments; both peoples were quite friendly towards each other. The Tropicians accepted several, but said they would like to be able to obtain many more for their people. The Westians had to gather together and think what this meant. Westia would have to increase its production of garments to satisfy the demand of Tropica. If they did that they would have to stop producing something else. So they talked to the Tropicians. The Tropicians said that although the tools of the Wes tians were very useful in design and quality, the metal was very soft and they discovered that Westian tools did not last long. The Westians agreed that was a problem with their tools. The Tropicians showed the Westians some of the minerals found in many places on their island in great abundance. One mineral was very hard and after some experimentation the Westians learned that they could add it to their metal and make very strong tools. So the Westians had found something to receive from Tropica in exchange for their garments. They would take so many kilos of the Tropician mineral for each garment. And so the nations began to trade. Westia received something it did not have and Tropica received something it had not been able to produce as well as Westia. Labor costs of production might have equalized in the two societies, but people of Westia were reluctant to move to Tropica, and Tropicians generally felt the same about moving to Westia. Furthermore, each nation had placed limits on immigration. This had a tendency to preserve labor differentials in the production of goods. Later the two societies discovered that Tropica made a wonderful wine, and they did it with much less labor than the wine produced in Westia. It took a Westian ten days to produce a barrel, while a Tropician could do the same in two days. It seemed appropriate for Westia to trade some of its garments for Tropician wine. Westia had a “comparative advantage” in producing garments, Tropica in producing wine. And so they traded more. And they began to discover that Westia produced some other items more efficiently than Tropica, while the latter produced nearly as many goods more efficiently than Westia. One of the items which Westia produced more efficiently was dishes. The firing kilns were vei’y advanced in Westia. There was also a dish 4

industry

Tropica dish the

your make dish

leaders dish no pointed

in were industry. would would would finer

many some

allow thinking needed began that

quotas estimated have ports revenue

retaliate than pursue

trade really

nation.

goods

worth garments. currency.

wished support beyond But

agreed same

Westia.

restrictions. two

producers.

industry.”

producers

dishes

when When

in better

necessary

what Westia

would

the with

to

take

thousand

mature, be when

be degree of arguing countries producers

one out

for

revenue quality in and

to free

help

to what Westians

was

more

its

Westia.

against

governing

free, imported. Westian

that

Tropica.

At news

use

ten

to

But goods would the that

Westian

goods, dishes sell.

be

placed

currency limitations was

trade.

its

come

first needed

in

it So

years The gold,

the said

but and

about than

They

quota,

for for

as allowed

per the of trade. by

traded,

For needed,

each buying

would

were They the

these

they

asked

the

and officials the same quotas

Westian It

so that

into survival be

placing quota It

which a that Westians

elites When

dollah. year. the

and

Tropician referred example, was

because the

by

nation.

tariff

years

seemed

many But but

societies first

Tm

able soon

buy said

new

go the in, were officials our

number Tropicians, from Tropica

suggested

the

buying if

owned reached idea,

of

Some was

allocations.

it out responded Westians

that

but traded dish They them a DEcISION

the Tropician

to Tropica

country would

passed of of

tariffs, Tropica

Tropica seemed

minerals

believed would Tropica. tax

It

to the

a inevitable,

of

compete if

leaders Westia

Tropica

four agreed

two

that

using producers

was very would when would

critics by

its

this business. also

Westia

with

on

Westia,

nation between

that be

they relatives

the

societies but

own not

because

imported

to

very pellos pointed

access they

Central imported scarce TO

by

agreed dish

as able

Westia

it to

So

a

that said if

enter and

create be

or

in until

leaders

decided with

allow thought

it TinE

had

tariff saying

free they accumulated

currency be

however, was various hard

buying

Tropica

would

Tropica were producers

barrels

to

They did

to

the

on to each it

commodity

in

by

we of

that

that should begun

out Westia.

Bank

debated compete

Westia,

various trade.

Tropician must did the

trying dishes

would

not. dishes.

to two the each

of some

paying that

not

that

must

also the

Tropician

establish

more

that time Westian

Tropica

each

find

not

finer

when

discarded

of suggested

would best

that

areas, happy.

to

Its

trade

protect

unlike

infant

But

would Westian

of

it said

Tropica

to “We raise regulations whether

protect

from

wine

have with

a

exchange no They

the their in

goods

mined government

leaders the

could

dishes.

interests boats

build

surplus trade

the

the

the Westian

that

buy suggested they all

dish

tariff will

a

Nor

pello

dish

learn

leaders.

dishes, revenue.

the

Westia, dollahs?

for

that

also dishes

quota

other from

the

goods

that

Tropicians ground, our

to raise

thought dish.

to

them it

now

roads not

would

producers

exchanged

But were wished

Westian

industry

as

goods about would so

ought

how of be

learned

idea special to infant

of

PT.

Westia dishes’

would

allow

boats

would

nation

that would of with some The were

after

many They

pellos

that sold

back. the

limit their

They the

The

and

to

not

and

1 so

the for

of it

to

be to

-33 CH.1 Tm DEcIsIoN TO T1DE 5

‘he had long been highly prized by both nations. This currency arrangement ;he worked for a number of years, but Tropica was concerned that its gold iat reserves were diminishing. Trade was favoring Westia and it seemed that to whenever there was some accounting to be done, it was an exchange of an surplus pellos in Westia for Tropician gold reserves. Tropica had what ow they called an unfavorable trade balance. Lflt One Friday afternoon the Tropician government announced that they ;he devaluing their currency, that they would now give two pellos for ith were each dollah. Westia and its producers did not like this. Westian officials tns said it was a “beggar thy neighbor” policy, that it attempted to correct a old domestic problem by causing harm to one’s neighbor. Immediately goods ats Tropica became more attractive to buyers in Westia, and some ial from goods from Westia were now too expensive for Tropica buyers to consider. But ry over time, Westia became more efficient and the imbalance in its favor it occurred once again. This time Tropica did not devalue. It was nearly out aes of gold. It decided that it would no longer exchange gold at a fixed rate for ere its own pellos. And it would not support the pello. It would allow the aat currency to float, and if there was no confidence in the pello, it would drop so in value compared to the dollah. That is what began to happen. The pello Lild had become a “soft” currency. The dollah was “hard” ter me Sellers in Westia now wanted only Westian currency for their goods. ied Tropician pellos were not worth anything in Westia. Westian workers ers making goods to export to Tropica would not accept pellos. They could no of longer take the pellos to the Westian bank and be assured of receiving iey dollahs in exchange. And of course they had to buy their food and other ild items with dollahs. So when a Westian seller agreed to sell to a Tropica ‘he buyer, the buyer was required to obtain dollahs. Dollahs were available Lnd from the Central Bank of Tropica, but often the supply was low. Some tia times the Tropician buyer received dollahs for selling goods to Westia. It may have seemed strange to some observers, but Tropicians were • to more to willing to accept Westian dollahs for the sale of Tropician goods, than aot were Westian sellers wiffing to accept Tropician pellos for the sale of nit Westian products. .eir After a couple of years the Bank of Westia discovered that it had many pellos which it had received from its producers, who had exchanged ed the pellos for dollahs. One day the Central Bank of Tropica said it did not my have any dollahs to give to the Bank of Westia in exchange for the pellos for the latter bank had accumulated. There had never been such a problem be before. So the government of Westia began to loan dollahs to the govern ild ment of Tropica. In time the amount of dollahs owed by Tropica to Westia Ion became very high, and Westians were concerned that they might never be los paid. Some Tropician politicians suggested that the nation should default, ck. but most believed that would be very harmful to the country and that iey extensions should be sought for paying the debt. Westia agreed, but Ihe demanded that Tropica take certain steps to diminish the prospects that nd the same problem would arise in the future. 6 produced producers exchange transferred producers to

investment. entity, but passed

the when more sure ago two. from by Their still used industries, of caused tested started production Labels designated seemed different they the or Egalia. were trading areas in negotiated not and in

manufacture

comparative

Westian

Westia,

Buy

Westia

While quality

The

a

entire Tropician

an

two

But

advanced

Tropician

that

And

Westia.

tariffs

were

owned

rapidly,

the

east garment

price

but

many

locally;

had

agricultural

It

out

Tropica them

to

with

there

societies. Tropicians

of degrees.

could

this

societies was this actually in

early of reduce at

and companies of

and through difficult

as the

owned of

more

to

had goods,

goods.

and Sometimes

by

Tropica,

Westian Westia.

other Westia

life

each

certain should

had considerable a

be and officials

very was

was

traders

from

only

be advantage knowledge

the

considerable

Tropica,

various

strange

rules

deteriorated trade

quotas,

in

efficient.

in

trade.

firms.

established

produced

Westia ultimately

One began

cultural, other.

that times

particularly

government, The community

much a Tropica

to

the

were

certain Westia

was

To

be

central products

calling companies

on

which

began

were

between

obtain.

cooperative products,

society the Tm

their the importing

allowed. Often

and

they governments

it

the

now

to

All

was

in for

also

of

Tropica

jointly

harm

educational had

not

trade, Westian

cost

more

disparity

small DECISION resources.

this

the how

to produced society more

other.

of compared

Westia

amazement

national

their

a were

working.

containers

Both on

to with becoming

true

talk

the manufacturing

improved, Westia

sure

not had

only

They

time

a

them.

what

to

the

because owned

cheaply

was

society’s had

ports recently

transfer

own

project

told Permits

means

much

to or by

nations manufacture

learned of bought

that

producer

one one

of

that TO

were security.

of

several limited

State those now

And

private

the they

to and

It They

and

Westian

that

the

income

could

they

had TRADE

concerned

the

hand,

barrel

each did production

in

the in

the

of

Westia was

language

natural

they

scientific very

it of also

were not

referred

Tropica entity Trading had Westia that

Tropica.

goods.

thought

all idea have to production

discovered

price had

Egalians

free

technology.

individuals. owned

nation,

industries

be

Both

to society

and

only

meet

concerned

owned found of which

great.

trade

become

some

some required

of

used

much and a trade with explore

wine,

resources

for it

Tropicians

that

adopting temperate

trading and

cooperation goods was

to Organization of nations

that

Westian the certain

had

while

other would Only of

Tropica of

about

plants

was natural finished

were

some as

for

to

a

and gold.

goods but

protectionist

as

the

limited its

increased entire of

Later

When third

free

to

the

foreign that

from

protect

the only

two

the

Tropica on

products

ways

Westia

occasionally

regulations.

Tropicians.

distribution import, Buy now

products

goods

of

subsidizing have

in

But

producers

uncharted

climate

trade

resources

had

were

had

although

the

society—

products

Westian

Tropica,

Tropica.

entry

between

Westian Tropica

decades Tropica decades

modest

to

Westia

it

(STO). direct PT.

which

infant

it

to

basis

made to

even

been

cost

was the

had

had

not

had

but

to

be

be

as

it

in

of 1

). a a - Y S

e a d e t S 1

d a a g I I S t 1

e

employment

the Westian

locally,

Sometimes

once

which

currency industrial

tion”

feed.

cal when

remained

growth

Tropica,

other

could gaining

originally wary

much Tropica

Egalia, time

disadvantageous

They

distribution equity tured trade

of the

officials some societies.

resources determined little.

agricultural worked

shortages The decided Cii.

Everything

the

Westians.

STO

agricultural

Through

If market—forces

1

Tropica

of

ago,

were Egalian

Ultimately

and

produce

they

concerned of

country.

in

they

goods,

certain

The

in

but rates

this

where

advantages

for

producers began

thought

how

where

those

of

officials

Egalia

investments

important

been

When

of

but

production,

reduced

of

also

developed

Westian

formerly

Tropica

the

government

Westia

new

was nation.

seemed

of

certain

to

than

realized

many

the

the

kupecks,

such

items

The

the

enough

to

it

Egalia

some

agrarian

land

items.

benefit

not

be

in

the

privately

effects

society. owned

with

production.

was

nation

said

Tropica

trade

Westia

years

disliked Egalian

the

boats

only

trade

an

they

in

as

willing

products,

were

reform

made

to

of

to

capital

price

Tropicians

imported.

that

insisted

more

in

they

owned

the

But

and

their

them.

for

but

supply

need pottery

of

industrial

be

of

with

by

economies,

the

Tm

Egalia,

to provided

apparent

possessed

and

to

not

for

the

that

the

it

the followed concept

was

two

the

the centrally

Egalia

Egaiia

moved officials

were

to

tended

that

efficient

produce,

trading

would

for

difficult

three

Egalia,

It

on DECISION

products

Ega]ia,

by

while

But

that

group,

allow and

others’

profits

this

state

loss

families,

This

discussed,

always

or

making

where

the

Tropica

sorry

end.

the

said

nation,

did

for

first

benefit demand—played

the

to

of

Tropica

tools.

was

to

of beginning

societies

insisted

enter others

Westian

a

with

relationships,

Egalian

but

became

planned

forms

and

not

as

workers

reduce

for

state

from trade

their

It

import

other want

pattern

its but

all

seemed

all it

TO

barter,

to

well

the

one

it

was

to

the

there

foreign.

the

desired.

currency

But

Tropica

of

Westia the

TRADE

were

they

produce

there

and

was

the

ownership

export

of

activities.

use

also

on

products

societies

to

five

the

the

developed

known

or

family

as

individual.

exception

not

in

to

these

in

farming.

to

the

needs

were which

sales

of

trade

calling

quite it

Tropician

over-produced. how

saw

some

produce means

development

was

year

Egalia.

capital

had

each

dominate

said

satisfied

Westian

and

market

encouraging

diverted

to

could

idea

goods little

items.

could

thus

as

many

continued

to

take

no

they

in limited.

with

purchase

The

of

produce

of

in

higher

plant. it

they

in

“import

of

different

of

When

Tropica

reason

Tropica.

Often

The

to

its

not

of

role.

other

the

Egalia,

more

“countertrade”.

minimizing

within persons

goods

production

one

begin

nations

of

did

pairs

Of

with

and the

the

invest

much

owning

would

citizens

be

these

scarce

government

of Westia

Westia

Cost

province

a

course

population

one

there

items

Egalia

mouths

the

policies

plan,

to

two

to

taken

Tropician

extensive

manufac

very

substitu

economi

being

was

to

of

and

ways

Tropica

Tropica

benefit

had

to

discuss

locally

items.

of

family

meant

accept

shoes.

items

make

other

hard

then

land

were

only

long

own

who

was

was

the

and

and

was

the

the

out the

all

to

an

in

of of

7 I first by 8 the they to investment larger nations export. barrel were either were the caused products long Tropician forced Tropica developing campaign goods label political origin Tropician. between Tropica of further. was referred the economy latter oped or developing They called to mies. of Tropica the the many advanced them technology same Import As Group The a thought before unable soon not “Made nations”, They Westian amounts Westian in develop were developing anyway, of “developing” of to Westia the the label. and could The views, more wine the Egalian industrialized the the to compete first single according improving. labor that and began At a decades of nations, a perpetuation policies, were substitution to the still comparative Westian as developing great first. goods it in Westian The 77, first for be more reached had more societies companies. introduced alliance produce Tropician of and but would garment. was the or Tropica” others poorest often societies. to alliance or a net production. were for use many grown it passed, Westian to and “capital to learned or to recently quickly). cheaper which the feel North—South The market worked the exporters, appear of acquire and some “less called Westia, composed political nations”. like goods on the Tm finally countries worked South Tropica of of that products But advantage societies to first included nation tended even the additional had the Tropician Egalia. least highly garment. that developed”. be than DECISION degree to exporting or “nonmarket The which and garment But on to time new planet. the garments (when disgruntled Egalia. a gained long in rather well labels but the developed The they rich of be once not they that Tropician Westia (ABCs). were Egalia. on Alliances newly inefficient dialogue, nations technology, with the in also could like label. protected exploration in Tropica Now Tropician to nation groups used Many were producing TO the production No had of then was a nations”, than nations inferior Some some be on foreign bought industrializing measure Westia Westia TRADE even economies” compete It one They it planet. But with nations in somewhat Westian to the levels not realized alliance were seemed were partly had which economic regarding Tropician broke was conjunction instances could trade passed Tropician many but alliance which most were solely in all products centrally resulted garments and to they formed or was like of with of Westia Then determined because or inferior. trade soon quite the the nations involved that producers one sometimes development. Egalia. advanced persons quality the new. (NMEs) were Westia, moving dependent laws because must form, Westian became how group countries “terms for producers. based their discovered (and there in tried four industries, most explain planned bore with and When requiring called of the Tropica, were In produce Tropica to and bought to socialist discussions its others or, barrels down later restrictive they it who to a possessed mainly to developed what known time, of discovery were products help Tropica. “market made nations. was Tropica exports how to wage usually “devel (NICs), status. trade” export econo PT. There They were were two) refer that even was had but like was not the the for the the the for all on in as or 1 a

3)

to iown tinly Iropica ica r Elow LO a

vn at rs ne .v aadein ‘ropica. s, brictive xports

veloped ere scovery ght vas rels oducts ice sessed

ussions

elp

wage

alist iations.

usually

market d

“devel-

export

(NICs), trade”

sttus

econo-

There

They

were

two) that

were

refer

even

had but

was

like

wa.s

for

not

the

the

the

for

the

all

as

or

a

:

I

highly

contrast phy. underwent

exquisite forces

edge, nations

policy

that

and eign nations Westia

zation.” to

of Westia,

lenders years

of

over

immune properties

a properties to

and even

sation owned nations, nations

the adopted shift.

and greater

trying

such communist

stopped CH1

lump

the

Westian

Egalia,

airline

At

sometimes

Tropician

largest

Both

Change

the automobiles.

They

the

they

currencies

changes

banking.

called

passed

latter

to

Interrelationships

towards

be

to

developed

and

the

sum

property,

began

from

was

role.

shift

central

courts

the

Tropician

They

to

these

from

fabrics. enter

but

decentralize

the paid.

services,

must

and

moved

be

were

a

Egalia

nations

same

much

industrial

payment.

Oriente,

nations.

nations.

so

was

major

and

Westian

Tropician

loyalty

returned,

But

Egalian

as

also

to

alliance

also

such

sometimes

converted

When

and

excessive

investment

in

If changes.

from

planning

achieve

nationalized

But

not dangerous

sell

then

away

time,

This

many

society,

the

Westia

of

and

Egalia,

societies.

transformation

port

opened

of

establish

to

challenges,

The

to

the

internal

was off

only

tourism,

Some

alliance

owners nationalization

and the

their

companies,

of

loan

was

Westia.

nations

from

Egalia

or

the

government

facilities,

economic

difficulties

state

Tm

that

considerable

between

result

their

Nor

remaining

and

should

back

quite

two

the

an

a

that

the

often

up

and

more

Egalian

to

economies,

Revolutions

of

very

strict prices.

DECISION

by

attribute

even

strife it

tried

owned

nations

did

societies

strong

it

debt to

and Westian

were the

again.

“prompt,

Some

was

the

different

probably

or

imports.

called

not

Tropica,

was

more

caused

telephone

rich

such

development

politics

economic

in Westia

brought

that

security

to

many

caused

to

ensued.

often

group.

One

progressing

parts

smaller

consider

companies,

their

said

not

power

resulted

concern

It

realized seize

equity.

members

nationalizing,

of

culture sat

TO

investment

and

alliances as

the

was

and

area

Although

in adequate

the

could

a

of Egalian

enough.

the

TIDE

of

it

it and

those like

fundamental

down

Westia

under

shift

property

of

its

allow

taking

planning

and

For

the

to

civil

in

a

nonmarket

Tropician

Egalia.

was

the

of

on

owners

the

that

in

subject

never

look

population

trade

of

to

through

the

in

quite

a

Egalia

and

of

Egalian

telegraphic

manufacturing

competed

the

example,

wars

state

the

matter. market

and

alliance

process Many

art

and

often

“sovereign”

see

allegiance

they

the

was

from

the

inward

alliance,

planet. of

resolved

Oriente

be and

and

were

takeover

demanded

well

of

and

Tropician

occurred

effective”

ownership

debt

Tropician

Tropica

far

nations

economic

an

paid.

Westian

tried

earned

a

of

Westian

conflict

alliance

economies

it

forces

allowed

Usually

called

less

and

and

until

when

for

on

production

and

“act

very

the

was

of

facilities

from

looked

the

once

The

to

its

the dominance

history restrictive

sometimes

of

adhere

to

Tropician

located

in

and

hard also

airplanes

to

they

of

“privati

stop

complex.

alliances

between

that

compen

issue Westian

philoso

eastern nations

nations

some

alliance

market

alliance

refusal

several

foreign

Westia several

realize

former

had

play

state”

upon

done

were

thus

and

for and this

the

by

to

in

of

in

of

a

a 9 but strict move. 10 population even ready world, many

seemed Egalian pursued were

measures to imposing nations

large investments was concern

concerned viewed Tropician

ized.” nation’s concern Westian large upon determined that

had they wondered and alliance like

Westian own tion of organization ishing newer “rounds”

be

the

As

retained

this. Many the

other

difficulty

trying

nonmarket protect

to must

investments

dumping products.

when

to

market

It

dissolved, Westian

nations

Westia

Oriente

quotas, organization

Oriente

to

to

alliance

to

move work of

participants

this was

opened

loss

cultural

created

as

nations)

restrictions

be

why, nations,

had more

of only parts of

many

learn

have

to

to

they

privatization

were

the

goal expressed replaced a any national

of

a

principles.

for

become

even penetrating

saw

of

stop

and achieved

as

alliance

convergence

quickly

after with

began

very and

trade

their

reducing the

of how

economy

citizens

nations

the

damaging

a

did

nation, multilateral heritage,

in

well

of

not

which

this

as Egalia. small

countervailing it.

closer

additionally

Tropician

projects nation

used

Egalian they

profit

assuming to

join

centrally

national by more

an on

well

But

to industries. as

always

TIlE

that

developed

nations. concern

use

considerable

They

of

of

of fraction

reducing older

and

eliminating

play

rules,

foreign the

had

a

by

to

Westian

a

Westia But

the

such

making, as

a

state like to

variety in these

DECISION

affects

the

to

alliance, multilateral

a

few

periodic a

size

adopted often

welcome alliance trade the

significant the

one

a Westian

culture.

market global Oriente

develop

planned

poor

trading the

addressed solely

Furthermore,

national

as property,

very

of

Westian

trade

investments,

did

Some

into duty tariffs

economic

trade of

markets. (formed

of

Westian on

the

its

were and

success

organizations

but

many

created

state TO

not free non-tariff

major

more nations.

as meetings

natural characteristics barriers,

Westian and the

made the

music

actions. little

in

wages

Westian government.

TiDE Egalian

of

and

increasingly

trade

trade language surprised

a

have

and

allowing

several

trade

other

after

bureaucracies,

non-tariff

Tropician

world’s

some

recipient

new

open

philosophies

nations.

The

in

role with

a

quotas,

a

and

in

Tropician

they new

Nations

resources.

reducing the

bold

especially

and

agreement, Westian

barriers

nations

and

a

society.

of

trade former

nations. most

foreign trade and

goods, in

areas

the

war

literature.

inefficient

which

was support

to

world

largest

the

foreign

were

and began

The

world

and

alliances, trade

skilled

Tropician

With

by rest

discover,

Tropician

of

principally

barrier,

policies,

of

being

previously

were

to tariffs nations

alliance

members

nations This

quite of

sometimes

the

investments former

repealing But

trade such

An both

allowing

trying

were

opening

of

to

restrict

barriers.

of

trade, much

producer

the

investment,

the

labor

rest

the

businesses

bring

Additional

all

increasing

viewed

new

some

“Westian

dramatic

and domestic

and

alliances

organiza however,

and

they

Westian founded

nations

thought alliance

nations

largest

foreign

nations did

to world,

of

PT.

of

among

there

politi

force

called their trade

trade

some laws

very

their

abol

very

the

was

join was

the

The still

not

of

as

in

1

3 CH.l Tm DECISION TO T1DE 11

cally impossible to consider, including agriculture, services, investment and intellectual property. Where these unilateral rules were not thought sufficient to generate sufficient free trade, smaller groups of nations formed free trade areas, generally based on geographic considerations. Trade in these areas was not always absolutely free, but the purpose of the alignments was to increase trade and move more towards the characteristics which had always distinguished Westia, and away from the collective characteristics of Egalia, or the restrictive characteristics of Tropica. A few of these mostly regional trade associations agreed to considerably freer trade than was true of the much larger world trade organization. The people of Westia and some of the Westian alliance nations seemed to have very inventive characters. They developed many products which were unlike any others. The inventors were given protection by Westian laws, so they might profit from their ideas. These laws were grouped together and called intellectual property laws, and protected a great range of creativity. But many of the Tropician and Eastian alliance nations were concerned that the Westian nations refused to allow access to some needed goods, such as pharmaceuticals, without very high and unfair payments. Tropician and Eastian alliance nations often copied the ideas from the Westians, without paying any compensation. Although the recently formed world trade organization had tried to deal with this issue, there remained many abuses. It was a continuing issue between many of the nations of the world. The changes in the world seemed to be bringing many people, regardless of their alliance affiliation, closer in thinking about trade. The centuries before had seen isolation caused by lack of communication among societies change to trade which increased as the three different societies began to think more alike. Nations increasingly felt interdepen dent, although there remained many forms of national restrictions on trade and investment. It seemed fair to say that trade had become the norm. Not free trade without restrictions, but rather a complex trade matrix which was often quite difficult to understand. There were those who sought to try to understand and to advise on matters of international trade. And they were called international business lawyers. They were not always well liked, and they sometimes seemed to function without ade quate rules of conduct. Much more admired were those lawyers who remained in the academy—the professors at the nations’ law schools.a These law schools taught courses in international business transac tions.

QuEsTIoNs AND CoMivnwrs 1. Jeffrey Garten, Under—Secretary of Commerce for International Trade in the first Clinton Administration, commented on the impact of

a. If any reader has not yet realized the fictional character of this chapter, this sentence will assuredly establish that fact. H

culture

Medici See always 12

warnings, Suggesting

worries GaLrten abroad

zation, run. “rallying but tion. more culture culture? engage

(which

Business

bought of

Rockefeller ism” Uruguay the

treaty Brussels In

legislation remain ensure

American’s

and zation,

nationalism, decisions assault,

This

this

How

cultural or

as

August, by

spread

and

when

activities

Americans

suggests in

The may abroad.

that

tradition. Disney

Garten’s point” trade

is

exporting

he spread

on time

international

do

their

countries

in Columbia

that that

insecurities

building.

Week, and

further

U.S. Round

investment

nations

the

necessary not you

the

requiring invasion.

their

Canada

Center.

barriers, self-interest.

images a

addressing

for

In

the of and cultural

Washington

the

of

hands

more

protection

view

be

should

should

comments

U.S.

Only the

Nov.

nations

developing

U.S.

commented:

of

culture,

need

anti-Americanism.

United

United wish

Pictures

the

Just

called

global next by

sensitive the

Now

will

to Recall

entertainment

of

that

Tm

business.

rules

culture 30,

with

independence or

not

cohesive ...

Michael

same

its to

building

increasingly a

affecting

be

Amid how

chapter as

1998,

States

of

States

a reaction

protect

over together

DECISION whether

citizens.

few

have trade

address recognize

was

U.S. nations and

these

magnified,

certain

a

national

approach

as

is

justified

we

years protection the

Eisner, derailed

at

national

Mitsubishi

difficulty

sometimes

anxieties

modern

might respecting negotiations

ought

the

we

their

in

pg.

need

disorientation

against

overwhelmed 19

the percentage

companies.

Italian

from

TO

place

will that protective

capital

ago,

culture 26.

other

leading

might

he

cultures,

issue

reaction allow T1DE in

to

communities

to

societies.

see

America. empathizing

of

stated: Noting a

strong part

France

American

pay can

Corp.

Renaissance

referred

decade

understand Europe’s

governments

and

it)

help

the

of

because

some

might

to

of Last

because

they

responses

some

in

the

such

by goods

policy

to

that

issue

its

that

purchased cultures

U.S.

almost

If

ago

Mexico order

the

spring, quotas

seriously

impact

to

media

become

unite

societies

grounded

“cultural

as cultural

comes

attention

it

superpowers

with

exports

receiving

of

when paralysis,

as of

process

TV by

wanted

foreign

to

culture

a

to

Macdonaldiza

torpedoed

from

abroad

is

a

programming

and

in

spat foreign

of

Lorenzo

plot

and with

New

multilateral

successfully

Sony

considering

a

threatened

industries.

in

feel

the

a

of

in

imperial

defensive abroad—

subsidies

nations. to

between

to film.

nation’s

the

ways

strident

globali

return, globali

culture York’s

history

PT.

are

Corp.

under

tough

fears

these have

limit

long

the

De

He

to in

1 TRADEAND ECONOMICGLOSSARYOF TERMS

Balance of Payments. A tabulation of a county’s credit and debit transactions with other countries and international institutions. These transactions are divided into two broad groups: Current Account and Capital Account. The Current Account includes exports and imports of goods, services (including investment income), and unilateral transfers. The Capital Account includes financial flows related to international direct investment, investment in government and private securities, international bank transactions, and changes in official gold holdings and foreign exchange reserves

Balance of Trade. A component of the balance of payments, or the surplus or deficit that results from comparing a country’s expenditures on merchandise imports and receipts derived from its merchandise exports.

Barter. The direct exchange of goods for other goods, without the use of money as a medium of exchange and without the involvement of a third party.

Beggar-Thy-Neighbor Policy. A course of action through which a country tries to reduce unemployment and increase domestic output by raising tariffs and instituting non-tarriff barriers that imede imports, or by accomplishing the same objective through competetive decalitation. Countries that pursued such policies in the early 1930’s found that other countries retaliated by raising their own barriers against imports, which, by reducing export markets, tended to worsen the economic difficulties that precipitated the initial protectionist action. The Smoot-Hawley Tarriff Act of 1930 is often cited as a conspicuous example of this approach.

Bilateral Trade Agreement. A formal or informal agreement involving commerce between two countries. Such agreements sometimes list the quantities of specific goods that may be exchanged between participating countries within a given period.

Comparitive Advantage. A central concept in international trade theory which holds that a country or a region should specialize in the production and export of those goods and services that it can produce relatively more efficietly that other goods and services, and import those goods and services in which it has a comparative disadvantage. This theory was first propounded by David Ricardo in 1817 as a basis for increasing the economic welfare of a popultaion through international trade. The comparative advantage theory normally favors specialized production in a country based on intensive itilization of those factors of production in which the country is relattively well endowed (such as raw materials, fertile land or skilled labor), and perhaps also the accumulation of physical capital and the pace of research.

Countertrade. A reciprocal trading arrangement. Countertrade transactions include:

A) Counterpurchase obligates the foreign supplier to purchase from the byer goods and services unrelated to the goods and servise sold, usually with a one-to five-year period. B) Reverse countertrade contracts require the importer (a U.S. buyer of machine tools from Eastern Europe, for example) to export goods equicalent in value to a specified percentage of the value of the imported goods—an obligation that can be sold to an exporter in a thrid country; C) Buyback arrangements onligate the foreign supplier of plant; machinery or technology to buy from the importer a portion of the reultant production during a 5-25 year period. D) Clearing agreements between two countires that agree to purchase specific amounts of each other’s products over a specified period of time, using a designated “clearing currency” in the transactions; E) “Switch” arrangements that permit the sale of unpaid balances in a clearing account to be sold to a third party, usually at a discount, that may be used for produ8cing goods in the country holding the balance; F) Swap schemes through which products from different locations are traded to save transportaion costs (e.g., Soviet oil may be “swapped” for oil from a Latin American producer, so the Soviet oil is shipped to a country in South Asia, while the Latin American oil is shipped to Cuba); G) Barter arrangements through which two parties directly exchange good deemed to be of approximately equilavent value without any flow of money taking place.

Countervailing Duties. Special duties imposed on imports to offset the benefits of subsidies to producers or exporters in the exporting country. GATTArticle VIpermits the use of such duties. The Executive Branch of the U.S. Government has been legally empowered since the 1890s to impose countervailing duties in amounts equal to any “bounties” or “grants” reflected in products imported into the United States. Under U.S. law and the Tokyo Round Agreement on Subsidies and Countervailing Duties, a wide range of practices are recognized as constituting subsidies that ay be offset through the imposition of countervailing duties. The Trade Agreements Act of 1979, through amendments to the Tariff Act of 1930, established rigorous procedures and deadlines for determining the existence of subsidies in response to petitions filed by interested parties such as domestic producers of competitive products and their workers. In all cases involving subsidized products from countries recognized by the United States as signatories to the Agreement on Subsidies and Countervailing Duties, or countries which have assumed obligations substantially equivalent to those under the Agreement. U.S. law requires that countervailing duties may be imposed only after the U.S. International Trade Commission has determined that the imports are causing or threatening to cause material injury to an industry in the United States.

Devaluation. The lowering of the value of a national currency in terms of the currency of another nation. Devaluation tends to reduce domestic demand for imports in a country by raising their prices in terms of the devalued currency and to raise foreign demand for the country’s exports by reducing their prices in terms of foreign currencies. Devaluation can therefore help to correct a balance of payments deficit and sometimes provide a short-term basis for economic adjustment of a national economy.

Developed Countries. A tern used to distinguish the more industrialized nations—including all OECD member counties as well as the Soviet Union and most of the socialist counties of Eastern Europe—from “developing” —orless developed—countries. The developed countries are sometimes collectively designated as the “North,” because most of them are in the Northern Hemisphere. IL4

Developing Countries (LCD5). A broad range of countries that generally lack a high degree of industrialization, infrastructure and other capital investment, sophisticated technology, widespread literacy, and advanced living standards among their populations as a whole, The developing countries are sometimes collectively designated as the “South, “because a large number of them are in the Southern Hemisphere. Allof the countries of Africa (except South Africa), Asia and Oceania (except Australia, Japa and New Zealand), Latin America, and the Middle East are generally considered “developing countries, “ as are a few European countries (Cyprus, Malta, Turkey and Yugoslavia, for example). Some experts differentiate four sub-categories of developing countries as having different economic needs and interests: 1) A few relatively wealthy OPECcountries—sometimes referred to as oil exporting developing counties—share a particular interest in a financially sound international economy and open capital markets; 2) Newly Industrializing Countries (NICs)have a growing stake in an open international trading system; 3) A number of middle income countries—principally commodity exporters—have shown a particular interest in commodity stabilization schemes; and 4) More than 30 very poor countries (“least developed countries”) are predominantly agricultural, have sharply limited development prospects during the near future, and tend to be heavily dependent on official development assistance.

Exchange Rate. The price (or rate) at which one currency is exchanged for another currency, for gold, or for Special Drawing Rights (SDRs).

Free Trade. A theoretical concept that assumes international trade unhampered by government measures such as tarriffs or non-tarrif barriers. The objective of trade liberalization is to achieve “ifreer trade” rather than “free trade, “it being gfenerally recognized among trade policy officials that some restrictions on trade are likely to remain in effect for the foreseeable future.

International Monetary Fund (IMF). An international financial institution proposed at the 1944 Bretton Woods Conference and established in 1946 that seeks to stabilize the international monetary system as a sound basis for the orderly expansion of international trade. Specifically, among other things, the Fund monitors exchange rate policies of member countries, lends them foreign exchange resources to support their adjustment policies when they experience balance of payments difficulties, and provides them financial assistance through a special “compensatory financing facility” when they experience temporary shortfalls in commodity export earnings.

Least Developed Countries (LDCs). Some 36 of the world’s poorest countries, considered by the United Nations to be the least developed of the less developed countries. Most of them are small in terms of area and population, and some are land-locked or small island countries. They are generally characterized by low per capita incomes, literacy levels, and medical standards; subsistence agriculture; and a lack of exploitable minerals and competitive industries. Many suffer from aridity, floods, hurricanes, and excessive animal and plant pests, and most are situated in the zone 10 to 30 degrees north latitude. These countries have little prospect of rapid economic development in the foreseeable future and are likely to remain heavily dependent upon official development assistance for many years. Most are in Africa, but a few, such as Bangladesh, Afghanistan, Laos, and Nepal, are in Asia. Haiti is the only country in the Western Hemisphere classified by the United Nations as “least developed.” See developing countries.

Most-Favored-Nation Treatment (MFN). The policy of non-discrimination in trade policy that provides to all trading partners the same customs and tariff treatment given to the so-called “Most-Favored- Nation.” This fundamental principle was a feature of U.S. trade policy as early as 1778. Since 1923 the United States has incorporated an “unconditional” Most-Favored-Nation clause in its trade agreements, binding the contracting governments to confer upon each other all the most favorable trade concessions that either may grant to any other country subsequent to the signing of the agreement. The United States now applies this provision to its trade with all of its trading partners except for those specifically excluded bylaw. The MEN principle has also provided the foundation of the world trading system since the end of World War II. AllContracting Parties to GATTapply MENtreatment to one another under

Article I of GATT.

Multilateral Agreement. An international compact involving three or more parties. For example, GATT has been since its establishment in 1947, seeking to promote trade liberalization through multilateral negotiations.

Non-Market Economy. A national economy or a country in which the government seeks to determine economic activity largely through a mechanism of central planning, as in the Soviet Union, in contrast to a market economy that depends heavily upon market forces to allocate productive resources. In a “non- market” economy, production targets, prices, costs, investment allocation, raw material, labor, international trade, and most other economic aggregates are manipulated within a trade, and most other economic affrefates are manipulated within a national economic plan drawn up by a central planning aurthoriey, and hence the public sector makes the mahor decisions affecting demand and supply within the national economy.

Protectionism. The deliberate use or encouragement of restrictions on imports to enable relatively inefficient domestic producers to compete successfully with foreign producers.

Retaliation. Action taken by a country so restrain its imports from a country that has increased a tariff or imposed other measures that adversely affect its exports in a manner inconsistent with GATT. The GATT,in certain circumstances, permits such reprisal, although this has very rarely been practiced. The value of trade affected by such retaliatory measures should, in theory, approximately equal the valie affected by the initial import restriction.

Subsidy. An economic benefit granted by a government to producers of goods, often to strengthen their competitive position. The subsidy may be direct (a cash grant) or indirect (low-interest export credits guaranteed by a government agency, for example).

Tariff. A duty (or tax) levied upon goods transported from one customs area to another. Tariffs raise the prices of imported goods, thus making them less competitive within the market of the importing country. After seven “Rounds” of GATTtrade negotiations that focused heavily on tariff reductions, tariffs are less important measures of protection than they used to be. The term “tariff” often refers to a comprehensive list or “schedule” of merchandise with the rate of duty to be paid to the government for importing products listed.

Terms of Trade. The volume of exports that can be traded for a given volume of imports. Changes in the terms of trade are generally measured by comparing changes in the ratio of export prices to import prices. The terms of trade are considered to have improved when a given volume of exports can be exchanged for a larger volume of imports. Some economists have discerned an overall deteriorating trend in this ratio for developing countries as a whole. Other economists maintain that whereas the terms of trade may have become less favorable for certain countries during certain periods—and even for all developing countries during some periods—the same terms of trade have improved for other developing countries in the same periods and perhaps for most developing countries during other periods.

Transfer of Technology. The movement of modern or scientific methods of production or distribution from one enterprise, institution or country to another, as through foreign investment, international trade licensing of patent rights, technical assistance or training.

World Bank. The International Bank for Reconstruction and Development (IBRD),commonly referred to as the World Bank, is an intergovernmental financial institution located in Washington, D.C. Its objectives are to help raise productivity and incomes and reduce poverty in developing countries. It was established in December 1945 on the basis of a plan developed at the Bretton Woods Conference of 1944. The Bank loans financial resources to credit worthy developing countries. It raises most of its funds by selling bonds in the world’s major capital markets. Its bonds have, over the years, earned a quality rating enjoyed only by sound governments and leading corporations. Projects supported by the World Bank normally receive high priority within recipient governments and are usually well planned and supervised. The World Bank earns a profit, which is plowed back into its capital. SISIND 1VIDNVNIJ 1V9019 3HI JO NOIIVDI1dLAJI ]NV S3flSSI ADNEINNflD IN3NNflD §101 FOREIGN EXCHANGE TRANSACTIONS 3

§101 FOREIGN EXCHANGE TRANSACTIONS

[11 Money and Currency

Throughout much of human history, trade did not involvemoney or currency but occurred through barter, the direct exchange of goods and services Even today, international barter, called cou’ntertrode, is an important segment of global commerce, particularly for countries that lack a widely acceptable currency But barter and countertrade create two serious econormc inefficiencies (1) trade is limited to partners who both want and have specific commodities, and, (2) production cannot be specializedbecause many items that cannot be acquired by trade must be made locally Money, of course, has replaced barter in the vast majority of domestic and international transactions Moneyperforms three basic functions it is a medium of exchange that may be used to acquire goodsand services from anyone who is willing to accept it, it is a store of wealth that may be accumulated for future transactions, and it serves as a unit of accountfor determining the relative value of different commoditiesand services For example, the relative values of a book and a haircut is established by the fact that the book costs twenty dollars and the haircut thirty Until relatively recently, most of the money used in mternational trade consisted of metal coins — typically gold or silver — that had a measurable intrinsic value However, growing commerce involving larger transactions at longer distances required governments and banks to substitute paper bills for heavy coins that were difficult to transport and protect Over time, national governments assumed sole responsibility for issuing money, and the paper bills and coins circulated by a country’s government constitutes its currency Initially, paper money was acceptable as medium of exchange only if people were confident that the issuer would eventually convert it to gold or silver Indeed, until 1933, the U S Treasury would exchange gold coins for paper dollars upon demand The convertibility of paper dollars into gold ended, however,with the economicreforms enacted during the Great Depression Since that tune, creditors in the U S must accept paper currency in settlement of debts (t e , it is legal tender), without the abilityto convert it to gold This is true for most of the world’s monetary systems, the value of a nation’s currency is determined by government actions and policiesrather than by reference to gold or silver The institution with the sole authority to issue a nation’s currency is referred to as its centml bank Central banks also regulate the supply of credit in a country’s economy Examples of central banks are the U S Federal Reserve, the Bank of England, the Bank of Japan and the German Bundesbank The European Central Bank, located in Frankfurt, acts as the central bank for the European Monetary System The central bank of the United States is the Federal Reserve System (the Fed), consisting of a seven-member Board of Governorsm Washington, D C, 12 regional Reserve Banks, and national and state chartered member depository 4 MONEY,CURRENCYANDFINANCE CH.1 institutions. The Fed controls the nation’s monetary policy by managing the supply of money, setting interest rates and supervising the banking system. It also manages international monetary affairs by establishing and maintaining the value of the U.S. dollar in global markets. The Federal Reserve usually increases or decreases the domestic money supply through openmarket operationsthat are directed by the Federal Open Market Committee (FOMC). The FOMC directs the New York Federal Reserve Bank to buy or sell securities (government and other kinds) to control the amount of money and credit in the economy. When the FOMC purchases securities, new money and credit are introduced into the banking system, and economic expansion is fostered. Conversely, if the FOMC sells securities, money and credit are taken out of the system and economic activity is slowed.

[2] Foreign Exchange International transactions are often complex because they involve the currencies of more than one nation. Ordinarily, this means that the transaction will require one party to convert its nation’s currency into the national currency used by the other party. For example, if a U.S. importer of Chilean wine must pay for the goods in Pesos, the importer must use its dollars to buy Pesos from a currency dealer or bank. If payment is made in dollars, the Chilean exporter must convert the dollars to Pesos if he is to spend the money in Chile. Another country’s currency is called foreign exchange and the price of one currency in terms of another currency is called the foreign exchange rate. In the U.S., the exchange rate usually is stated as how many units of a specified foreign currency will be received for a dollar. Thus, if the wine importer must pay one dollar to receive five pesos, the foreign exchange rate is 5.00.It is important to know foreign exchange rates in order to compare the international prices of goods and services. For example, if the wine importer wants to compare the prices in dollars of Chilean and Italian products quoted in their home currencies, he must know the exchange rate for Chilean pesos and Italian Euros. Foreign exchange may consist of cash, credit and debit card funds, traveler’s checks, bank deposits, and other short-term rights to funds. For larger transactions, such as those conducted by banks and foreign exchange dealers, the transactions usually are conducted by trading bank deposits denominated in different national currencies. For example, a dealer-to-dealer sale of dollars for pesos is conducted by exchanging a dollar bank deposit for a peso bank deposit.

As discussed in § 1.O1[4j[c]below,world trade now operates under a system that does not permanently fix exchange rates between currencies, but allows most currencies to fluctuate (float) in accordance with market conditions. In a floating rate system, many factors affect the exchange rate of a nation’s currency, including the relative value of imports to exports, the amount of investment capital attracted, government monetary policies, domestic political and economic stability, and inflation and interest rates. Ultimately, the value of a nation’s currency is determined by private traders in the global foreign exchangemarket. international

will rate) § currency

foreign down. exchange (imports) increase the previously the dollar

between rises; respect become Absent dollar increase turn

world,

between Frankfurt., and electronic

deposits specific twenty-four dollar trading must rate all simultaneously markets differences technologies differences. selling

1.01

The

Changes

In

[3]

Currencies

Because

exchange

exceed other

day

investment

will

for

depends

price it theory,

falls;

most denominated

including

goods

carefully

to

more

other

long currencies currency.

of in

takes

the

demand is

currencies

in

these

cause

than

currency

Foreign

market.

are

another

cost

the

means

the

simply Paris,

identical a

of

between in

the

it

important key

rate

hour demand

Discrepancies and in and

U.S.

expensive

a

are international factors they an upon

takes more

currency

four cost

participants

quickly

the

received

foreign response

foreign banks

currencies

New

for

communications monitor services.

of

Zurich,

efficient, Thus,

traded bank.

such FOREIGN

a

currency

is

every market

dollar.

to

If

sell

dollars

to

bank

the

the the

commodity

Exchange

them fewer dollars

securities deemed

York, import

for

affecting

their

Americans

factor

throughout

abroad

in

eliminated currency

peso

as

rates

exchange

by exchange

a demand

hour

deposit to

in and

to

the

the

in Continuing

Japanese

(20

that exchange

has pesos is computers demand

dealers free

means

again

that equilibrium a to

Chicago,

global

from

EXCHANGE Chile,

Chilean

to affecting would

the

Milan.

U.S.

number

of /

goods

(exports), buy

usually 5),

in prices, in

developed

appreciate.

every

increases, in market

and

to purchase

to arise

Markets

appreciate 5.00

market

other rates

buy

the but

the

and

two increasing

developments, by the around

and

a

allow

find

Bank

buy

Most

wine. and

Los

the

peso. rate

supply

to of now

the world dollar and

day

is U.S.

the

U.S.

arbitrage

between the more

markets

point.

rate countries,

directly

4.00 eventually

wine financial a the

should

for TRANSACTIONS

Angeles,

services

market that

operates

value

in

and the A of

costs

the dollar..

telephones. exchange

lower

Conversely,

changes.

products

or

arbitrage,

against price inequalities

same that

bottle

per

of

a

the

which

importer

items

Depreciation

world,

a dollar buys night.

bank

the

five

of

foreign restore

affect

exchange dollar to

demand

markets are

cost

participants transactions so As

of

in

so

it London,

a

of the in

the currency dollars dollars take

rate

become financial deposit that

all

from that

nation’s is

Exchange that

resulting produces.

Market a

linked wine

different

which

for

example,

results The the

said supply

financial the result,

Peso.

bank’s

and

the

for

currency

for

market

its

advantage

centers

U.S.

priced foreign

Tokyo, rates relative

of (20

is

peso to

basic

denominated

the

instantly cheaper to

is

price

dollars,

currency

exchange

institutions on

really are the

in

of

depreciate

in information

/

Chilean the

claim

rates that each

time One

goods

dollar

a markets.

4).

a

U.S. price

the an

in participants at decrease

commercial

dollar transaction

around

25

buying (e.g.,

Singapore, (exchange

When

countries

prices

exchange 20

buying

other

in which

fluctuate nation’s

use

to

different

zones, percent

of

foreign

buy

dollars

will

should is

of

goods pesos Chile.

dollar peso)

rates

with

price

the and

Any

in

the

the

fast

the and and

are

go

by

in of

in

5

is

a

a

a 6 MONEY,CURRENCYANDFINANCE CH. 1 sell the currencies in two different locations. This fast, low risk profit source ensures that currency rate discrepancies do not exist for long. Although hundreds of currencies are in use around the world, most exchange transactions involve only a few key currencies — the dollar, yen. pound sterling, and euro. By far, the dollar is the most widely traded currency, accounting for nearly 90 percent of foreign exchange transactions. Much of this dollar trading arises from transactions in which it is used as a vehicle for trading other currencies. For example, parties wishing to exchange Brazilian reals for Hungarian forints are likely to sell the reals for dollars and then sell the dollars for forints. This is because an active market and ready price are available between dollars and reals and dollars and forints, while a direct market and accurate price between reals and forints would be difficultto find. Although the dollar is the most used vehicle, other currencies such as they yen and euro also are used for this purpose.

[41 Eurodollars Eurodollars are bank deposits denominated in dollars held in banks outside the U.S.’ This type of deposit originally developed in Europe but is now found in major financial centers around the world, including many Asian and Caribbean nations. The deposits, which may be owned by individuals, corporations, or governments, are called Eurodollars regardless of the country where held. Eurodollars do not represent actual U.S. dollars deposited abroad, but merely change the ownership of dollar deposits located in the U.S. For example, a U.S corporation that writes a $10 million check on its U.S. bank to deposit in a foreign bank changes ownership of the U.S. deposit from itself to the foreign bank. The foreign bank treats the transaction as if it acquired the $10 million deposit in the U.S. bank as a new asset and a new liability of $10 millionto the U.S. corporation. The U.S. bank records the transaction as a shift in its $10 millionliability from the corporation to the foreign bank. The Eurodollar market has growii rapidly because it is generally free of government regulation. Eurodollar deposits are simply obligations of the banks that accept them and are not guaranteed by any government. The lack of regulation makes Eurodollar deposits more profitable for banks than deposits subject to U.S. banking requirements (such as minimum reserves and Federal Deposit Insurance premiums) and interest rates on Eurodollars generally exceed the yields of other money markets. A major portion of global financial transactions is conducted in Eurodollars. The market is huge, consisting of many trillions of dollars deposited by large corporations, central banks, supranational institutions such as the Bank for International Settlements, and wealthy individuals.The maturity on deposits is generally short term, often less than six months. Most Eurodollar loans are

Non-U.S.residents alsomay conduct Eurodollar transactions at InternationalBankingFacili ties (IBFs) in the United States. SeeGoodfriend,Eurodollars, Federal Reserve Bank of Richmond (1998). 1.01 FOREIGNEXCHANGETRANSACTIONS 7 quite large, going to corporations funding foreign operations, and foreign governments funding national projects or balance-of-paymentdeficits. Eurobonds. Eurobonds are bonds denominated in a different currency than used by the country in which they are issued. Most Eurobonds are issued by international syndicates and are classified by reference to the currency of denomination. For example, a Japanese company may issue a eurodollar bond (i.e., a bond denominated in U.S. dollars) in any country other than the U.S. and a Euroyen bond (denominated in yen) in any country other than Japan. Eurobonds are attractive financing instruments for several reasons. A Eurobond allows the issue to denominate its obligationin a preferred currency. The instruments also allowan issuer to offer bonds in a country without regard to many of the regulations applicable to bonds denominated in the local currency. Generally, Eurobonds have low par values that make them highly liquid. Global Bonds. Unlike Eurobonds, Global Bonds can be issued in the same currency used by the country of issuance. For example, a global bond denominated in U.S. dollars can be issued in all countries, including the U.S. Thus, Global bonds can be issued in several markets simultaneously. However, the offering must satisir the financialregulations of the currency denomination country, sothat such offerings may be quite complex.Accordingly,Globalbonds usually are issued by very large organizations with high credit ratings.

[51 Regulating Foreign Exchange Rates National and international policies and agreements that regulate the exchange rate between different national currencies are referred to as exchange rate systems.. Although many systems have been adopted over the centuries, most fall into one of two categories: fixed or floating exchangerates systems. In a fixed exchange rate system, a nation’s currency is set at a predetermined exchange rate that does not change in response to supply and demand for the currency. Usually, a country’s central bank accomplishes this by fixing the exchange rate between its currency and a commodity(such as gold),or a specific foreign currency (such as the dollar). In afloaling exchanie rate system, the central bank allowsits currency exchange rate to be determined by supply and demand through trading in the foreign exchange market. In either system, a nation’s currency will appreciate or depreciate when its value changes relative to another currency. A currency appreciates when one of its units can buy more units of another currency and depreciates when one of its unit can buy fewer units of another currency. In a floating rate system, these value changes are determined by market forces. In a fixedrate system, a nation may deliberately devalue its currency through a downward adjustment to its official exchange rate set or “pegged” to a standard such a gold or the U.S. dollar. Conversely, a government can revalue its currency by an upward adjustment of the pegged exchange rate. Freely. convertible currencies that are not expected to depreciate greatly in the near future are referred to as hard currencies. These include key currencies such as the dollar, yen, pound and euro. A currency is convertible if it can be L:,3

8 MONEY,CURRENCYANDFINANCE CH. 1 readily exchanged for other currencies without excessive government controls or restrictions. By contrast a currency that cannot be readily exchanged is a soft currency. A number of governments impose foreign exchange controls that restrict the purchase and sale of foreign currencies by residents or the purchase and sale of domestic currency by foreigners. Advocates of fixed exchange rates (like the gold standard described below) argue that history shows that they provided a long period of exchange rate stability for most trading nations. Under this view, the fixed rate standard provides a simple, automatic mechanism for adjusting trade imbalances without government interference. Supporters believe that a fixed exchange rate system:

• prevents governments from adopting inflationary monetary policies;

• promotes international coordination of monetary policies by removing the ability to adopt independent monetary policies, and; • enhances international trade and investment by eliminating exchange- rate risk. Although a dedicated band of “gold bugs” continues to argue for restoration of the gold standard, that seems unlikely to occur anytime soon. Many disagree that the fixed rate gold standard enhanced economic well being. They argue that during the Great Depression the fixed rate system prevented governments from taking economic measures to restore beleaguered economies, decrease unemployment and enhance domestic living standards. Proponents of floating exchange rates hold that these systems:

• enhance optimal resource allocation in the world economy; • allow for policies that help internal economic conditions without disrupting the balance of payments, and;

• reduce the need for unproductive foreign exchange reserves to support the fixed rate. As described in the followingsections, most of the exchange rate systems used today combine elements of fixed and floating rates. [a] The Gold Standard From the mid-1800s through the start of the First World War in 1914,most of the world’s major trading countries used the gold standard of fixed currency exchange rates. The United States began to apply the gold standard in 1879, and formally adopted it by legislation in 1900. Under the gold standard, each participating country defined the price of gold in terms of its domestic currency, and promised to convert its paper currency to gold on demand at the central bank of the issuing country. Under this system, a U.S. exporter of goods to Chile could take payment in pesos, exchange the pesos for dollars at his U.S. bank, which would then exchange the pesos for dollars at a U.S. Federal Reserve bank. The Federal Reserve would ship the pesos to Chile in exchange for gold, thus increasing the U.S. gold supply and decreasing Chile’s gold supply. § 1.01 FOREIGN EXC}IANGE TRANSACTIONS 9

Because each unit of currency was backed by a specific amount of gold, a nation’s money supply increased or decreased directly with the gain or loss of gold.A country that spent more for imports than it earned from exports (ie., a balance of payments deficit) had to ship gold abroad to cover the deficit. The decrease in the nation’s gold stock required a reduction in its money supply, resulting in lower domestic prices and wages (deflation).A nation that exported more than it imported (ie., a positive balance of payments) received additional gold and expanded its money supply, resulting in higher domestic prices and wages (inflation). Theoretically, these wage and price increases or decreases would create shifts in trade that would automatically adjust the imbalance of payments to equilibrium and restore each country’s gold and money supply. In practice, however, these automatic adjustments frequently did not occur because countries adopted policies inconsistent with a gold standard to avoid domestic unemployment or inflation. During the First World War, many European counties stopped exchanging gold for currency and adopted floating exchange rates. After the war, the exchange rate of many European currencies fluctuated widely and steeply lost value against the U.S. dollar. Because of their weakened economies and large war debt burdens, returning to the gold standard was infeasible. The dollar became an attractive currency for international transactions because it was still convertible to gold and backed by a strong U.S. economy. Although Great Britain and other European nations reverted to the gold standard for a brief period in the 1920s,the financialstrains of the Great Depression forced them to abandon it again during the early 1930s. The Great Depression upset foreign exchange markets and devastated the international monetary system, which depended upon international cooperation. Many nations adopted unrealistic measures to restrict imports and enhance exports. Thçse included high tariffs, trade restrictions, foreign exchange controls and steep currency devaluations. A breakdown of confidencein paper currency incited a demand for gold that central banks couldnot meet, requiring many nations to abandon the gold standard. As a result, trade became increasingly difficult between the many nations that abandoned the gold standard and the few, like the U.S. that continued to use it. Indeed, some governments encouraged barter arrangements as a means of avoiding international exchange transactions altogether. The resulting chaos in exchange rates contributed to a precipitous decline in international trade, which dropped by almost 65 percent between 1929and 1932.The economicrivalries of the 1930s provided the stimulus for the economicreforms and monetary cooperation that would be implemented after the SecondWorld War.

[hi The Bretton Woods Agreement Toward the end of Second World War, the U.S. and Great Britain organized an international conference at Bretton Woods, New Hampshire, to plan the political and economicarrangements that would govern the post-war era. The participating nations generally agreed that chaotic international monetary conditionswere causative factors in the Great Depression that subsequently led to the war. As a remedy, the U.S. and Great Britain proposed a new global t;5

16 MONEY CURRENCY AND FINANCE CM. 1

An option that grants the right to sell a currency is a put option. A seller of a put option must buy the currency at the strike price if the option is exercised. Typically, put options are purchased by holders of a currency who seek protection against a fall in its price. The optionwill be exercised if the put price is greater than the market price of the currency. Like futures, currency options are traded on organized exchanges. These include the Philadelphia Stock Exchange and the Chicago Mercantile Exchange in the U.S. and a number of exchanges abroad such as in Singapore, Amsterdam, Paris, and Brussels. Exchange-traded options are traded in contracts that are standardized for the amount of currency, exercise price, and expiration date. Each exchange operates a clearinghouse which guarantees that a contract party will not sustain a loss if the other party fails to perform its financial obligations. No margin requirement is imposed on the option buyer, who must only pay a premium for the contract. However, the optionwriter does bear a financial risk on the contract and is subject to the exchange’smargin account requirements. In addition to foreign currencies, exchange-traded option contracts are written on many of the same kinds of commoditiesand financialassets involved in the futures markets. Options are also traded over-the-counter by banks and other financial institutions. The two basic forms of options are the European style option that may only be exercised on the expiration date, and the American style option that may be exercised at any tune before or on the expiration date. Most over the counter options are European style, while most options traded on exchanges are American style. The regulatory agency responsible for a currency option depend upon the exchange on which the option is traded. Foreign currency options traded on national securities exchanges are regulated by the Securities and Exchange Commission (SEC). Foreign currency options traded on other exchanges are regulated by the Commodity Futures Trading Commission (CFTC). The regulatory agency responsible for other types of options depends on the underlying asset. Stock options and options on securities are governed by the SEC, while commodity options are regulated by the CFTC.

§ 1.02 REGULATION OF INTERNATIONAL FINANCIAL TRANSACTIONS

[1] Overview

An international financial transaction occurs when some aspect of a payment, investment, or financial contract involves people or institutions located hi different countries. This occurs when loans are sought and extended, or securities are marketed and sold, across national borders. Usually, parties engage in international financial transactions to obtain bona fide economic advantages. In some cases, however, a transaction may be purposefully structured abroad to avoid a home country’s banking and securities regulations or taxation. 18 MONEY,CURRENCYANDFINANCE CR. 1 and related financial instruments these institutions owned or insured. The distress of the U.S. financialinstitutions inevitably spread to financial markets abroad. The severe losses sustained by global financial institutions, and the consequential lack of trust in debtors, limited their abifity and willingness to make new loans. Accordingly, little credit was available to businesses for conducting their operations or to consumers for houses, cars, necessities, and luxuries. The result was a massive contraction in business and investment activity, record low consumer confidence, high unemployment, and falling stock market prices throughout the world. Companies that relied on consumer credit, such as the automobile industry, fared most poorly. [a] Causes A major cause of the economic decline was the collapse of the real estate price “bubble” that began forming in the mid-1990s. The continual increase in house prices fed expectations of future increases, even in the last years of the bubble when prices had peaked. By 2006, the inflation of housing prices far exceeded the levels of household income required to make. homes really affordable.

The rapid price inflation of residential real estate was exacerbated by a vast increase in the issuance of sub-prime mortgages to home buyers that could not qualify for regular loans. Most of these loans entailed little or no down-payment, low initial interest rates that substantially increased in later years, and high prepayment penalties that made it costly to refinance when interest rates declined. Many home buyers did not understand these onerous terms or were persuaded that ever-increasing house prices guaranteed a later sale of the house for a profit. Generally, the initial mortgage lenders did not hold these sub-prime mortgages but sold them,through the banking system, to the government- sponsored institutions created to purchase mortgages. These institutions, called Fannie Mae and Freddie Mac, in turn sold the mortgages to investment banks that bundled thousands of such loans into a mortgage-backed security (MBS). This process continually provided the funds mortgage lenders required to make new loans. Because ever-rising property values seemed to indicate little chance of default, rating agencies such as Standard & Poor’s and Moody’s generally gave high grades to these securities — mistakenly identifying them as relatively safe investments. Thus, an MBS, or parts of one, could easily be sold to institutional or private investors as a low-risk security. Commercial and investment banks also packaged pools of sub-prime mortgages with other asset-backed securities into Collateralized Debt Obligations (CDO). These financial investment products divided the pool of loans into different slices or tranches having different default risks and interest rates. The tranches with the lowest default risk were assigned the highest rating by the credit rating agencies, while tranches with more risk (and higher interest rates) received lower ratings. § 1.02 REGULATIONOF INTL FINANCIAL TRANSACTIONS 19

This ordering of risk and ratings made CDOs attractive to different kinds of investors with different risk tolerances. The higher rated CDO tranches were considered conservative investment choices and were included in the portfolios of many asset managers, including hedge funds, insurance companies, banks and pension funds. This vast amount of funding from institutional investors provided continuing support for new subprime mortgages, further increasing housing demand and prices. To further decrease the apparent risk to CDO and MBS holders, insurance companies and other financial institutions began issuing instruments called credit default swaps (CDS) that, for a premium, guaranteed losses from a default of a CDO or MBS. The CDS, however, soon evolved from a guarantee of an existing debt to a highly speculative investment vehicle. By purchasing a CDS on securities they did not own, speculators could profit from increases in the default rate even if they sustained no loss on the default. Although this huge speculative market generated huge profits for the CDS issuers, the potential losses from a substantial increase in the default rate were far greater than they could possibly cover. In 2008, more than $60 trillion of CDSs were outstanding. The dangers posed by mortgage backed securities were not generally apparent while housing prices were increasing. Mortgage debtors could resolve any personal financial difficulty by borrowing against their home equity or selling the house at a profit. Thus, defaults on home loans were unusual and unnecessary. The rapid and unrealistic increase in house values was fueled by low interest rates and a speculative flurry of buying predicated on the assumption that prices could only go up — never down.These conditions existed in many parts of the world, so that real estate bubbles were evident in many parts of Europe, South America, and Asia. But, of cburse, the housing bubble did burst and an alarming number of mortgage borrowers began to default. Housing prices declined severely and rapidly, particularly in rapidly growing areas such as Arizona, California, Florida, and Nevada. The default rate for sub-prime mortgages increased rapidly and soon spread to prime mortgages as the economy deteriorated. New buyers could not get loans or were reluctant to purchase while prices were still falling. Existing homeowners could not refinance at more favorable rates because the value of their houses were less than the amount they owed. As delinquencies and defaults on mortgages increased, the credit rating agencies downgraded their ratings of most CDOs backed by this collateral. Obviously, these agencies, as well as the CDO issuers and investors, greatly miscalculated the risks inherent in CDOs and in the CDSs that purported to guarantee them. The defaults and rating downgrades produced a massive decline in value of the CDOs held by major financialinstitutions throughout the world, drastically reducing the capital required for their lending operations and reserves. Because the depth of the financialdecline was unknown, financialinstitutions could not quantify the decreased value of the asset-backed securities they owned or guaranteed. Similarly, they could not determine the true financial condition of the other institutions they dealt with in the marketplace. This lack 20 MONEY,CURRENCYANDFINANCE CH. 1 of confidence rapidly spread through the global financiai system, freezing the flowof credit that underpins modern economies. Without credit, businesses could not fund their operating expenses and consumers could not purchase houses, cars, vacations, and other discretionary items. Thus, the problems of the housing industry rapidly spread to most other areas of business and commerce, resulting in the most severe decline in economic activity since 1929.Unemployment skyrocketed and a plunging stock market wiped out a decade of gains. The decline in stock values decimated pension plans, resulting in a huge loss of wealth by millions of baby-boomers who would soon need that wealth to fund their retirements. A perception grew that the economy was not merely in recession, but on the verge of another 1929- style Great Depression. It was the greatest loss of wealth in history.

[bi International Response The severity of the economic problems became apparent to the public when the largest, best-known fmancial companies in the U.S.began to fail. Reduced to a fraction of their value, these companies were taken over by others, went out of, business or were bailed out by massive capital infusions and guarantees from, the U.S. Treasury and Federal Reserve Bank. Essentially, all the independent investment banks on Wall Street disappeared through merger, bankruptcy or transformation into regulated deposit-taking banking companies. These problems were not limited to the U.S., which became evident as many major European financial companies began the same process of merger, failure or government bailout. With varying degrees of severity, banks failed and credit disappeared in the U.}C, France, Spain, Ireland, Germany, Belgium, Luxemburg and Netherlands. A shocking failure of banks in Iceland led to the virtual bankruptcy of that formerly properous country. The initial response of most governments was massive intervention in their national financial systems and economies. The basic policy tools were low interest rates, expansion of the money supply, tax rebates, and enormous government spending programs. In the United States, the Federal Reserve reduced short-term interest rates to zero and pumped more than $1 trillion into the economy through purchases of securities and loan guarantees. The Treasury Department used a $700 billion allocation from Congress (initially intended for purchases of toxic assets from financial institutions) to inject capital directly into more than 200 financial institutions in exchange for ownership interests. Hundreds of billions in tax refunds were mailed to households and more billions provided through tax credits and rebates to purchasers of houses and cars. Billions more were allocated to bail out major U.S, automobile manufacturers. Similar policies were adopted across the globe. European govermnents provided hundreds of billions to buy all or part of domestic banks and to guarantee their loans. The European Central bank coordinated substantial interest-rate reductions with the central banks of most European countries. Over opposition from Germany, which called for fiscal restraint, European governments created huge public-spending programs to stimulate their economies. § 102 REGULATIONOF INTL FINANCIALTRANSACTIONS 21

Although most Asian banks did not incur major losses from investments in asset-backed securities, Asian economies suffered greatly from declining exports to the U.S. and Europe. Japan, stung by its highest unemployment rate since WW II, instituted a massive economic stimulus package. In China, a rapid decline in the rate of economic growth resulted in massive layoffs across its export-oriented industries. The government slashed interest rates and instituted a $600 billion economic stimulus program.

[ci Recovery and Reform By late 2009, the U.S. and global economies appear to have stabilized and a slow period of recovery is likely. Governments and international agencies are now considering the causes of the economic crisis and the reforms needed to prevent recurrence. The economic analysis and political debate are focused on the following issues: “Too Big to Fail.” This phrase refers to the necessity for government intervention to prevent failure of a large, interconnected financial firm that poses systemic risk — ie., its failure would cause major damage throughout financial markets. Opponents of such interventions argue that bail-outs of financial institutions create moral hazard — i.e., it encourages risky behavior by creditors and investors who believe that governments will protect them against loss. To minimize systemic risk and the need for intervention, governments will grant central banks and regulators broad authority over troubled financial companies whose failure would cause widespread harm to the entire financial system. This resolution authority will allow regulators to act to preserve these firms as going concerns or to rapidly close or wind them down. Other rules may ‘require these firms to reduce the complexity of their group structures or mandate stand-alone subsidiaries. Regulation of Credit Rating Agencies. Because of their complexity and limited public information, investors in CDOs and other asset- backed securities relied on credit rating agencies such as Standard & Poor’s and Moody’s to determine the risks associated with these instruments. The fact that the high ratings afforded these securities were woefully inaccurate has led to calls for regulation of the credit rating process. These regulations would restrict conflicts of interests created when a rating agency has other business relationships with the institution seeking the rating, as well as changes to the rating methodologies. Regulation of Credit Derivatives. As noted above, the proliferation of mis-priced Collateralized Debt Obligations (CDO) and Credit Default Swaps (CDS) was a significant cause of the financial crisis. These instruments were specificallyremoved from regulatory oversight by the Commodity Futures Modernization Act of 2000. New legislation and regulation will make these transactions more transparent and provide for oversight of the derivatives market. See discussion below. 22 MONEY,CURRENCY AND FINANCE CH. 1

Compensation Reform. Compensation practices at major financial institutions significantly contributed to the 2008 financial crisis by encouraging excessive risk-taking by senior executives and traders. New international compensation standards have been proposed to align compensation with creation of long-term value rather than excessive risk-taking. Specific rules may include: o Eliminating multi-year guaranteed bonuses. o Reduction in total compensation in firms that have negative financial performance, including reductions in previously earned amounts through clawback arrangements. o Compensation of senior executives and employees whose actions materially affect a firm’s risk exposure must be deferred over a period of at least 3 years and relate to their individual performance. o A substantial proportion of the compensation tb senior executives and employees must be awarded in shares or share-linked instruments whose value is aligned with the firm’s long-term growth. Risk Management and Capital Requirements. New regulations will mandate substantial increases in the amount and quality of capital maintained by banks engaged in international transactions. This will require revision of the Basel II capital framework discussed in § 1.02[4] below. The new Basel II rules will include: o Significantly higher capital requirements. o Requirements that banks build capital during profitable periods that can be drawn upon during economic downturns. o Higher quality capital reserves such as common shares and retained earnings. o Full disclosure of each bank’s capital base and risk exposure. Restructuring Global Imbalances. Many economists believe that the underlying cause of the financial crisis is the imbalance between savings arid investment in major national economies. This imbalance is reflected in the large trade deficit of the United States and the large trade surpluses of developing countries such as China. These imbalances stem from government policies that encourage unrealistic currency exchange rates, low interest rates and excess borrowing for consumption in the U.S., and excess savings and lack of domestic consumption in China and other emerging-market economies. This underlying problem must be addressed through multi-lateral agreements that encourage sustainable, balanced national growth patterns. The challenge to the international community is to avoid booms and busts in asset and credit prices by promoting balanced global supply and demand in most areas of trade. It is unclear if such global macroeconomic cooperation is feasible in the near future. § 1.02 REGULATION OF INTL FINANCLALTRANSACTIONS 23

[2] Financial Derivatives

A derivative is a financial instrument that takes its value from the value of another underlying asset such as a commodity, mortgage, corporate stock, bond, or currency. Derivatives are designed to shift some of the risk associated with the underlying asset from one party to the agreement to another. For example, assume that the buyer in an international sales contract must pay for the goods at a future date in a foreign currency. To hedge the risk that the foreign currency will increase in cost, he may purchase a futures contract that provides a right to buy the currency at a future date at a set price. The futures contract is a derivative that shifts the risk of any increased currency cost to the other party. In addition to hedging risks, derivatives often are used for speculative purposes. One class of derivatives, called swaps, are custom, privately negotiated contracts in which the parties agree to exchange an asset or cash at a future time. Because swaps are not traded on exchanges, they are called over-the- counter (OTC) derivatives. Another class of derivatives comprises standardized, exchange-traded contracts called futures. Many different kinds of contracts, with varying degrees of complexity, are available in both classes. In recent years, the huge amounts invested iii complex derivatives created substantial and misunderstood risks in financial markets. During the 1990s, some of the dangers associated with derivatives were revealed by a number of highly-publicized cases involving substantial losses on derivative investments. For example, a major British Bank, Barings PLC, was bankrupted by losses sustained by one of its traders on Nikkei index futures and options. Similarly, Orange County, California, one of the richest areas in the U.S., became bankrupt in 1994 because of a $1 billion loss on its investments in derivative instruments. These transactions reflect the overuse of derivatives as a means of speculation, rather their more appropriate role as a hedge against the risks inherent in a transaction.. The 2008Financial Crisis. Clearly, failure to understand the risks posed by financial derivatives was a major cause of the 2008 global financial crisis. Sophisticated financial institutions and investors poured trillions of dollars into complex OTC derivatives such as Collateralized Debt Obligations (CDO), and Credit DefaultSwaps (CDS), that they thought were insured against major loss. Until the crisis emerged, this vast portion of the global fluianeialmarket was unregulated by any government agency. The true risks of these derivatives became clear in 2007, when a decline in U.S. home prices caused a concomitant decline in the value of the hundreds of billions of mortgage backed securities owned by domestic and foreign financial institutions. Although these investors believed that their hedging derivative contracts would provide protection, the huge volume of losses was far greater than the contract guarantors (“counterparties”) could cover. The lack of transparency in the unregulated derivatives market led many large, sophisticated investors to misunderstand the true risk of loss they incurred, which, in turn, created enormous systemic risk throughout global financial markets. It is likely that new international treaties and domestic legislation will 24 MONEY,CURRENCYAN]) FINANCE CR. 1 provide for regulation of OTC derivatives to prevent these transactions from creating excessive risk to the entire financial system.

[a] Futures and Swaps Futures contracts, which include most options, are always traded on exchanges anj contain standardized terms for delivery dates, volume, trading procedures and credit allowances. Although the parties bear the risk of loss on the underlying transaction, the only credit risk (i.e.,risk of non-payment) is that exchange’s clearinghouse will default. Exchanges generally reduce this credit risk by mark-to-market accounting which adjusts the value of an investors account each day to reflect profits and losses. An investor that has a loss may be required to provide an additional cash payment to ensure that the loss is not shifted to the exchange. Generally, futures transactions are regulated by the rules of the exchange and by government agencies, such as the Commodities Futures Trading Commission. By contrast, the terms of a swap contract are privately negotiated by the parties and the contracts are privately traded over-the — counter. In addition to the risk of loss on the underlying transaction, each party to a swap contract is exposed to the credit risk of the counterparty’s default on its payment obligation. Substantial lobbying by the financial industry resulted in the Commodity Futures Regulation Act of 2000, which prohibited government regulation of swap transactions. The financial crisis of 2008exposed the need for regulation of these transactions and this is likely to occur soon.

[bi Swaps A swap is a contract between two parties, called counterparties, to exchange specified cashfiows at predetermined future times. The amount of cashilowthat each counterparty will exchange usually is determined by reference to a hypothetical amount, called the national amount, and an underlying market (e.g., foreign exchange, securities, or commodities) or financial index (e.g., LIBOR or the Consumer Price Index). Although these transactions are tailor made to fit the specific needs of the counterparties, there are two basic categories of swaps: interest rate swaps (the most frequently used type), and currency swaps. A transaction that combines both of these variants is referred to as a cross currency swap. Swaps are derivatives that are frequently used by large companies to lower borrowing costs and to hedge risks associated with changing interest rates or foreign exchange rates. Most swap transactions are arranged through commercial banks, utilizing customized contracts that are not traded on exchanges. A standard form contract has been developed by the International Swaps and Derivatives Association (ISDA), that establishes the parties’ responsibilities upon default or premature termination. The key contract terms, such as price, duration, and quantity are not standardized, but are written for each transaction. Generally a swap contract is not tradable or assignable without both parties’ consent. The transaction is not guaranteed by a clearinghouse so that each party bears a credit risk that the other party will not perform it financial obligations. THE URBAN CARIBBEAN: TRANSITION TO THE NEW GLOBAL ECONOMY

The Inform& Economy: Industriai Districts And M iroenterprises r

This

multinational joint Science Rica, together

evolution research methodology have generalizations and this volume the primary the Historically, with political ic underlies market

volume. urbanization ences ences

in

similarities

chapter

The

countries

smaller political

a

volume study

Haiti,

the

been

valuable

that

among

both makes five

Research

products,

questions researchers

systems, Thus,

partial

the

through

are

of 2,

mainly

countries Guatemala,

countries

context.

marks

for

identifying they

of urbanization from that

comparative

outlined

the project.

that a

contribution

about

the

the

significant

exports

exception

economic

is Council they five

have

those

invitations and

Caribbean the give based

authors

remarkably

from

This

of

urbanization

composing

countries

Alejandro

in

successful

are

methods.

the

the their been similar

and

that

the

on

methodological

five

in

methods

substantive

geographicafly

and

of

Dominican

structures, to of

region.

for

first

the

are

the

Jamaica, comparative

basin economically

to

comparative

countries

these

trends Andrew

sensitive

international

to

region.

context-specific.

chapter

conclusion

meetings The

this

experience

Portes,

help in

of

have

Apart

chapters

study small

in

Latin contribution

end

and

the

Republic,

I

W.

the

distinguish

to of and certain

with

enjoyed

close

achievement

from

result

study

filled

United

culture.

national

studies

numbers

the

are,

Mellon

five

dependent of America

skillfully

of

migration.

use

an

the

to

their

Caribbean

however, countries geopolitical

the

with

an

was

and

This

unusual

BRYAN

witnessing

the

the

University

of

States

by support

It

Foundation,

differences the especial

and

large

relatively

development.

Jamaica—to

to

is used

United

and focusing

lively

considerable

analysis

alone

this on

FOREWORD

general

forge

maximum

with

is and

diverse

the countries, throughout

basin—Costa of

the of

ROBERTS

their

diversity

and

debates

the significance.

would

Texas—Austin

States,

innovative

a

the

Caribbean on

respect

is

small

in

export

common

econom trends

project’s

brought

reported

primary

some in

culture

Social

plan

differ

differ Since

make

their

over

and,

size,

that

this

the the

of of

xi

in

a

informal chapter

tion of

systematically

subcontracting

informally,

of

mass-retailing facturing

drastically

Standing

mass

market

pie,

of

mix

previously

export

geographically

the

ers state

The

well

an

the regimes

Caribbean,

of

that

during

not

and

each

inconsistent Other spatial

xii

this

One

business

gender

the

This

are

emphasis

The

is

emerging

have

of

lowering

state’s

as in

of

geographical

employment these

particularly

new

case

workers

withdrawn,

region.

of

polarized

industry,

2

for

a

another.

semi-

trends

sector

shift

polarization

fieldwork

based

Foreword

and

1989;

time

and

and

the

a

changes

or

dominant

enables

employment.

years

international

capacity

high

the

the

has

on

of

make

and

great

skills.

firms

opportunities

and

In

in and

on

less

of

that

acquires

(such

and

Shaiken

tariffs,

of

between

export-oriented

services. including

these

relative

far-reaching

1980s

the

proportion

import-substituting

with

apparent

profitable declines

factors

and

Increased

context-specific,

the

crisis

the unskilled

values

or

often

them

Many

in

to

of

as

urban

country

fast-food

five

editors

less

situation terms

data

empirical

extend

the

marked that

a

signify

1990).

These

economic

economic

differs

a

raise that

Imports

of

new

plants

direct

countries,

small in

tourism,

in urban

in

gathering

centers.

parts

import

of

this

workers

of

of

relative

implications

and

lead

case

the

the

productivity

patronage a

salience

chains

The

the

implications

supply

from

women

of

the

proportion basic

assembling

state

industrialization

volume

data,

of

of

social

authors

discussion

export

nationally

to

studies

crisis.

primacy

competition

context. and

their

are

move

consumer

The

definitive

as

that

industrialization

declining

terms

(Fernández-Kelly

control

restructuring

for

can

the

and

elsewhere

frequently

in

employees

classes

the

business,

new

is

market

The

the

of

and

to

toward

force

consequences

for

that

the

and

that demand.

of

through

products

of

traditional

can

weigh

comparable

The

of

owned

case

of

politics

authors

export

highly

social

goods,

the

primacy

shift

contemporary

subsidies

and

the

follow. even

the

in

it

be

restructure

in

more

value

(EoI).

often

is

studies

the

urban

located

the

of

and summarized

informal

Latin

internal

the

laying

the

welfare

finns,

The

away

skilled

the

for

industries

large

the

(isi)

and

emphasize,

internal

economic,

industries

open

The

and

in

to

of

an

informal

export,

first

to

arrival

for

data

system)

urban

America

locations

were

social

firms

one

to

from

both

this

local

away

urban

off

internal

workers

labor

Sassen

urbanization

economy,

diminishes

economy

issue ones

to

markets

collected

period

workers

country

market

examina-

carried

operating

examine,

demand

of

as economies

for

in

firms

welfare

economic

from

economy.

consum- however,

in

political,

based

are

markets

foreign

follows:

of

manu-

and

exam-

of

1993;

terms

and

labor

the

be-

also

more

out

and

the the and

in

and

or

the

out

on

for

as

as

a

a

cause

had conduct

econom’) the

concentr

providin ated

small

expenses

context

enterprii

cheap

lessenin garment

vertical 1

regulatic lessens

dynamis

purchasi

ing

workers,

the to

tute services

tion

present contrib

arising

tries an

the

part security

fiscal

the

need counter

The

surviv

This

shift

urget

or

olig

abil

sma

cen

194

the

oft.

diff

ant

of

fin

dii be

to

in

c

t a

mbling The id

their ictivity is consumer ationally move lefinitive is isis. :leclining iors )ortion

rice iscussion context. :a, port 3mpetition iage :ations industrialization

ire Lmacy

al

y dons

en

ume strialization

tudies

terms

that

for

restructuring

control

(Fernández-Kelly

elsewhere

can

and

classes

the

the

frequently

employees

The

the

to

in market

new

and

business,

of

is

for

toward

force

of

and

demand.

consequences

weigh comparable

that

can

of

the

that

products

traditional

through

case

of

authors

politics

The

the

of

owned

social

export

primacy

highly and

shift

goods,

subsidies

the

in

be

conternporary

even

the

in

restructure

follow.

it

(rot).

studies

urban

the

more

the

of

value

often

the

located

summarized

is Latin

internal

and

away

welfare

informal

The

the

laying firms,

(ist)

for

skilled

the emphasize,

and

industries

the

economic,

large

internal

in

informal

industries

open data

and

an

system)

to

to

The

export,

urban

of

America

were

first

arrival

one

for

locations

social to

from

urban

firms

away

both

local

this

internal

off

economy,

labor

workers

diminishes

ones

Sassen

collected

urbanization

markets

country

economy to

issue

market

carried

economies

workers

period

as

demand

economic

welfare

economy.

of for

examina operating

examine,

in

however,

political,

are

from

firms

based

consum

in

markets

follows:

and

foreign

manu

of

exam-

of

terms

1993;

and more

labor

also

and

and

and

out

the

the out

be-

the the

for

on

or

in

as

as

a a

need

fiscal

counter

the part

security

the

tries an

present

arising

contribution

tion

tute services

workers, purchasing

the

to

vertically

ing

dynamism

regulation.

lessens lessening garments,

enterprise

cheap context

small

expenses

providing

ated concentrate

had

conducted

economy

the cause

This

survive

urgent

The

1940s

centralized

of

or

differ

ability

the

difficulties

and

to

shift

oligopolistic

small

the

becomes

as

firms

of

imports

retrench

period volume,

to linked

the

country

from

major

of

economic

living

for

need

onward development

the

considerably

of

dependent

of

in

from

these and

in

whose

and

basic

power

of

perceptions

under

in

firms

advantages

worker

could

the

state

the

Latin

to

on

corner dramatic

the

to

other

market

this

is

to

provision

its

more

of

of

in

1t

case

current through absence

topdown

state

goods

the

informal

formal prices

a

were

broaden

many

(Mesa-Lago

generated

regulation.

capacity

positions

isi

basic

low-income

profitably

informal

America

to

and

turning

situation, protection

basic

shops,

clearly

studies

sale

regimes.

on

expenditures,

EOI

for

in

policies

changes

and left

political

cannot

Latin that

goods

of

firms

of

employment,

debates

its

the

of

and

the

goods

regimes.

approaches

the economy.

state jobs

to

with

services

point comparative

street-sellers,

in

high-cost

an

bring

by

economy and

small

extent

exploit

act

American

in

Under

it

informal

management

1978, range threaten

in

the

economy

match

of

the

neighborhoods in

in

provision

is

imported

changes

the

the

the

the

countercyclically.

over

most

the

out

in

likely

the

firms

internal

formal

Yet,

and

for

formal

the

Caribbean

of

large

1991).

less

those

these In

these

formal

many

those

goods

to

has

social

to

macroeconomic

Latin

policy

sector.

the

the

our

timing

the

governments

continued

once

of

analyses

question

that

profitable

social

or

absorb

from

enterprises

economy,

been

of

regimes,

subsistence

debates:

niches

economy

market

low-income

of

of

viability

Currently,

of

understanding

construction

new

sector.

American

and

policy

services,

the

alternatives.

derived the

the

social

Asia.

of

and

policy.

derives

a

workers

services.

social

of

export-oriented

relatively

mass-produced

old

factors

informal

mainly

It

Even

extension

that

niches,

purchasing the

community

new

and because

At

of

through

through

becomes

welfare,

certainties,

and

also

from

that

various

In

governments

mainly context

security

large

the

the

permitted

population.

in

citizenship.

social

that

workers,

depends

Foreword

their

the

Informally

by

Though makes

this

enables of

economy

such

unquestioned

same

small

avoiding

formal-sector

national

subcontract

avoiding

deregulation

of

create

with

face

the

either

trends

from

perceived

latter

goods

programs,

needs

entailed

participa

the

as

footwear,

creating

time,

a

informal

regimes,

informal

them

consti

of

on

people

social

coun

major

that

studies

from

cen

These

a

more

case,

The

state

loses

oper

run

the

firms

and

new

are

the

the

the

xiii

by

of to xiv Foreword tralizedprovision of social security by governments is unlikely. In some problemsof P°’ countries,notably those ofthe Southern Cone, the fiscalburdenofexisting solvedby the in case socialsecurityobligationsis alreadya causeof seriousconcern for govern- The five ments and international development agencies.Current policies of eco- in socialpolicy nomic liberalizationweakenstate oversightof socialwelfare;thus, various Guatemala, in’ hav Latin American governmentshave adopted policiesof labor deregulation population th( to stimulate the freer movement of capital and goods.Many small- and extremeare p0] medium-scaleenterises are threatened bycompetition fromimports,cre- istotjcallY, Re] ating job lossesthat are not compensated by job increases in the large Dominican dift coorations and that add to infoal and unprotected fos of work.At how these the the same time, it is likely that noneconomic trends make social rights, explain s housi particularly those to health and adequate living conditions, a matter of affecting ofc increasingpublic concern. ment, and,

however, I As the chapters in this volume suggest,the chaos of the cities, which are, social jwctaposesrich and poor and areas of adequate infrastructurewith those extend study,c having none, underlines foreveryonethe need to find collectivesolutions. of the ployment. In The increasing presence of nongovernmental organizations throughout and Latin America, both religiousand secular,working to help local popula- cohesion familyand tions demand their rights, inevitably increasesdemandsfrom below.This of economiclibt presence also weakens the state’s ability to co-opt local populations or political patti suppresstheir demands. One impo’ In this situation, urban socialpolicyneedsto take account ofthe limita- mented in se tions and possibilitiesthat face the contemporaryurban community as a international source of informal care and as a unit of political participation. The local carryingcap residentialcommunity is,after all, the place that determines the qualityof Haiti is now accessto many socialrights,whether those ofhealth care, education,or an documer adequateenvirbnment. We knowfrommanyurban studiesthat familyand has times, organ community networks of mutual aid made the neighborhood a source of communit socialsupportand welfareduringthe period of rapid urbanizationin Latin volumemak America and the Caribbean fromthe 1950sto the early 1980s.The neigh- political borhoodalsorepresentedthe mostaccessibleunit ofpoliticalparticipation. f0 i organizatiot It wasalsoa basisofcollectivemobilization,even though that mobilization local comm wasoften of limited duration, as the literature on urban socialmovements tmsted forr makes clear (Blondet 1991;Castells 1983;Touraine 1987). It is an open mined, hov question whether the urban community continues to function in these text permit ways,given contemporary changes in the structure of urban economies, ThiS VOl urban spatial organization, and migration patterns. We thus need more paths takei studies,such as those of this volume, that look at the impact of the new to acc context ofurbanizationon the caringcapacityofthe local communityand seek encourage on local-levelpolitical participation. The urban space once availablefor project dei invasion and self-construction of housing is now less available and the

:hem

1983; made :ontemporary bility iernmental [equate )ensated )f ient y

Fhe that iity tion, n ;y r e neconomic ened y

essible period those ecular, al

sthg

l 95 0s

apacity

terature uggest,

don of

versight

adopted

the

of

place

increases

a

the

many

capital

by

needs

adequate

cause

and

political

continues

urban

agencies.

look

is

structure

by

governments

patterns.

need

Cone,

Touraine

of

even

the

to

to

unit

of

that

working

now

unprotected

urban the

of

living

competition

health

to

on

by

the

of

co-opt

of

rapid and

policies

at

neighborhood

the

take demands to

space

though

of

social

urban

serious

determines

chaos

trends

organizations

job

the

the early

partiipation.

infrastructure

less

find

political

goods.

studies

local

urban

conditions,

Current

of

We to

urbanization care,

account

1987).

fiscal

to

increases

local

impact

once

available

urban

welfare;

of

collective

function

social

of

1980s.

that

make

is

help

concern

community thus

from

forms

labor

education,

from

community

the

Many

burden

that

unlikely.

populations

participation.

available

It

policies

mobilization

the

of

local

of economies, movements

need

The cities,

a

social

is

below.

imports,

family

deregulation

thus,

throughout in

a

the

of

with

and

The

the

source

quality

in

an

for

small-

solutions.

in

matter

of

work.

the

neigh

popula

more

limita

these

open

In

Latin

new

govern

existing

or

and

which

various

the

of

rights,

local

for

those

This

and

as

large

some

an

of

eco

cre

of

and

or

At

a

of

r

project

paths

encourage

seek

mined,

text local volume

organization, communities has

trusted of times,

Haiti mented

carrying

political

ployment.

international of

cohesion of

economic are,

ment,

extend affecting how

explain historically, population

Dominican

Guatemala,

extreme problems

in solved

political

family

This

One the

social

The

documented

permits however,

to

community

these

taken

is

and,

organize

study,

accommodate

by

detail

however,

social

form

five

make

volume

important

now

in

the

capacity

participation

are

housing

policy

and

and

of

liberalization

the

further

several

participation.

of

In

have

cases

differences

Republic

by

political

space

the in

providing

spatial

clearly

of

than experiencing

community.

clear

in

course,

available

rights.

on

currently

migrants

initiative

this

the

which

and

more

political

economic

is

cases

for

been

informal

explored

by

organizations,

of provision

an

of change

for

those

that

research

countries

situation,

the

Mexicans

citizenship.

the as

a

They

the

the

and

to

is

incentive

popular minimal

of

both

effectively

transnational

as

well

infrastructure

the

to

in

for

the

“local”

for

the

facing

national

of

who

Costa

nature

case

a

participation. Despite

social

The

support

the

in

in

structure,

all,

the

access

means

urban

individuals

economic

and

the

new

intermediate

the

along as

this

the

of

have

the

studies:

public.

though

participation.

in

chapters

difficulties

and

historical Rica

neighborhood

the

spatial

political

Latin

not

of

to

rights

welfare

At

global

New

meaning

volume

neighborhood

political

to

the

to

of networks

disruptive

political

other

stayed

this

bitterly

social

one

national

social

and

one.

and

influence

improving

variations

are

The America

instability

the

to

York,

have

segregation,

or

political

report

path,

Levels

extreme

of

varying

rights

to

provide

collaborative

in

case.

more

Indeed, even

constitution

at

significance

services

in

configuration

of

context

data

contested

participation.

many

a

the

undermine been

home.

international

finding

political

the

lesser

effects

the

in

some

The

the

and

and

of

complex

of

files numbers

the

and

remains

among

both

and

degrees,

local

are

interesting

relatively

as

individual

urban

participation

and

editors

the

The

and

politics

extent

case

the

the

of

social

economic

(sr’ss

Robert

the

the

of

by

rising

parties,

Santo

community

the

for

of

structure

efforts

of

the

the

whether

Caribbean

social

poverty

elites.

case

studies

the

cases

fiscal

of and

of

remittances

inhabitants.

All

were,

the

6.1

migrants

consequences

Foreword

citizenship

have situation.

Jamaica,

cities

caring

rural

extensive.

rates

the

of

preferred

Smith

contrasts

Domingo

studies

communities.

five

less

evaluation

are

and

to

rights

At

of

resources

context.

their

at

make

of

five

made

are

on

that

migrants,

chart

Haiti

of

in

countries

the the

easily

the

capacity

text

employ

is

as

(1994)

can,

where,

spatial

unem

of

family

deter

home

docu

cities, of

other

most

from

con basis

they

cleat

time

both

The

help

The

this

and

the

and

the

file

To the

re

xv

at

to

of of xvi

format) based

political kidark.html, can the

economic

Blondet, Castells, Fernández-Kelly,

Mesa-Lago,

Shaiken,

Smith,

Touraine, Standing,

The

References

trends

benefit

at

uanos.

fication der.” Global Sage

• Bank Studies, message Organization

Ticuani, arid Robert Sit’,’,

opment tiago:

Foreword

can

1991. • Manuel.

the

Cecilia.

structure

Harley.

Alain. Guy.

affecting

policy

Carmelo.

Politics from

Russell Foundation.

site

be

Johns

Discussion

PREALC.

“Social

Economy:

and

C.

17

University 1989.

accessed

Puebla.”

of

M.

of

1987.

1 1991. the

1983.

debates

(7): 1994.

99D.

Inequality.

the

in and

Hopkins the

of

Sage

Patricia,

countries

1978.

“Global experiences

Security

Export

1077—97. a

volume

Actores

Mexico

The Las

Paper

Latin “Los

Transnational

in

Ph.D.

Internationalization

Foundation

through

of

must

Social

Mujeres

City the

Industries.

and

Ausentes Pittsburgh:

California.

University’s Feminization

No.

and

of

American Sociales

in

diss.,

is

nature

and

take

Security

Saskia

the

the a

Prospects of 140.

the

convincing

y

Department

the

Global

region

Working

the

El

into

Siernpre

y

Community San

Internet

Washington,

Grassroots. Sassen.

of

Sistemns

University

Poder. in

others.

Development

Latin

Diego,

through citizenship account Department

Economy:

for

and

and

Presentes:

Paper

Lima:

Equity

one.

1993.

America:

Politicos at

of

policy

However,

Changing

Calif.:

Sociology, London:

between

http://www.jhu.edu/soc/ of Flexible

the

D.C.:

No. Because

“Recasting

Instituto

High Pittsburgh

in

mean

debates,

The

Center

national en

Latin

of

Pressure 36.

Archive

World

Technology

America

Sociology. Labor.”

Definitions Edward

New

the

Imagining,

New

Columbia

of

that

America.”

de

for

similarities

differences

Press.

Women

each

Bank. Groups,

York

Estudios

York:

context.

U.S.-Mexico

World

Latina. social (in1s.iuc), Arnold.

and

country

City

of

Univer-

Making

Russell

World

in

Strati-

Devel-

Gen-

Work

and

Per- San-

and

the

in

in

The

the

ered

chapter

the

this

Foundation

tude Without

would

entire

numerous

collaboratec

hosted and

Latin

Republic,

and

of

to faculty

data-collec

study

Universit’, leagues

Robothart

auspicious

book

and

Andrew1 Man

five

the research

process

the

the

for

Atthis

Caribh

A.

proje

have

his

Card

Ame

1). first:

theii live1

in the is

enti

Do

the

otl

o

an de

fe

tC

Jr

T ______

Page 1 of 43 Regional Studies

2. 35 6 7 8 EMPLOYMENT ANTIWAGE DYNAMICS IN ITALIAN 9 10 ii INT)USTRIAL DISTRICTS 12 13 14 15 Alessandro Muscioa and Michele Scarpinato 16 17 18 19 20 Abstract: This paper is concerned with the analysis of differences in

employment and wage growth rates inside and outside Italian industrial

districts. On the basis of national statistical data, we compare employment

2 and wage differentials in mani4facturing industries between district and

non-district areas. The aim is to investigate whether the industrial disimict

model generates better labour conditions for sustaining employment I3 pemformnance and wage levels. Keywords: industrial districts, employment, wages

JEL Classification: J21, .139,RI], R12 H42. 44 45 46 47 48 49 50 51 52 53

Dipartimento di Scienze Economiche e Aziendali (DPTEA) — Università Luiss Guido Carli, Via 0. Tommasini, 1 - 00162 Roma (Italy), Tel: ÷ 39 06 86506530, Email: 56 57. [email protected] Università dell’Insubria — Facoltà di Economia, via Ravasi, 2 - 21100 Varese (Italy) Tel: +39 0332 215410, Email: [email protected] 60E

http:/lmc.manuscriptcentral.comlcres 1 Email: regional.studies©fm.ru.nI Regional Studies Page 2 of 43

1 2: 3

7 1 INTRODUCTION 8: 9 10 The large quantity of empirical evidence on industrial districts (IDs) has

shown that they can be highly competitive and generate steady economic

15 growth (FORTIS, 2000; GUERRIERI and TAMMARINO, 2003). Yet very 16 17 little is known about the quantitative aspects of labour dynamics arising 18 from this complex model of industrial organisation. 21 22 23 Following the conditions set by Piore and Sabel’s model of flexible

specialisation in industrial organisation (PIORE and SABEL, 1984),

underlying the district theory is the idea that this model can generate

employment and create the opportunities for good pay and optimal social

conditions (PYKE and SENGERBERGER, 1996).

However, the reasons why such a model of territorial development is better

able to mobilize human resources have not been systemically analysed in

the literature. In fact, the literature offers no clear explanation of why the

43 district environment may generate favourable employment dynamics

(BRUSCO et al., 1996; PffGO et al., 2001). Furthermore, the

48: empincal evidence on employment dynamics in districts obtained through

50 damic comparison of employment performance in firms located inside

and outside districts is very limited.

55 : 5B 57::.: 58

60

http:!Imc.manuscriptcentral.com/crL Email: regionaI.studiesfm.ru.nI :5

Page

6 4 2

3

7

20 12

21 13

14 2 58

4. 45

47 60 59

52 —

3

of

43

•

Therefore,

method analysis

know district

accompanied know finn

performance In

positive

obviously economic development

Secondly,

IDs levels on

with (ENGELSTOFT

1999;

terms

the

http

formation

may

whether

respect

constant

whether

BELUSSI

decline

areas

and

IImc

impact

of

of

not

strengthen

the

evidence

downturn,

the

employment

relevance.

manuscriptcentral

and

in

by

be

that

eventual gap

relevance or

to

of

of

would

a

IDs

different

consolidation of equipped

districts. et

1999;

the

non-clustered

we

distnct

industrial

how

of

al

the

is

generating

district

address

In

the differences introduce

generally

GAROFOLI,

of and

2006) argument

such

terms

firm

s

Some

ability

the

to

Regional

wage

employment

model

policies

face

in

differences

comIcres

subject

processes.

growth

of

However

of this new

growth,

industnes

of

in

underestimated.

method,

of

the

differentials

the

on

districts

employment

Studies

study

supporters

perspectives

we

2002)

new employment

should

trends.

literature

Email

find

or

vary

and despite

there

is

competitive

may

at

and

to

substantive

that

regional

In

over

be

least

between

survive wage

of

is is

their

levels

other

have

the

into

more

this First,

this

providing

no

and

time.

keeping

topic

extensive

studies@fm growth potential

the model

correspond words, wage

periods

in been pressures

district

evidence in

locally

Also,

ongoing

of

some

terms

evidence

levels

employment

employment of

exaggerated

levels we

we

of

statistical

advantage

and

territorial

oriented.

contexts

of

(AIvIIN

ru general

to of do

do

debate

would

non- both

nI

new

any not that

not

are Regional Studies Page 4 of 43

7 ;.. districts may still have competitive advantage compared to isolated firms in

facing increasing compefition. In other words, in Italy and other countries,

districts may be in decline, but their growth performance might still be

14 stronger than in the rest of the economic context in which they operate.

Therefore, evidence must be provided of how non-district areas in the same 18

1g national context and in the same industry, perform over the same period of 2o: 21 time. 22 23

Given the above, the purpose of this paper is to investigate the dynamics of

employment and wages in firms located inside and outside Italian IDs. We

use Italian national statistical data to test whether distncts offer better labour I conditions in terms of employment and wage levels. The paper is organised as follows: Section 2 discusses the theoretical :4 background and the research hypothesis; Section 3 reports the empirical evidence. Concluding remarks follow.

2 THEORETICAL BACKGROUND

2.1 Definition of industrial district 53

The interest in IDs has been carned on the wave of the ability of such local

productive systems to achieve outstanding economic success and to generate

http IImc manuscriptcentral comIcrs Email regional studies@fm ru ni Page 5 of 43 Regional Studies

2. 3 4

6 7 sustained development processes (BECATTINI, 1987, 1989; BRUSCO,

1989; GAROFOLI, 1989, 1992). Over the last two decades significant

empirical evidence has shown how districts specialised in producing high

14 quality products, have become competitive players in international markets

(FORTIS, 2000; MAZZONI, 2001; NADVI id HALDER 2002;

19 RABELOTTI, 1999; SAXENLkN, 1994; STORPER, 1993). 20.: 21

By defimtion the ID is I a socioterritorial entity which is characterised by the active

presence of both a community of people and a population of

firms in one naturally and historically bounded area

(BECATTINI, 1990: 38).

District firms are generally small in size and, within one district, are 4- specialised in the production of the same product’s. They share a common

45 social and cultural background which facilitates complementanty between 46 47 activities and division of labour among local actors. In IDs technical and

socio-cultural aspec are closely inteoven with the life of the community.

52 The existence of this strong relationship between social and technical

54 factors allows the co-estence of complex dynamics of cooperation and

competition between local firms (BECATTINI, 1990). 58 *5960

5 http llmc manuscriptcentral comicres Email regional studiesfm ru ni Regional Studies Page 6 of 43

4 5

7

The competitiveness of districts relies on the collective efficiency of the

local system, in which each firm exploits dynamic competitive advantages

14: deriving from the existence of external economies and collective action 15 (BELLANDI, 1992; GAROFOLI, 1989; SCI{MITZ, 1999). A high degree

19 of production specialisation generates continuous improvements in 20 21 technology and production organisation (GOTTARDI, 2000). These

improvements have multiplicative effects on the local system and are

determined by continuous feedback effects between the increased

competitiveness of individual firms and the system as a whole

(GAROFOLI, 1989). As a result, districts are regarded as places where

close inter-finn communication, socio-cultural structures and the

institutional environment may stimulate socially and telTitorially embedded

collective learning and continuous innovation (ASHEIM and ISAKSEN,

2002). 4- 42 43 ‘--44 45 2.2 Employment dynamics in industrial districts

The results of the empirical studies on lBs have had an enormous impact on

51 regional development policies. Research on districts has led to a general 52 53 consensus among economists and policy makers that the territorial

dimension plays a key pa in economic development processes, and that

58 districts may offer new opportunities for economic growth in both 6059

6 IImc manuscriptcentral comlcres Email regional ru nI ‘1 http studles@fm Page 7 of 43 Regional Studies

2

5 6 7 industrialised and developing countries (HUMPHREY and SCHMITZ,

1996; McCORMICK, 1999; NADVI, 1999; NADVI and SCIITZ 1999;

12 SCHMITZ, 2000). 13 14

Underlying, this interest in the district model and the adoption of what in the

policy makers’ jargon is termed the ‘cluster approach’, there is the idea that 20 21 clustering of firms producing similar products may generate wealth and

offer new opportunities for policy intervention. Clustering is seen as setting

new frontiers for industrial development planning in offering new

opportunities to set ‘high roads to development’ (PYKE and

SENGEN]3ERGER, 1992). There is general agreement that the organisation

of production in districts sustains employment performance and wage

levels. According to Glaeser et al. (1992), cluster firms should exhibit

higher employment levels and higher rates of employment growth compared

4 to production that is not clustered. 4 Studies on districts have also underlined that, compared to other forms of

45 small firm orgamsation, distncts seem to have the capability of providing

47 good wages and social conditions (CASAVOLA et al. 1999; SOLINAS,

1991). This aspect of the district model has been of special interest for

52 international organisations such as the International Labour Organization 53 (ILO) (COSSENTINO et al., 1996; PYKE et a!., 1990) and more recently

the Umted Nations liidustnal Development Organization (UN1DO) (NADVI

7 - http IImc manuscripteentral comicres Email regional studles@fm ru ni Regional Studies Page 8 of 43 r7

7 and BARRIENTOS 2004 TJNIDO 2001) which have identified new a perspectives for industrial development for countries and regions with

economies essentially based on small and medium sized enterprises (SMEs). 13 14

Indeed, the ID literature puts great emphasis on the key role of human

and 19 capital in distncts’ competitiveness. According to PYKE 20 21 SENGENEERGER (1996), job creation in most Italian districts has been as

good as or better than the national average. Unemployment is generally 2 lower and wage levels are generally reported to be at least equal to, and often above national levels. Evidence from industrial clusters in other parts

of the world also seems to confirm these trends (ISAKSEN, 1996; MARTIN

3 and SUNLEY, 2003; NADVI, 1999; KARLSSON and KLAESSON, 2000).

Other authors point out the abilities of districts to quickly and efficiently

react to external challenges. This allows them to minimise the negative

4, effects of changes in market demand, or economic downturns, on district

performance and therefore on employment (GAROFOLI, 2002; NADVI and

45 SCHM1TZ 1999) 46 47 Confirming these insights, some authors argue that the efficiency of SMEs

in discts also stems from good worng conditions (BRUSCO et al., 1996;

th SIGNORINI, 2000) especially for highly skilled workers (BRUSCO, 1991; 53 54 OCCARI and TATTARA, 1997). According to BECATTINI (1987) several

mechamsms such as information sharing in relation to workers personal

http:!Imc.manuscriptcentral.comlcrL Email: regionaI.studiesfm.ru.nl Page 9 0143 Regional Studies

.2 3 4 5 6 7 and professional qualities, and employment as a factor of attraction to (and

retention in) the district of the best qualified workers.

Similarly, SIGNOR1NI (2000) argues that in IDs wage levels are normally 13 14 higher than in larger firms, and higher than the national average. However, 15 in the Italian context some studies have suggested that the relationship

19 between wage levels and districts is controversial (De BLASIO and DI 20 21 ADDARIO, 2002; PIflNGARO et al., 2001; TATTARA, 2001). 22 23

In summary, several studies make reference to the relevance of district

effects on employment. It is argued that the district model can and does

guarantee good socio-economic conditions in the form of higher salaries and

sustained employment performance. However, there is no conclusive view

about the factors that converge to the competitive advantage of distcts.

Similarly, there is no systematic empincal evidence of the extent to which 3 employment and wage levels are effectively higher in districts and of whether eventual differences between district and non-district areas tend to

45 - diverge or converge over time.

47

In our view there are several factors, which jointly may contribute to befter

52 employment performance and better salaries in districts: 53 - 54. 55 57r 58

http:I/mc.manuscriptcentral.comlc!L Email: regional.studiesfm.ru.nl Regional Studies Page 10 of 43

2 3 4

6 7 1. Agglomeration economies. Agglomeration economies and economies

of scale and scope (BELLANDI, 2002) generate superior

competitiveness in local systems, which in turn leads to higher

14 employment performance and better wages;

2. Near-perfect information regimes. Local knowledge spillovers

19 stimulate flows of information on available positions and available 20 21 workforce in the district area. Information flows on demand and

supply of labour in the local labour market generate the efficient

allocation of human resources and reduce the costs to finns of finding

appropriate labour (AUDRETSCH and FELDMAN, 1996);

• 3. Microeconomic effects of demand for labour. High employment

• rates increase the price of labour as companies offer higher wage

levels in order to fill vacant positions. In some cases these

employment dynamics can ‘heat up’ the local labour market and the

unemployment rate can approach near-frictional levels (MUSCIO,

2006a).

45. 4. Demand for skilled labour. Districts are knowledge intensive

47 environments where firms introduce innovative and qualitatively

advanced products (GOTTARDI, 2000; MASKELL, 2001; MUSCIO,

2006b). The competitiveness of the local system is sustained by the

use of skilled workers, who are rewarded with higher pay than they

would receive elsewhere. 5;.•58

http:IImc.manuscriptcentral.comIcs Email: regionalstudies©fm.ru.nl .3

.2

L.

:

.15:.

Page :::i

4. 6 5 I 9 7

21 20 23 22 1

ió

4 3

47

60 52 53 8.

8.,

:

11

of

43

5.

In translate provides development The

the satisfactory BARRIENTOS,

The wage

following labour statistical

addition,

http://mc.manuscriptcentral.com/cie1s development

scope

Reduction district

continuous districts.

the These generate

conditions.

dynamics

in

into

local

evidence

research

Italian

data,

of

social the

factors

model

and

this

favourable

The

a

system

well-documented

information

this 2004).

continuous inside of

its

of

work

firms

conditions

efficient

hypotheses:

of

SMEs

can

effectiveness

reduce

study

wage

the and

is

and

in

offer

work

to

systems

endogenous

the

different

circulation

provides

provide Regional

wage

outside

and optimisation flows

disparities.

extraordinary

conditions.

dynamic

is

competitiveness

as

in

disparities

help rightly

a

a

manufacturing

Italian

the

Studies

evidence

viable

systemic

of

nature

nature

Email:

to

development

information

Efficient of

seen

High

reduce

s.

solution opportunities

human

and

of

regional.studiesfm.ru.nl

analysis

as

of

of

On employment

of

this a

the

the wage

generate

utilisation

industries. sustainable

districts

in

resources

the

context

on

local

model

recent

economic

of

disparities

wages

basis

for

employment

labour

is

stable

(NADVI

of

dynamics

provision

of

We

approach also

rates

of

allocation.

offered

resources

territorial planning.

national

test market

within said

social

and

and

and

the

in

to

of

in

of Regional Studies Page 12 of 43

2:. 4.3 5 6 7.::

Hypothesis]: there are ,-elevant static and dynamic differences in

employment and wage levels between ID and non-ID areas.

13 : 1 4.

Hothesis 2: the ID model sustains firms’ competition allowing better

19 employment levels. 20 21

In the following sections we analyse the differences in employment and

wage levels between ID and non-ID areas taking into consideration different

industry sectors, geographic areas (north, central and southern Italy), firm

size and employee qualifications. We also test via econometric analysis the

3 impact of the ‘district effect’ on employment growth in Italy over the period

1991-2001.

3 EMPIRICAL EVIDENCE 42 43

45 3.1 Introduction to the research methodology 47 48 In the empincal evidence we refer to two different data sources: 49. 50 51 1. Employment data obtained from the Italian statistical institute, Istituto 54J Nazionale di Statistica (ISTAT) and which refer to the 1991 and 2001 5&. .57 59 60

http IImc manuscripteentral s2comIce Email regional studiescfm ru ni .6

8

I

H Page

H

4. 2

3 1 5 7

.49.. 10 11 12

14 21 15 20 16 23 17 22 18 19

42

44 45 43 46 47 48 50 51a 52 54• 53 p.-.

13

of

43

2.

We

classification districts

Table

can central 199

conditions 2 is of b) following

c) a) d) average.

The

self-contained.

employment the employment

employment employment

http:/lmc.manuscriptcentral.comIcê3s

Local

be

use Censuses.

excluded

Istituto Data

refer

collar”

period

criteria

conditions

1

Italy.

seen

reports

on

conditions:

focus

here

to

Labour on

followed

the

1994-98.’

Nazionale

four

that and

share share

share share of

wages

public

on

set

MAP

the

basis

We the

districts.

LLS,

in

the macro-

“blue

in in Systems

in

in

by

regional

1993

identifies

definition

the manufacturing

SMEs

SMEs

were

considered

institutions

of

majority

which

ISTAT

main

di

by the

collar”

manufacturing

ISTAT

in above

Previdenza

obtained

the

(LLS), are

2001 manufacturing

as the

in

RegonaI distribution

Ministry

groups

industrial

the

of

main

of

the

workers.

from

activities

data

has

identification

Census

districts

with

national

IDs

from

manufacturing

of

not

of

Studies

Sociale

our

for

neighbour districts

a

Productive

proposed

industries

activity

of

above

total

issued

the Email:

average;

data.

analysis. INPS

are

all

districts

of

Italian

those

of

the (INPS).

concentrated

manufacturing

IDs ISTAT above

communes

regional.studiesfm.ru.nI

an

activity

data

5,110,930

Activities national

LLS and by

in

updated

and

social

the

Italy

are

INPS

ISTAT

consider areas

identifies

above

national

non-district

average:

where

are

(MAP).

available

security

employees.2

that

classification

built

in

the

data

labour

sectors.

average;

meet northern

in

national

both

on

These

as

used

its

the

the

agency,

districts

mobility for

LLS.

“white

basis

1991

here

We

the and

of

It

•

4,

11

21 20

19

7

9 8

14

13

12

10

units

national

total

In

3.2

impact

reports

(provinces). 3

used

salaries

terms

Section number

and

We

in

employment

TABLE

1991-2001.

Provinces

2001

http:I/mc.manuscriptcentraI.com/cs

IDs

in

split

non-district

local

INPS

Employment

Europe.

of

of

and

salary

in 3.3

inside

employment)

of

wealth

correspond

1

Census

the

Italy

employees

units),

firms

adopts

data

Data

The

Finally,

‘district

dynamics

data

and

there

and

average

data

to

areas

located

on

to

employing

filed

the

outside

dynamics

estimate

NUTS

productivity

employment

effect’

were

Section

on

(Table

in

same

dimension

were

by

in

economic

1991.

outside

3

economic

IDs

1

district

units

methodology

,342,000

on

tested

2).

differences

Regional

in

3.5

a

Differences

employment

in

of

in

districts

total

In

IDs.

between

presents

performance

Italian

the

selected

and

activities

the

using sector

Eurostat

local

Section

of

Studies

Email:

manufacturing

provinces

non-district

in

5,111,930

for

the

an

the

units

manufacturing

in

and

growth.

the

classification

into

the

regional.studiesctm.ru.nI

performance

two

3.2

independent

econometric

was

Italian

is

in

growth

analysis

two

presents

2,926.6

areas.

district

weighted

areas

staff

groups:

industry

administrative

of

and

Km2. In

of

industries.

(31.5%

administrative

areas

a

over

between

samples

analysis

Section

differentials

comparison

dispersion

based firms

there

the

(28.8%

of

located

3.4 district

T-test.

on

of

period

INPS

were

units

total

the

we

the

of

of

in

of

Page

14

of 43

Classic SFNs located in IDs Southern of Germany & Third Italy

long-term relations, avoid deceitful double-dealings

Personal trust & reputation are critical to maintain

for customized, small-batch production runs

SMEs use flexible-specialization (artisanal crafts)

goods, shoes, small machinery, toys, utensils

ceramics, clothing, cutlery, food, furniture, leather

SMEs mostly light manufacture consumer goods:

I

Charles Perrow. 1992. Firm Networks.” LLSmall

business service

firms and financial service firms.” ..

another. They are supplied by a smaller number of

personnel, and orders as even they compete with one

interact with one another, sharing information, equipment,

“The firms are usually very small say 10 people. They —

competing small-medium enterprises (SME) a in geographic area.

ID is one type of small-firm network (SFN) of cooperating and

Small-Firm Networks

attracting & stimulating new businesses to the -

driving innovations in the industry or sector -

cluster

increasing the productivity of companies the in -

A cluster can achieve competitive advantages by:

that maintain knowledge advantage over decades centuries or

Historic Know-How

Clusters based on

more traditional industrial activities -

economy, typically including universities & research centers

Techno Clusters

high technology-oriented,

well adapted knowledge to the -

particular field that compete and also cooperate.”

universities, standard agencies, trade associations) a in

in related industries, and associated institutions (e.g.,

companies, specialized ‘I suppliers, service providers, finns

Cluster: “geographical concentration interconnected of

businesses a sustainable competitive advantage over other places.

location wfth sufficient resources and competences to give its

Michael Porter identified the competitive cluster geographic as a

Clustering Competitiveness for

innovations foster cooperatives & producer associations Voluntary self-help

services business customized offer institutes Public centers research service &

guarantees loan taxes, low exemptions, give regulatory laws Governments,

IDs: Italy’s Third underpin politics & structures Institutional

Ottai (Dei district” 1994) the culture of social of

axis real the cooperation reciprocal of custom

“local a support ties capital social Extensive

-

culture familism” “amoral noncooperative

Sicily’s & Italy to Southern poorer Contrast

& workers bosses between and firms among

cooperation & trust of cultures communal ethnic

local evolved from regions historical These

Marches) Tuscany, (Emilia-Romagna, Italy Central and (Veneto., Friuli)

Northeast primarily in are located Italy” “Third districts the of Industrial

Italia Terza La

Are Italian IDs becoming less competitive in the global economy?

Such local economies very difficult to “transport from to place place”

Local society dominated by small entrepreneurs & extended families

> Global competitive advantages in org’l intelligence, innovation talent,

High & > variable demand for nonstandard goods (upscale luxury) I

Technical > division of labor plus local & external internal economies” “scale

Local territory, not firm or is industry, key the economic of analysis: unit

local government and administration.” (Sforzi 2002:442)

enterprise, influencing industrial relations activities and the

produces a cultural environment favourable to economic

like work, consumption, saving, attitudes to — uncertainty

initiative and largely reflected in the aspects principal of life,

“A system of values and norms dominated of a by spirit —

with the social and productive environment in which takes it place.”

large firm size “than on how production organized is and interacts locally

Fabio Sforzi describes how competitive advantage depends less on

IDs & the We w’ Itallan Econ Geography continent. emphasized study. presentation economy reflection tion material evolution ways curred the on nated tic ine 1970s In this The Theoretical the politics consistencies region. that in the and chapter, in basis abundant which from the and study we of of

even UrboRizatioll First, and the The of the Caribbean economies of Social seek the the they we more of Overview uniformity individual economies. later and the backdrop new literature extent first Latin review to affected ALEJANDRO variations population recent painted answer phase insertion Change American of Basin to the these which country on that is civil of This empirical principal is a the Latin cities the of fairly of the the small of society. they during central analysis, revolutionary iii project urbanization these Latin results and process extent American during coherent PORTES,

countries t[ic obey material, theoretical CARLOS A countries features America described from in the fundamental characteristics to the

had Caribbcon turn, which picture urbanization in during lsst Years and transformations acquired the of JOSÉ perspectives the into was urban sets in two theit second DORE-CABRAL such past, chapter this of becoming the the theoretical decades. ITZIOSOHN, or its development throughout of bearing period their changes international until stage phase evolution. the their that

1 Bosin to revisions that the and We Cri5is domes for rapidly on exam of domi ques are

late 2 the the the the the use oc in It

a F The gradual dwarfish urbanized, Hardoy dominant by advent glomerations migrant built with capital, ‘marginal city opposite then inexorable most Regional scarcity either rural trifiigal exodus International nism. remained fringes create urban casual lived cities absence 1976). irregular 1973; moving Second, Third, Together, (Amato migration highly compelled areas in in countries, This featured Lagos their in labor or of of from manner forces main increasingly 1975; flows caused of the work national extreme, the the the Employment informal the low mass” but welfare to classes. view took increase within unequal own and 1969; force urban the accelerating remote urban new site automobile and of was disintegration Portes Labour because the was of low nsral but city was the place in a central shelter Tokman for the the protection. modernized growing bodies—was process incressing single Hardoy, perceived (Tokman The the the economy periphery, as employment rates mid-twentieth in frequently different govemmenrs income suburban industry outmigration; and nsral an rest Office without cities the the Programme large solutions condition ciry explosive allowed Johns city of urban was 1983; of spatial population Basaldiia, urban disparity unemployment distribution that of by of 1982). (Nun the cities, tents worlds, (no) and Instead, simultaneously distorted locations. but farms Urbanization discussed creating the traditional many not primacy, 1989). rRaAcc that survived urban poor the commerce, polarization in to in influx and century 1969; of well-to-do. the and for rapid Regardless new between irregular or extend and even wealthy directions analysts ofren the urban toward could by Latin in housing second system sufficient The 1982; its by to Garcia toward spatial Moreno to typical by urban demographic the if agriculture accelerated economists produce Latin in services absorbed Latin formally combined inventing political not primacy—gigantic settlements. and to the America played the region’s of as Marshall the The led (Breese of scarcity polarization escape a generally 1982). industry. a profile the afford place 1968; largest few capacity cities American Caribbean America, countercyclical the to outcome other to classes: they the power receiving the half underdevelopment. label in associated Yet employment these it the (s’ssaAcc) with of Portes nor 1966; of did growth 1987). drove metropolitan and Latin growth The role distortions. These residence Lsrin shared opposite or unemployment to peasant to not of of rich applied but high areas. of offshoot, Basin suggested absorb more Beyer work and urban of first the the centers. these occur American American combined were the and heads the (Bairoch of political with Walton rates mecha poor classes, crowds type At of to in of a in 1967; elites to labor same rural poor cen The vast in also the the the the the the the ag the an 17 In it, to of of of a 18 Alejans-froPortes,Jose Itzigsohn, and CarlosDore-Cabral Urbanizationin the CaribbeanBasin 19 and high informal employment constituted the cento-ilfeatures of Latin contradicting the earlier assumptionthat, in the absenceof welfarecover Americas-iurbanizationprior to the l9SOs. The research literature describ age, the poor must find some form of employment. ing these featuresalsoprovided a fairly coherent explanation of their causes These trends represented not only empirical departuresfrompast theo on the basisof a common condLtiorsof external dependency.Industrializa riesbut contained important lessonsfor their revision.Eachtrend appeared tion as it tookplace in the region washighly centripetal in its consequences to reflect, in its particular way, the rapid adjustment of Latin American because the largest industries, many subsidiariesof transnational corpora countries to the debt-induced economic crisesof the mid-1970sand early tions, concentrated in the main urban centers. Added to the consistent 1980sand their changing insertion in the global economy.We summarize decline in trditional agriculture, this concentration naturally gave rise to next the specificwaysin which this societaladjustment affectedeach aspect rapid rural migration toward the few places where industrial employment of urban development and formalize the three alternative theoretical could be found. But industrialization under foreign control created a mis propositions that they suggest. match between the resource endowments of these countries, abundant in Beginning with the regionwide economic downturn prompted by the labor and short on capital, and the labor-saving character of imported increasein oil pricesin 1973,Latin American countries turned increasingly technologies (Eckstein 1977;Tokmari 1982). The inability of urban indus toward export promotion as a meansto alleviate balance-of-paymentsdefi try to absorb the mass of rural migrants gave rise in turn to a growing cits and servicea growingforeigndebt. The processacceleratedduring the segmentation between a sector of modern,” protected, and relativelywell- early1980s,when a secondmajor increaseirsoilpriceswasaccompaniedby paid employeesand a vast informal economy in which most migrantssur the resistance of international banks to cover the deficit with fresh loans. vived on the basisof invented jobs of minimal productivity (i’aeALc 1981; After the Mexican debt moratorium of 1982, country after country em Marshall 1987;Poi-tesand Johns 1989). barked in a painfulprocessof economicadjustment under closemonitoring The poverty of most rural migrants due to their lack of suitableemploy by international financial organizations.The details are well known and ment barredthem fromaccessto market-providedhousingand created the have been examined at length in the specializedliterature (Massad1986; conditions forthe emergenceof vast shantytowns on the peripheryof most Eci.Ac 1988;Inter-American Development Bank 1990).Lesswell noticed largecities. Their sheer number in turn led elite sectors to escape the city have been the effects that the rapid shift from the previous import- toward ever moreremote suburban enclaves.These twin processesacceler substitution model of development to the new export-oriented model had ated the spatialpolarization observed, with almost monotonous regularity, on civil society. in most largecities of the region (Leeds 1969; Goldrich 1970;Cornelius An unanticipated consequence of this shift was the rechanneling of 1975; Eckstein 1977). domestic migration flowstoward the new growth areas created by export During the mid-1980s,we conducted a studyof recent Latin American agriculture,export fisheries,and export platform industries.Togetherwith urban trends based on firsthand studies of three South American capitals the decline in employment opportunities in the old import-substitution plus secondarymaterial for the rest of the region (Fortes 1989).The study industries,concentrated in the largecities, the new migrationpatterns led found plenty of evidence of urban primacy,spatial polarization,and a large to the rapid growth of many secondarycities and to the slowingdown of urban informaleconomy,but along with them, it also discoverednotable growth in severalmetropolitan areas.Hence, export-orienteddevelopment departures fromconventional wisdom. First, the seeminglyinexorable in (Eoo) may reduce or even arrest urban primacyto the extent that the new creasein urbanprimacyhad decelerated and even reverseditselfduringthe export industriesare located awayfromthe majorcities and hence induce a preceding decade in a number of countries; second, the great physical centrifugalpattern ofdomesticmigration.The argumentcan be formalized distances separatingrich, middle class,and poor in mostmetropolitan areas in a first proposition: appeared to have diminished significantly in several cities as a result of novel rearrangements of the 1. Thegreater shiftfrom toward exportorientedmodel urban population; third, a number of urban the iniporr-subsdtuiion an labor markets registered vast increases in open unemployment question ofdevelopment,thegreatertheprobabilityofsecondarycitygrowthandadeclinein ing the assumed urbanprimacy. countercyclical role of the informal sector during eco nomic downturns.Open unemployment rather than informalemployment The economic adjustment programs inspired by international finance emerged as the key adjustment mechanism at the height of the crisis, organizations to deal with the debt crisis led to the exacerbation of the

record

most

ment,

27). about PREALc

turn, moat a

ment.

tions

Gambier

Rio better

of non

spatial high-income

convergence result

1990) search breached

ple,

and there urban search

income

onset

acceleration

already

20

(Iglesias

1989),

significant

programs

outcome

The the

2.

Similar

First,

de

this

odd

By

in

the

of

countries

countries

In.creases

was

20

Out of

of

distribution

levels

suggested

another

urban working

by

of

crisis

Janeiro emerged

analysts, Alejandro

order

the

contrast, São

groups

middle-class

marked

the

phenomenon

growth

percent jobbing—whose

these

1985;

Campos,

affordable

the

the

of

a

earlier events

led

role

simultaneous

crisis.

in

the

reduction

of

Paulo,

population.

of

between

poor

residential

geographic

leading

to in

but

Colombia,

twin

the according

PREALC

indicator

class

of toward

(Fortes

suwival

the

poverty

was

a

as

a

should

for

income

study

reported

open

reduction Fortes,

the

regional

of

and for The

that,

the

1980s

housing.

pattern

labeled

modest.

processes

Latin

and

income

urban

informal some

to

rich,

took

de

srraregies

outcome

and

of

did

the

contrary

1987).

urban have

1989;

relative

José

the

greater

brought

of areas.

divide

Mello

urban

to

growth disparities

Peru,

America markets

of

find in

incsnse

trend

south

sort

groups,

of

middle

the informality,

it

According

spatial

In

the

but

produced

marginalized

cities

ltzigsohn,

Kowarick,

was

unemployment

spatial

In

economy

“perverse

of

that

the

Honduras,

of

form

This

(1990),

results

separating

wages of

to

rather

information

summarized

both intermingling

disparities

of the

a

of

employment—usually

polarization

the

hard two

are

Colombian

the

contraction as

class,

during

the

the

irregular

of

in

middle-class

displacement polarization

dissimilar

large

partial

among

large

that,

magnitude by

found

previously

and

to

urban

a

pressed

who

such

city,

most

did

Gambler

and

integration”

massive

the

estimates

produced

Chile,

groups

the

cities,

them

Carlos

increases

according

not

observed

in

as

formerly

poor

available in

or in

generalized

rearrangement

informal

higher-income

increased

early

Latin

capital

Latin

of

those by

as

of

the

and a

squatter

and

from

increase

displacement

formal

(Carrier

this

second

present

unnoticed

of Montevideo,

by

Campos, Dore-Cabral

the

was

the

by

was

previous

law-income

l980s.

American

the

economic

Venezuela.

American

advanced

in

of

because

economic

the

trend poor

PSEALC,

the

sector

to

not

(Fortes

classes.

prompted

Bogoté,

rapidly

irregular

informal

economic

employment

settlements

impoverishment

proposition:

earlier

same even

significantly

preserve

1988).

Underemploy

prompted

settlements

and

suggested

processes. study

of

expanded

cities adjusrment

groups. sectors.

it

the

1989: by

phenome

before

Kowarick, of

Lima,

the

For

situation,

for

de

countries

teaching averaged

explana

employ

vending

Second, as

ILO

middle-

(Fortes

by

down

spatial

exam

Mello of

urban

Latin

an

near

by

The

24—

and

and

and

the the the

the

in

in

in

a

Rica,

some

larger people subcontracting and kets

these in theories a ular, regulation—do Portes argument provided of America

those rapidly formal neria variety ducers mechanism

these Instead,

is

l980s,

regional

the

about

As

this

Urbanization absorptive nism.

In Hence 3. When The

informal

that

the

the

1989;

the The

countries rise

14

years.

of

indicated

countries

and

and

demand

workers’

region.

are

approach

of

significant

During

the

6

infossnal

of

percent

the

as

rest

larger evidence

formal

Dominican assumed

in

formal

context

arrangements,

advanced

percent

available vendors—defined

Walton

Fortuna

Latin

a

capacity

to

The

Caribbean

open

whole,

of

two

activities

absorb

severe

and

for

do

this

agreements, not

in

firms

wages.

employnsenrfunctsons

have

argument

zero

in

firma

American in

unemployment

types

chapter

different

not of

the

against

informal

informal

growth

of

(1981)

live

and

chapter,

1984

recessions,

unemployment

originally

the

to

the

surplu

Republic, irregular as

are

been

encompass

cease

informal

Basin.

engage

as

in

labor Prates

of

Caribbean

providing

economically

a

(eclc

a

part

sectors

1,

dualistic

concerning

can

enterprises

from

of

key

world

applied

goods

we

the and

urbanization

labor,

to

activities.

supply as

open

Our

unemployment

1989).

Urbanization

by

of

be in

examine

exist

Guatemala,

source

those

sector

countries

are

the

indirectly,

1986:

observed

apart

unified

the Roberts

informal

unemployment

formalized

and

study

Its

only

goods

inte

theories

by

increased

one

vastly

Basin

as

For

failure

who

entire

gral

services the

impeifectly

would

of are

extension active

from

23).

during

that

focuses the

informal

urban

and

selected

demand,

parts

based

outatripa operate

profound

(1976,

in

closely

activities,

Haiti,

in

validity

through of

region,

the

to

gave

a

in

urban from

function

markets

of

at

the

Latin

number

the

do

wi 11

also

explicitly

a economies.

firms

on

as

the

the

to

rise

third

entrepreneurs, so

1978)

for

Caribbean

and a outside

rise

intertwined an

economic

both

same

demand.

drops.

the

countercydical

they

population

of

smaller

articulation

supported

American

the

the

that

their

to height

unweighted

reflecting

for

these

Jamaica.

as

of

proposition:

experience

urban

them.

and

directly,

do

study

buying

countries

a

on

each

are

the

Although

remunerations

compensating

form

hypotheses

Informal

ones,

The

Basin

urban

expanded

so of

economies.

crises

pale

the

In

were

instead

other

labor

in

through

regulated.

Although

the

mecha

of

in

power

outcome

limited

a

the

through

average

such

1974

of

signifi

partic

during formal

trends

of

of

Costa

more

crisis

state

past,

mar

(Be

pro

the

the

the

21

in to

in

as of a F 7c9 22 AlejandroPortes,José Irzigsohn,and CarlosDore-Cabral U _5 , S o U • .1 9t1 cant proportion of its total population and illustrate the great diversity‘of :;ir H historical experience found in the area. -6 •-a.6 gass2 -Icc The principaldifferencesbetween these fivecountriesare summarizedin .6 .6 D ‘8 table 2.1.They include the richest and mostpoliticallystable nation in the region (Costa Rica) and the poorest and most unstable (Haiti). Politically, o ,, there are two stable democracies, albeit with different political regimes a-c--1° a (Costa Rica and Jamaica). The other counties range from a strong presi -e U) dentialist incipient democracy (the Dominican Republic) to fragilepoliti -a 9t cal systemsthat have experienced repeated military interventions (Gua g 0go 1 temala and Haiti). In terms of size, they include the largest Central 12E 5E2c8 .2c3 American country (Guatemala) and, with the exception of Cuba, the t U’ largestisland-country (the Dominican Republic). U) The urbanizedpopulations range fromlessthan one-third of the total in o o 0 U) — - 0 r— U) Haiti to mote than half in Costa Rica, the Dominican Republic, andJamai a a 0 5- U) 0 ca. Given other economic and political differences,it ispossibleto expect that utbanization pattems will differacrossthe fivecountries. ‘Whatthese differencesare and how they bear on the above propositions is the purpose 0 of the study.The collaborative character of the project, described in chap 0’ — -, O I ter 1, called for the same three themes—urban primacy,spatial polariza - C tion, and the informal economy—to be covered by each report so that systematiccomparisonscould be conducted. These data findingsare cited, -C where appropriate, in ensuing sections of this chapter. They are supple — U) 0 o 0 0 au..9 mented by other secondarydata to provide the most up-to-date portrayals g e U) fl U) — 0 e 0 o g .5 w ,— ,- ,., r, of urban systetnain the region. -ta a e U) o .61 .5 2 e Urban Primacy -t e .5 U) ,- 0 0 I 0 0 0 0 0 I - D 1 The evidencefromthe fivecountries on ourfirstproposition ismixed.In U) 5- :5 5ge somenations, there has been a deceleration ofprimacy;in others, there has C sos c -C CC not. The observed intraregional differences tend to agree, however, with 0 C .6 C the logicof the hypothesis.The shifr towardcoo iscleat and isexemplified C 5 by the rapid growth of export production zones (Ens) throughout the I 6 p I I Caribbean Basin. Table 2.2 presents illustrative data for four of the five S 6-S S countries studied.The consistent growth ofcars and export assemblyplants o documented by these figuresis a direct consequenceof the search for new I S . .a -C S .9-I sourcesof foreign exchange, coupled with the favorable tariff regime cre 0 C - -a ated by the new Caribbean Basin Initiative. 9 ‘8 ‘-5 2 Without doubt, the principal stimulus for foreign industries to transfer .1 j - 0 5 a operations to the Caribbean has been low labor costs. In 1988, the hourly a a S manufacturingwagewasestimated at US$1.00 in Costa Rica, $0.61—0.88 24 AlejandroPorces,JoséIczigoohn,and CarlosDore-Cabral r Urbanizationin the CaribbeanBasin 25 Table 2.2 Export Production Zones (cr’zs) in Selected Caribbean Countries SpanishTownto the northwest ofthe capital. Under the effectofexpanded tourism,cities like Montego Bayand Gcho Riosalsogrewat a Export Manufac veryfast clip the last decade. turing as Percent durinE age of Total With the return to puwer of the Jamaica Labour Party in 1980, under en and Ocher S,- Employment in EdwardSeaga,the islandbecametransformedinto an expurt-orienredopen Number of Number of port Manafactur- Manufatruting economy,a processcompletedunder Seaga’ssuccessor,the People’sNation Zones Plants icy Employment 1975 19901 al Parry’sMichael Manley.This led 1973 19901 cx. 1980 to growingcapital investments both in cx. 1990’ 1975 1990’ 1%) (%) tourism and export platform industrialization (Gordon and Dixon 1991). Costa Rica 0 4 0 89 0 11,470 0 7 The decentralizing potential of EPZ industries is partially neutralized be Dominican 2 26 88 419 6,900 111,000 5 43 causethe largestexport-production zone islocated in Kingston itself.How Republic ever,a second en is located in Montego Bayand, alongwith the phenome Haiti 1 1 13 154 25,000 43,000 20 35 nal growthof tourism in this and other northern cities,has ledto significant Jamaica 1 2 25 26 6,100 8,000 8 7 reductions in the former hegemony of Kingston. The Dominican Republic has experienced a similar rapid Soaeces.Schoepileand expansion of Peeer-Lopm1989;Lomnoand Duane 1991;Direction Generalde Essodisrics Cema de CoseaRica 1991, y both tourism and export industries. By 1985, receipts from tourism had Coepoexcionde Is Zoos Pmncode Espanacian 1991;bantam de EsmdiosDoroinicar,xs 1992;sod Cooseix Nacional de Zonasb’cancasde Exportation 1992. surpassedthe sumof the three main traditional agriculturalexports—sugar, I. The data foeHaiti and Jama,caare fromcx. 1986. coffee,and tobacco. About the same time, receipts from the export zones alsostarted to climb rapidly.In the Dominican case,the centrifugalpoten tial of export oriented industrializationwas not partially neutralized as in in Guatemala, $0.44—0.88in the DominicanRepublic,and $0.36 inJamai Jamaica because most of the epzs are located outside the capital city of ca. Coats of labor and overhead associatedwith the assemblyof women’s Santo Domingo. The latest census figuresindicate that the fastest urban garments were estimated at $4.75 per unit in the United States, $2.20 in growth during the last intercensal period (1970—931took place in La Ro Hong Kung, and $1.66 in the Caribbean (Schoepfleand Perez-Lopez1989: mana, the city where the first EPZ was established and that also was the 135—136).Guatemala (excludedfrom the table becauseof the absence of recipient of significant tourism investment. ens) has recently establisheda largezone in Puerto Barriosand has begun The rate of growth of Santo Domingohas declined significantlyduring fostenng the growth ofexport gannenr assemblieson the basisofextremely the same period, fallingbehind that of all three secondarycities. By 1993, low labor costs (Pdrez-Sainz1992). the capital’surban primacyhad declined to 2.0The growth rate of Domin Yetthe effectsof export-platformindustrializationon Caribbean primate can secondarycities during the 1980shasbeen explosive,driven bytourism cities are not even becausethere are three additional factors:(1) the physi and the continuing expansion of export manufacturing. Tourist develop cal location of the export zones; (2) their relative viability; (3) the growth ment has centered on a city on the north coast, Puerto Plata, in a pattern ofother foreign-oriented sectors,especiallyexport agricultureand tourism. verysimilarto Jamaica’sMontegoBay,and on all-inclusive,enclave resorts These factors determine variations of urban development around a com in La Romana. mon pattern dominated by the tendency to rechanrsel internal migration As seen in table 2.2, export-oriented industries expanded fivefoldbe toward new areas of tourism and export manufacruring.1 tween 1973 and 1990 and their labor force grewby 1,500 percent. This Of the five countries under study,Jamaica is the one that has experi rapid expansion has continued unabated during the early 1990s.By 1992, enced most clearly a reduction in primacy. As shown in table 2.3, the for example,employment in export-manufacturingplants wasestimated at primacy index declined from 7.2 in 1960 to 2.2 in 1990. This result was 134,100,a 21 percent increasein just two years.With the exception of the associatedwith the expansion of the tourist industryin the northern coast San Crisrobal export zone, located near the western fringe of the capital, of the island, the revival of bauxite production in the interior, and the most manufacturing for export and ancillary economic activities are lo growth of satellite cities in the vicinity of the Kingston metropolitan area cated in secondary cities such as Santiago, La Rumana, and San Pedro de (irMA). The latter process isexemplifiedby the rapid population increaseof Macoris (Guarnizo 1992:chap. 2). These cities have experienced a rapid s-J C,

Table 2.3 Urban Primacy

lntercental Popalarion Growth Rate Largest City Three Neet Largesr (ODDs) 1960—70 Latest4 Urban Primacyt Country (Metropolitan Area) Ciriea, 1980—90 1960_70t 1980—90 (%) (%) 1960 1970 1980 1990

Costa Rira San José 320.4 861.3 6.2 3.3 5.4 5.4 6.0 4.7 Limssn 19.4 66.1 4.8 15.8 Panta Arenm 19.6 55.7 3.1 16.0 Canago 18.0 61.4 8.4 13.4 Domintran Repablsc Santo Domingo 650 1,555.7 6.5 4.6 2.7 2.7 2.7 2.0 Santiago 155 488.3 6.5 5.0 San Pedro de Macotis 44 146.6 7.8 5.4 La Romona 37 141.6 5.9 6.0

Guatemala Goaremala City 587.5 940.5 4.9 1.4 6.4 7.7 7.6 — Qaetaltenango 44.2 62.7 2.2 2.3 Escointla 24.9 36.9 3.7 1.4 Puerto Barrios 22.3 24.2 0.1 0.9

.—

Haiti Port-au-Prince 458.6 1,143.6 11.5 8.8 2.7 4.7 5.1 5.4 Cap Hoitien 45.6 89.2 4.1 5.6 Gonalves 28.7 58.3 5.5 6.1 Caym 22.6 62.5 4.5 10.4 Jamaica Kingston 376.5 559.1 2.2 0.9 7.2 4.4 2.6 2.2 Spanish Town 14.7 118.8 10.3 10.1 Montego Boy 23.6 87.1 6.3 5.0 Mop Pen 14.1 50.8 6.1 5.0

Sources: Lungo, Pétes, and Piedm 1991; Lossno and Doorre 1991; Péeee-Sdtne 1991; Manigas 1991; Gordon and Dioon 1991; United Nasiom 1988: table A-l0; Encyclopaedia Beimnoicu 1991; Economic Commission fur Latin Ameeico and the Cacibbeon 1992: table 7; Panes and Walton 1976: table 2. 1. Calculated as the eutia of the largest city to the sam of the three neat largest. 2. For Costa Rica, Guatemsla, and Jamaica, estimate is for 1960; for the Dominican Republic and Haiti, 1970. 3. For Costa rico, Guatemola, and Jamaica, estimate is for 1990; foe Haiti, 1980—81; for she Dominican Repablic, 1993. 4. Poe Coasa Rica, 1984—90; she Dominican Republic, 1970—93; Goaremala, 1973—81; Hoiti, 1970—88; )amaica, 1970—90.

-J 95 28 Alejandro Portes,Joséltzigsobn,and CarlosDore-Cabral Urbanizationin the CaribbeanBasin 29 expansion of their urbanizedperimeters as wellas notable densificarion.A recent studyof Santiago, the country’ssecond largestcity concludes:“The city has grown in a chaotic way to the east in massivesettlements in the direction of Puerto Plara; to the south, advancing rapidly toward mral N zones,and to the southeast toward the mountains” (Santana 1992:44). This and similat reports indicate that, despite the dearth of officialdata, CARIBBEAN SEA urbanizationpatterns in the Dominican Republic are likelyto followthose inJamaica,with an upsurgeofsmallerurban centers and arelativedecelera tion of the capital’sprimacy. Costa Rica, too, hasbeen makingsignificantinvestments in tourism and export-platformindustrialization.Unlike in the DominicanRepublic,how ever, neither sector has yet surpassedthe dominance of traditional export agriculture.In addition, export assemblyremainsa smallpercentageoftotal Costa manufacturing, still dominated Rican by import-substitution indus PACIFIC OCEAN tries.As in other countries, these industriescluster in the largestcity,in this casethe metropolitan area of San José (AxlsJ).Despite these trends, urban primacy,which had been increasing steadily up to 1980,declined in the san Jaw Met,apalitan Aan followingdecade. As shown in table 2.3, this decline wasatcompanied bya halving of the tate of growth of San José along with veryrapid increasesin • Main Cities the population of smaller cities.Among the latter are the two port cities of Punta Arenas and Limon,suggestingthat new export-oriented investments in these areasate beginning to have significantdemographicconsequences (Lungo,Perez,and Piedra 1991).However,there isalsoa powerfulcounter- Figure 2.1 Location trend to a mote balanced urban systembecause the largestsites of export- of Costa Rican Cities in Relation to the San Jead Metropolitan Area. Seance: assemblymanufacturing are located in Costa Rica’scentral valley,in close Longo, Perez, and Piedra 1991.

Table2.4 Urban Growth in Guatemala, 1950—1981 proximity to the AM5J. Despite government efforts to locate the eras in Annual Grewrls Rate coastal cities, moat export industryconverged in the central valley,which City 1950—64 1964—73 1973—81 also concentrates a large portion of the tounat znfraattucture.As seen in table 2.3, Cartago, a central valley city, grew very rapidlyduring the last Guatemala City 7.2 2.5 1.0 decade, asdid Alajuela and Heredia,all urban areasin cloaevicinity Meoopsliran Areat 7.3 4.9 1.4 to San Qaezaltenango 4.3 2.2 2.3 José.Their relative locationsate portrayedin figure2.1.Combinedwith the Escuintla 11.1 3.7 1.4 continuoua outward expansion of the capital, the growth of these satellite Resalhalea 4.3 3.1 1.9 cities threatens to atreat the reversal of primacy,recreating it on a larger Paerre Bareies 3.4 0.1 0.9 scale. The contours of a new megacitycomptising the thirty-one central Antigua 1.9 3.3 —1.5 valley contonca,or municipalities, and concentrating the majority of the Mazarenango 5.5 2.1 —1.3 national population have begunto emerge(Lungo,Perez,andPiedra 1991). Total 7.6 Urban 3.4 0.7 Hence, despite the recent weakening of San José’sprimacyand the rapid

Saarce:Pérez-SSinz1991:table 4. growth of Costa Rican coastal towns, thete is a clear danger that the I. Oaatnmala City and maeicipalitieaaf Micra and VillaNaeva. decentralizing potential of the new export-oriented industriesmaybe lost 30 AlejandroPortes,Joséltzigsohn,and CarlosDore.Cabral Urbanizationin the CaribbeanBasin 31 I as they reinforce rather than weaken the expansionary tendency of the by the hypothesis of decelerating primacy.Political instability, lack of a capital. suitable infrastructure, and fear of AIDS have all but dismantled Haiti’s Guatemala has laggedbehind mostof itsneighbors in both the establish tourist sector. Goods assembly,the country’smain export earner, was con ment of export assemblyindustries and the development of tourist infra centrated in the late l980s in a single EPZ located adjacent to Port-au- structure. Prolonged political instability and generalized violence have Prince’sairport. This location accelerated rural migration to the capital, conspired against successfulinvestments in either Sector.The country’s alreadystimulated by land scarcity and soil erosion (Manigat 1991;Miller entry into the new export-oriented modelofdevelopmenthas depended,so 1984). The result was that Haiti continued to experience sustained in far,on the expansion of its agriculturalexports.As noted byAmaro (1990: creasesin primacyalongthe pattern typicalofearlierLatinAmerican urban 13—29),coffeeexportsgrewbyalmost 800 percent between 1950and 1981; development. Port-au-Prince’sannual rate of growthduring the 1970sand cotton also has experienced a boom, beginning midcenrury. l980s, 8.8 percent (table 2.3), is the highest of all the cities studied. Guatemalan urbanization patterns have reflected,with some lag, these The evidence in this section indicates that urbanprimacyis not declin tendencies in export agriculture.The country’surban primacyisamongthe ing everywhere,but that the underlying forcesidentifiedasresponsiblefor highest in Latin America because of the weaknessof secondarycities. In its decline in the larger Latin American countries also operate in those of 1980, the population of Guatemala City was more than seven times the the Caribbean Basin.Effectsof the new export-oriented modelofdevelop combined total of the next three cities. Nevertheless, figuresin table 2.4 ment on the urban systemare not uniform:they depend on the location of show that the second city, Quezaltenango, grew at twice the rate of the the new industries and their capacity for employment creation. When capital during the last intercensal period, correspondingto its role as the sizabletourist and export manufacturingprojects are locatedawayfromthe principal coffee center. The two cotton cities, Escuintla and Retalhuleu, primary city, the urban system responds along the lines predicted by the also grew rapidly during the period of this crop’sexpansion; afterwards, hypothesis (Jamaica and the Dominican Republic);when these same sec growth there leveled.The banana center, Puerto Barrios,stagnated during torsare located in ornear the capital city,primacyisexacerbated(Haiti); in the l970s and 1980sfollowingthe collapseof this sector. situations where export-oriented development is in its early stages, the Congruent with the absence of any significanteconomic innovation, at urban systemremains unaltered (Guatemala). least until the mid-l980s, Guatemala’surban systemhas not experienced The analysis also identified a second dynamic concerning the rapid any significanttransformation. Primacyremained unchangedand the over growthofsatellite townsand suburbs—atendencythat runs contrary to the all rate of urbanization declined during the last intercensal period (table decentralizingpotential of export growth and that maynegate its effectby 2.4). The only signs of dynamism were the relatively fast growth of Que givingrise to future largercities.The principal case in point is Costa Rica, zaltenango and the rapid increaseof the population in municipalitiesadja where the rapid expansion of the capital isfast linking with satellite towns cent to the capitalcity.The suburban towns of Mixcoand VillaNueva grew in which export assemblyplants have clustered. The two forcesaffecting froma combined total of 15,000in 1964to 186,000in 1981.These munici the evolution of the urban system reinforce each other in this instance, palities by themselvesare largertoday than the sumof the next three cities leading to the possibleemergence of a new megalopolisin the country’s outside of the Guatemala Metropolitan Area (AMcz). Without them, the central region. AMOs primacywouldhave declined froman index of7.6 to 6.1 (Pérez-Sáinz 1991: 23). These results are congruent with the subutbanization of the metropolitan population and growth of satellite towns observed in other Spatial Polarization countries. The question for the future is whether the establishmentof new EPZ5 and investments in tourism in the smaller cities would introduce a Our analysisof patterns of spatialdistribution in the capital cities of the second dynamic,so far absent in Guatemalan urban development. five countries studieddoesnot support the hypothesisof a unifotm reversal The dynamic role of export-oriented manufacturing ismuch mote visi ofclasspolarization.However,the changesobservedaccordwith the under ble in Haiti which wasone of the first countries to take advantage of the lying rationale of our second proposition. These cities were generally less Caribbean Basin Initiative (Schoepfle and Perez-Lopez1989). However, polarizedthan their largerSouth American counterpartsat the onset ofthe the effectsofthe new industrieshave been the oppositeofthose anticipated economic crisis, in part because local elites were not sufficientlylarge to 32 AlejandroPortes,José Itzigsohn,and Carlos Dore-Calsral Urbanizationin the CaribbeanBasin 33 9

occupyvast expansesof terntory. Instead, they cteated ptotected enclaves in an utban landscapedominated by low-incomeneighborhoodsand squat ter settlements.This potttayal vatied, of cootse, with the levelofeconomic development, the topographicalchatacterisrics of each city,and, aboveall, the policiesof the national government. The mostpolarizedofour fivecities isKingston,where the socialconfig uration resemblesan inverted ice-cream cone: shantytown and working- classneighborhoodsat the baseand elite settlements in the upperreachesof the Liguanea Plain, on which the city is located. This patrem—alteady observable in Cohn Clarke’s (1975) study of the city in the 1960s— remained essentiallyunchanged into the l980s. Debates amongJamaican urban specialistsduring the 1970scentered on the evolution ofKingston’s “transitionzone”ofmiddlehousing between the low lyingshantytownsand the elite high grounds(Norton 1978;Knight and Davies 1978).A second debate was on the extent to which an inner ring of popular settlements close to the wealthy foothills subverted Clarke’sportrayal of spatial polar izatiori. As shown in figure2.2, the presence of these shantytown areas in the mid-1970sdid not reallyalter the overall tendency toward spatialsegrega tion. The latter wasstronglycorrelated with different population densities. Norton (1978: 100) noted that 41 percent of Kingston’sresidential area in the early l970s was occupied by 6 percent of the population living at fIll] Irregular (squaiter) Low and medium Medium-high densities of Od jjJjJ neiilemenis esd incomes and high incomes persons per room, whereas 75 percent of the population sery low Incomes occupied only 33 percent of the residential area at average densities of 2 personsper room.Classdifferenceswere also superimposedon ethnic char Figure 2.2 ResidentialStrata in Kingston’sMetropolitan Ares, ca. 1980. Source: acteristics. As Gordon and Dixon (1991) observed, there was significant AdaptedfromGordonsod Dixon1991,bssedonofficialsources. overlapbetween the white/mulatto/black composition ofKingston’spopu lation and the elite/middle-class/poor descriptions of locationsforresiding 1991:33). The crearion of these “suburbsof the poor” (Norton 1978) has in urban space. been followedbythe still more notable displacementof middle-incomeand Since the economic crisis of the mid-1970s, two novel tendencies in impoverished groups out of Kingston proper and into the adjacent Sr. Jamaica correspond fairly well with those observed in the larger South Catherine Plain. The movement was accommodated in planned housing American cities. First, the consolidation of new elite enclaves around the estates such as Porrmore, Enson City, and others on the toad to Spanish shoppingand business districtsofNew Kingston and Constant SpringRoad Town aswell as in new, largeshantytowns.Low-lyingPortmore,acrossthe to the north has been partially counteracted by the rapid growth of inner- bay from Kingston, grewfrom a communityof 5,000 in 1970to 73,400 in ring irregular settlements around the same areas.A report bythe Statistical 1982,equivalent to an annual growthrate of 25percent. Asshown in table Institute of Jamaica summarizesthe resulting configuration as “an erratic 2.5, this new frontier of suburban projects and squatter settlements led to arrangement of residences; close juxtaposition of residences containing the absolute decline of the population of Kingstonproper,alreadyobserv opposite socioeconomicgroups and the dispersed clusters of low-income able in 1982 along with the growth of St. Catherine. residences throughout the higher income areas; an increased tendency The spread of population acrossKingston Baywas the outcome of two towards peripheral location of lowerincome residencesas they rivalhigher setsofforces.Firstwere effortsbythe poor to escapethe growingviolence in income groupsin search of accommodation” (cited in Gordon and Dixon central Kingston, caught in the throes of fscrional wsrfarebetween rival 34 Alejandro Portes, José Itzigsohn, and Carlos Dore-Cabral C’s? Urbanizationin the CaribbeanBasin 35

Table 2.5 Growth of Urban Population in the Kingston Region the fatefuldecisionof the national government to establisha new industrial Popalasion Annaal Rate zonein the area ofHerrera, in the westem fringeof the city.This industrial Area 1970 1982 Change ofGrowth zoneand the working-classneighborhoods that grewaround it effectively bracketed the upper income residential developments, converting them KingstonMerrepolirso 473,715 524,638 50,923 0.90 thto an elite enclave in the midst of a poor city and limiting their possi Kingston 111,897 104,04t —7,856 —0.59 bilitiesof expansion. This situation had important Sr. AndrewUrban 361,818 420,597 58,779 1.35 consequencesfor urban St. Catherine Plain 63,263 207,460 144,197 18.99 development in the years that followed. As in Kingston,the economiccrisisin Santo Domingosawthe displace Sourre: JamaicaSrarisrirallnsrirure1973,1982. ment of poor populations toward high-income areas in search of em ployment and better housing.The movement took the form of increasing political parties; second was closure the of opportunities for affordable occupation of publiclyowned land in the interstices of middle- and upper- middle-incomehousing in the established northern suburbs.The firstphe income developments as well as the rapid growth of the western fringe nomgnon rsunique to Jamaica, but the second issimilarto that observedin around the Hertera industrialzone (Lozanoand Duarte 1991).The process Bogota, São Paulo,and other South American cities. In both instances,the reduced spatial polarization and, more significantly,further encapsulated impact of the economic crisis forcedlargesectorsof the urban middle class upper-incomeneighborhoodsbetween twowideringsofimpoverishedpop to seekhousingsolutionsin aressregarded previouslyasphysicallyor social ulation. The wealthier groupsresponded byseekingeven more remote and lyunacceptable.The differenceisthat, whereasin South American capitals exclusivelocations in the northwest area, in developmentssuch as Artoyo the physicaldisplacementof middle-incomegroupstook place in the direc Manzanoand Altos de Arroyo Hondo. The emergenceof these expensive tion of establishedworking-classareas, in Kingston the middle classesand suburban divisions represents a clear attempt to maintain social distance the poor moved together—both heading towardpreviouslyunsettled land. fromthe poor,but even here physicalspacehasbeen increasinglycontested Along with the cxpansion of the “suburbs of the poor” toward the north, by squatter settlements moving north fromthe settled working-classareas. this movement led to greater interminglingin urban space,and, hence, to a Figure2.3portraysthe relative location ofsocioeconomicstrata in Santo partial reversalof the pattern of class polarization. Domingo according to quality of dwellingsand relative densities in 1990. A similar trend is observablein Santo Domingo, although with other The map indicates two noteworthy features.One is the spreadof irregular variants. During the period of import-substitution industrialization (isi), squatter settlements throughout the entire urban area. Although concen the Dominican capital grewrapidly.This gaverise to a new industrial zone trated noeth and eastofdowntown,squatter settlementsarealsofoundclose and working-classsettlements toward the north and east of the Ozama to the rich suburbandevelopmentsin the city’snorthwest. A secondfeature River and the displacementofelite sectorsto the west. Sustained economic of note is the existence of a sizablemiddle-incomearea east of the Ozama growth under in during the 1960s and early 1970sgenerated new wealthy River and close to the largestpoor settlements. The rapid growth of this groups and an urban middle class capable of fueling demand for luxury area in neighborhoods such as Los Trinirarios and Villa Faro is a recent housing (Ouarnizo 1992:chapter 2). This demand ledto a rapid inflation of phenomenon that correspondswell to the trend alreadyobservedin other land prices in the northwest quadrant of the city and the emergence of Latin American cities. exclusiveresidentialneighborhoodssuch as Naco, LosJardines,and Arroyo In the Dominican case, this trend was prompted by the closure of the Hondo. South of them, toward the Caribbean Sea, grew more-affordable western fringe to middle-class expansion and by the occupation of the middle-classhousing developments such as Miramar and Mirador Norte adjacent northwest by the wealthy. Predictably,urban densities and rents (Lozanoand Duarte 1991). increased in the old established, middle-class areas. In response, some The same period wimessed the growth ofa vast conglomeration of slum middle-claasgroups breached the symbolic divide separating them from dwellings and squatter settlements north of downtown and east of the working-classareasin searchofaffordablehousing.In Santo Domingo,this Ozama River around the area of Los Mina. The apparent polarization of decisionbecameknownas“crossingthe bridge”(acrossthe Ozama)toward urban space into a westem frontier of elite and middle-income develop the new residentialdevelopmentsin the east.This processisessentiallythe ments and a northeast zone of marginalized population was interrupted by same as that observed in Bogota and other South American cities. Along

36

a..2

‘.55 11

-535 vs

532 .5

H

0 cc

53

C

S

-c

C

0

‘a

0

S

C

.3

0

0

S

2

0.

S

0

0

C C

ment and

underlying

integration” rounded

well-to-do, streets.

struggle

quited dwellings

have

tricity

sesrch

ptompted

merly

latrines

population

ty rapidly

fic.

of

migrant sive,

in crestion

lievable Soleil

in

tryside

invasion the

movement

entirely has

the

visible with

Port-au-Prince

In

which

a

residential

primacy,

The

1980s

The

Port-au-Prince

privilege

simply

in been

urban

urban

this

has

it

and, foe elite

the

Armed

and

growing

between

agriculture,

(Manigst

(Manigat

by

reintegration

thtough

invasion

poor

fragile

of

levels

have

in

basic not due

took

context,

of

social

escaped

displacement

more

seeking

spatial

a

lacked

(to

in

the

areas, irregular

appropriated

described middle

of

Port-au-Prince

urban

sea

only

is

districts.

guseds

to

accessible

some

middle-class

been

place use

services.

not

(Duquella densification

infrastructure

population,

marked

processes.

clandestine

the

the

of of

today

1991).

1991).

such

ordec

by

Kowarick’s

running

to

this space

the

limited

offers

class

with

the

poverty.

turned settlements

ateas,

ste

classes

in

the

prevent

migration

of

above,

No

geadual

invasion.

as than

a

of

Deprived

is the

city

commonly

In

The

need

by

only

them

is

context

no

the

1989).

best

upper-class

the

Petionville,

In

even

to

sectors

water

the

into

had

city,

malcing

impoverished so

for

by

hookupa.

is

of in

It

other

counterpart

vacant

Haiti,

of

furthet

term),

most

for

urban

to

the

thtough

displacement small.

Haitian

described

Kingston

formerly

the

tepeesenes open

access

of

partially Urbanization

but

informal

public

television

a

some

of and

The

of

emergence

in

the

few.

posted

access

dramatic

industry rural

the

legal

extends

poot

prompted

declining

land

search

encroachments

space,

area,

Instead,

92

‘What

form

to

occupation

Lsboule,

services

capital,

widesptead

rural

economic

By

working-class

reversing

poor or

percent

access

markets,

but

toward

as of

electricity,

masses

to

in

an

no

cable.

Santo

1988,

of

of

Port-au-Prince’s

to

a basic has

water,

emerging

front

of

poor.

extends

example

in

of

matter

employment

extreme has new

few

by

ptoductivity the

there

reversal

rural

has

to

vast

the

emerged,

and

the

migrating

had

the

In

72

Domingo

services,

of

crisis

these blocking

not

occupation

its

pitating

islands

housing, There

drainage,

of

been

Caribbean

bidonvilles

west,

the

but

migrants

has

1988,

how

past

Tomassin, percent

by

exacerbation

to

access

urban

of

been

to

areas

case

of

of

the

services,

the

tesidencea

the

swamped

transformation

been

class

then, class

take remote

is

the

of it

of but

and

80

from

vehicular streets,

and

and

in

limited

poor.

has

of sharp

no

to

only and

majority

space

wealth

water, of

of

late

towatd

part

such

polarization. Basin

petcent

also polarization

its

“pervetse a

near

is

even

observable

it produced

employ

has

free

the

electrici

the

the

or

thorough

a

to

has

place.

increase

of

1970s

because

by several

of

by

by

silent

as

exclu

to

elec

unbe

basic

been

poor

city’s space

coun

sur

the

the

the

traf

for

Cite

ac been

the

this

the

the

of

37

of

a ‘11 38 Neither

affected the wealth the segregation was rienced most represent economic ofSan distinct ic provision response politan

been and actions ing preventing where cities.” middle-class.

cific Urban ment, tration the and through the disappeared for rium. of through

development The

This

The land

material

needs

highly a

projects,

economy electricity mid-1980s.

Oscar

socially areas

marked the

José The

wages, Alejandro existed,

two

state

shantytowns

significant

outcome economic promoted the area. of

by

elite

invaders

new to

an

exceptions

and central

of

and

Rodrigo and

Arias

polarized

led

the capitals government

new land are

the needs

innovative

because

housing integrated projects As

enclaves

and programs and

segregation .

numbers and

to spatial but,

threatening

crisis, and

quite

radical

were EPZ

During Lungo,

invasions

(1986—90), was .

Portes,

a

in

agent the These

downturn

the of (3)

reversals the relatively

Carazo in

in

the

new close

the

and to to

the the

different,

ability

this for the

combined

were extension inequalities. Central

dispersion

nor

state

of

spatial the begin of construction of

sites-and-services

Perez,

gave in José

vast the actions

result

projects, revamped

land

lower-middle subsidized

poor to of case,

the

those

through

a

the (1

patterns

to

interspersed

of

of urban investment of shantytown the administrations

homogeneous efforts

ltzigsohn, wave

978—82)

priority

with.

initiate five

invasions

America—in

spatial

and segregation

of the the

development such gravitated however.

generated

capital,

seeking of

with

three of

cities

and

state

early of

space Piedra State

the

the housing

were

The

outlined credit

these areas

new

of

a polarization,

to

state

prevention and

urban relocation types and

process

and

studied—higher

to good

1

nor

proliferated, capacity

refuge the

made reasons

intervention with belt. that In 980s,

were

rural

program.

(1991:

toward for projects

intervene

a

found

urban Carlos led

policies market

the more

low-income the

of

provision Costa

above.

of of

quality

infrastructure

the

emerged

to

those

coincided state (and to

migrants.

of

in

Luis

metropolitan

Costa city

accounting

reestablish

117) middle recuperated, space;

in spatial a homogenous of

those

Dore-Cabral them

of

Rica

in

offered throughout

contraction By

policies: are) Neither

that other invaders

in itself

A.

further housing

of

concentrating

part

note, in

Rican

of

1990,

in the

and there areas Monge much the

much

class, polarization.

levels As

sectors, with the sought

housing

the

could

because

Latin

solutions housing

of

“The spatial in

Guatemala—

city private land

for

“the (1)

development in capital—the

for

early

were where San

roads,

the resettlement

smaller greater. however,

other

of urban

the

state

of

cope

(1982—86)

this subsidized

American

to has

the

econom (2)

invasions tendency state

solutions adminis

JosC. employ

neither

neither eighties

marker. equilib

reduce

metro

which, in

water, expe sector some cities lesser

hous

lower

space with

rapid

Both

and

spe

has

Its

by

I

structure poverty hand, although poor elite Perez, percent whole, treme income Tivoli, monthly classified enclave shared proximity and middle-class that shantytowns Guatemala downtown whose family five level search ments elite any and cities, should income in

1980s

San

Kingston, The Guatemala Figure

of

squatter

upper-income means

facilitate and

residential

and of

poverty.

and is did

the anywhere

of and incomes José incomes

established 1.25 by

have

generalized

groups were

sectors.

state-sponsored in

in

characterized

a

has

incomes small,

better 2.4

as

not

the mass

low-density

twenty-five

Piedra to

its 1986—87; in

in Metropolitan

the

million is

settlements.

produced residential poor

portrays

prompted Santo middle-income

ate

low-density

the

primarily midst. a

materialize

City

defense

working

Even

to

of

did

more were employment Guatemalan

exceeding neighborhoods;

close

frequently

in

flee

impoverished

or 1991:

central of

enclaves

during

is

not

and

families Domingo,

the

in

very

800

of accessible the

administratively

the refined

and

zones by

of residential an

the

the class reach

a urban these,

zones

126). increasing

violence.

city;

poor spatial

Second,

residential quetzales its urban in Area. middle-class

the

the

city.

capital

US$300

visible

most

were

located Guatemala (83.4%

privileges, that

opportunities. society

analysis

and

or

there US$45. opposite;

late periphery. (#14) (Pérez-Sáinz

949,000(64.5%)

Port-au-Prince,

Urbanization

Most

people,

to Two landscape

distribution

zones

higher.

not comprise

deprived

city, housing this

shantytowns,

An

an

l940s presence

poverty

(US$120

is

of

with

in

developments

is

facts

combined

no

in of

of

impoverished

spatial

Even divided

entrenched

10 the

where city;

central

sharply

mostly

presents

namely, City—a

the its

frontier

these

The

(Pérez-Sáirsz

36 and

are dominated

total)

and

sectors

the

spatial

1991:53;

This in Guatemala

more in suburbs

of

of percent

mix the

in

immediately

14,

Guatemala

into Indians. others

and areas, the

socioeconomic

metropolitan divided areas

high-density

well-to-do

a

with 1985) lived the

were direct of

a

phenomenon,

situation

for population has

remarkable,

structure.

Caribbean major

elite, to

such

suburban

larger some

middle

but

feebleness

Ruiz

example,

are in of

by

not invade

classified

had a

in

1991:

consequence or For

between

City,

close

as very

well-defined

settlements

willing in

twenty-five conditions

located

challenge

South

prompted

1990).

less.

Santa City

was

the

apparent.

relatively average

neighborhoods

class”

31). In

working-class

elite

area

poor

elite on

Basin

with

proximity

strata

the country

better, are

One

as

during of

observable 1985,

to American

a

Clara This

the

develop south

could

living

wealthy

(Lungo,

middle-

actually families areas middle-

average

employ

to upper-

family

of

of

of

in of

other

zones

close First,

class

only elite 56.3

and

any as the the the the the ex

39

be

in of to

in

a

/

O) /01

Urbanizationin the CaribbeanBasin 41 popular attempt at revind ication. Although working-classoccupations of landnear high-income neighborhoodsisan everydayaffairin other cities, it would be quite unthinkable, in the face of the violent opposition, in the elite urban zonesof Guatemala (Jonas 1991). This political simation also helps to explain the peculiar absence of t3 ,) reaidential segregation that is apparent in figure2.4. In part, there is no spatialsegregationofthe classes becausetheir socialsegregationissovastas to a render the proximity of the poor more a convenience — Egr than a threat to cc,. .a privilegedgroups.With the state’smeans a. — ofviolence at their disposaland a ‘ population intimidated by yeats of repression, there is little incentive for the well-to-doto escape a act, the city. Instead, poor settlements function mostly , asa convenient sourceofdomestic laborand personal,sei-vicesforelite areas (Roberts 1978). In sum, the •oiii fivecapital cities provideevidence in favorof the hypothesis ofreversalofspatial polarization,but there arealsoindications ofsignificant g variations and exceptions to the process. The comparison highlights the significanceof the state in countermanding the tendency of urban elites to create exclusive residentialareasand of impoverishedgroupsto try to settle near them in search of better material opportunities. In the two Central American capitals in the study, these tendencies are absent, in large part i becauseof state . action. In one case, state policy attempted to meet those basic needs that lead the urban poor to invade elite suburbs;in the other, state repression foreclosedthe possibilityof such popular actions, hence : g removing one of f the major incentives for elite flight from the city. The second rtend leadingto the reduction ofspatialpolarization (that is, the movement of middle-classgroups into formerlylow-income areas) is observablein - twoof our fivecities (Kingston and Santo Domingo). In the 5 other three, either the middle class is too small (Port-au-Prince and Gua temala City) or it , comprisesthe majority of the urban population and has been the recipient of state programsto meet its housing needs (San José).

The Informal Economy and Unemployment . a. Our analysis ofurban labormarketsand of the roleofthe informalSector seeks to understand the extent to which inegular forms of emploent played a countercyclical role at the height of the economic crisis. This analysis, guidedby hypothesis3 above, is limited to four countries. Haiti, the one excluded, is exceptional in that formal-sectoremployment barely exists;furthermore, the dearth of reliable statistics makesit impossibleto detect short-term change) in a labor market that isoverwhelminglyinfor 40 (9;L 42 AlejandroFortes,JoséIrzigsohn,and CarlosDore-Cabral Urbanizationin the CaribbeanBasin 43

Table2.6 Evolution the LaborMarketin Metropolitan of SanJosé, 1980—1989 economy. Female labor market participation grew during the decade in connection with the proliferstion 1980 1981 1982 1983 1985 1987 1988 1989 ofassembly-for-exportplants in the AM5J. Maquzkss,as these plantsareknown locally,more than tripledtheir employ GNP growth rate 0.8 —2.3 —7.3 2.9 0.7 4.9 3.8 5.0 ment between 1984and 1990,reaching 40,000 in the latter year:Most of Employment (000s) 210.9 208.4 219.5 221.9 240.2 253.5 248.6 265.7 thesejobsareunstable and paylowwages,employingmainlyyoungwomen. Formal-sector employment (%) 71.6 68.3 66.7 67.9 68.9 68.8 70.7 70.7 Part-time employmentalsogrew,tos high of37.5 Informal-sector employment 1%)’ 26.7 29.9 30.5 30.3 29.7 29.7 27.6 27.5 percent of the economi active Open unemployment (%) 5.0 8.3 11.3 8.5 7.4 4.8 6.6 2.7 cally population by the mid-1980s.While the minimum wagerecu Percentage of composition of tlse 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 perated in 1989to its fullvalue at the beginning ofthe decade, earningsof informal sector skilled and white-collar workersremained below the 1980 figure(Lungo, Informal owners (%) 11.2 8.1 9.4 9.7 7.2 11.5 7.7 8.6 Pmirez,and Piedra 1991).The informalsector registereda parallelevolution Informal workers 1%) 35.6 38.0 37.5 32.2 36.5 32.6 33.6 20.9 in its internal structure. The better remunerated and more stable category Unremunerated family workers (%) 6.0 6.1 5.3 2.4 3.5 2.9 3.2 2.9 of informal entrepreneurs by Self-employed (%) 47.2 47.8 47.8 55.7 52.3 57.3 51.7 67.6 declined 45 percent between 1980and 1986, recuperating only duringthe lastyearsofthe decade.Lessstable and lower- So,arcr1osTre 199L ruble2. paidjobs such as odd jobbing and other formsof informalself-employment 1. Includesdomesticservice.Percentagesofformaland informalemployment donot addopto 100becameof grew,however, throughout these years.As seen in table 2.6, they rose 20 eocloslonof agricultumlworkers. percent between 1980and 1989,representing two-thirds of 2. Rounded figures. all urban infor mal employment in the latter 2year. These figuressuggesta complex adjustment processof the Costa Rican mal. According to the International LabourOffice,only 7.7 percent of the urban labor market. Governmental intervention was instrumental in Haitian labor force in 1987held jobs that could be consideredin any sense checking the rise of open urban unemployment during the 1980s and regulated or formal, the bulk of the figure being formed by 32,000 state preventing the deterioration of the minimum wage.Simultaneously,how employees(Manigat 1991). ever,there wasa risein lower-paid,more unstable employment in both the Among the remaining countries, the best available information comes formal and informalsectors.Part-time work and low-paidmusquilaemploy from Costa Rica. Time-seriesdata on the evolution of the labor market in ment became more common among formal workers; whereas self- metropolitan San José are presented in table 2.6. During the crisisyearsof employment (much of it in marginalodd jobbing) became predominant in 1981—84,open unemployment rosesharply and informalemployment ex the informal sector. This development is consonant with our procyclical panded only moderately. According to the figures,unemployment in the hypothesis; it shows that the informal sector, instead of counteracting metropolitan area ofSan José (AMsJ) rose66percent in 1980/81and anoth trends in the formal economy,followedits evolution. er 36 percent in 1981/82, coinciding with art aggregatedecline of realgross In contrast to San José,the labor market in Guatemala City has always national product (GNP) of 9.6 percent in this two-yearperiod. Informal been highly informal. Among the five cities studied, only Port-au-Prince employment expanded more slowly,by 8.2 percent in 1980/81 and 2 per has a largerproportion of the economicallyactive population (EM) in the cent in 1981/82. Unemployment remained high during the next three informal sector. During the 1980s,however, figuresfor informal employ years,then declined rapidly with economic reactivation in the late 1980s. ment in Guatemala City barely moved. Estimates based on the measure By 1989, was unemployment approximatelyhalf of what it had been at the ment criteria employedby the ILO indicate that the informal sector com beginning of the decade. By contrast, informal employment remained prised 30 percent of the urban EAP in 1980 and 33 percent in 1989. steady a at about quarter of the labor force.These contrasting trends indi Alternative figures,based on the proportion of the EAP working without cate that adjustment to the economic crisis of the early 1980s occurred legallymandated coverage,yielda much higher estimate for 1980(54.3%) primarilythrough open unemployment rather than a massiveexpansionof but coincide in showinglittle change during the decade. As in San Jose, the informalsector. adjustment to the crisistook place mainlythrough4a significant risein open This is not the whole story, however. Additional evidence shows a unemployment. Two sets of estimates are presented in table 2.7. They parallel risein unstable and lower-paidjobs in both sectorsof the San José coincide in showingthat urban unemployment more than quadrupledbe- 103 44 Alejandro Portes,Joséltzigsohn,and Carlos Dore.Cabral Urbanizationin the CaribbeanBasin 45 tween 1980and 1983and then remained at a high level during the entire Yet,despite its apparent decline, in 1989,self-employment decade. still represented the majority of the Guatemalan informal labor force. Unlike the Costa Rican case, no significant government intervention The Caribbean island-nationsof Jamaica and the Dominican Republic took place to bnng down record unemployment, a pattern ofofficialpolicy experienced a similar evolution of their urban labor marketsin the 1980s. congruent with that observed for low-income housing in the preceding Estimates for both countries indicate an expansion of informal employ section. Hence, the presence of a large, urban, informal sector in which ment, especiallyin street vending and odd-jobbing, along with a contrac average wages were lower than among protected workers did not suc tion of both formalemploymentand earnings.Despite the scarcityof data, cessfullycushion the effectsof the economic downturn. The quadruplingof figuresfor the Dominican Republicare consistent in showinga significant open unemployment in Guatemala City during the l980s is alsocongruent risetn the joblesspopulation, a sharpdecline in formalsectorwages,and an with our hypothesisconcerning the limitsof the informalsector as a coun increase in self-employment. tercyclical mechanism. As shown in table 2.8, the proportion of the population entering the As table 2.7 shows, the internal structure of the informal sector in labor force rose as real industrial and public-sectorwagesdeclined steeply. Guatemala City appears to have evolved in a direction contrary to that of Most of the increase in participation was concentrated in the cities, as San Jose. In a comparison of estimates available for 1980 and 1989, the indicated by the risingrepresentation ofthe urban laborforcein the nation relative representation of informal entrepreneurs seems to have increased al EAP. Self-employmentincreasedduring the lasthalf of the 1980s,but the and that of the self-employedto have declined. As in San José, entrepre proliferationof these informalactivitiesdid not prevent a sharprisein open neurs earned incomes significantly above the officialminimum and their unemployment, which doubled between 1977 and 1991. It appears that presence led to artimprovement of average earnings in the informalsector. effortsof Dominican householdsto compensatefordecliningwageswith an increased labor offerby the primarywageearner and/or other membersof Table2.7 Evolutionofthe Labor Marketin Mertopol itan GuatemalaCity, 1980—1989 the household met with a shortageof remunerated employmentin both the formaland informalsectors.Although street-vending and similaractivities Ca. 1980 1982 1989 Total employment (000s) 323.8 — 3227 Formal-sector employment (%) i 30 0 — 33 0 Table Informal-sector employment (%)2 2.8 Evolution of the Urban Labor Market in the Dominican Republic: 1977—1991 66.9 — 53.5 Open unemployment (%)3 2.2 9.9 62 1977 1979 1981 1983 1985 1987 1989 1991 Open unemployment (%)4 (1980 100) 100.0 450.0 545 Percentage of composition of the informal sector Labor-force participation (%)i 32.6 33.3 34.5 35.3 35.0 39.1 40.0 41.9 Informal owners Urban 4 0 — 9 tar (%)° 56.1 58.8 59.2 60.7 63.8 64.6 65.0 64.2 Informal workers Manufacturing wagesS 27 0 — 28 7 149.0 142.0 129.4 128.4 92.1 99.1 87.6 75.6k Uriremunerated lhmily workers Export-once wages 5 0 — 3 161.2 155.2 123.2 159.0 74.0 80.8 88.5 84.8 Self-employed 64.0 — 511 Public-sector wages 57.4 83.7 85.1 74.0 72.3 68.0 54.1 41.74 Avenge wages 3 Self-employment (%)5 20.4 16.2 18.5 17.6 — — — 25.2 Formal sector (%)5 US $148.9 Unremunerated family workers 1.8 1.6 2.4 2.2 — — — 1.9 Informal sector (%)i US$102.6 Open unemployment 13.7 18.6 20.7 21.7 25.7 25.6 25.6 26.8° Soa,ros.Pérea-Sdirsa1991;Inter-America,, DevelopmentBank 1990;Mesa-L.ago1991;Economic Sosncos;National Statistical Office1987,1990;Dominican DocumentationCenter 1991. Commissio, for Latin Americaand the Caribbean 1992;pan.si.c 1986 Nate: Dash indicates that data are unavailable. Note; Dash indicates that data are unavailable. 1. Notional figures,as percentageof the total population. I. As percentage of the urban nw, maci.e 2. As proportion of total tar. 2. As percentage of the urban nap without socialsecurityprotection: 3. In cormorantpesosof 1977. 3. FromEconomicCommissionforLatin Americanand the Caribbean 1992:table 14; 4. To August 1991. unemployment. total urban 5. In Santo Domingo,as proportionof urban tan’. 4. Fromlntrr-Americun DevelopmentBank 1990: table 10. 6. 1990. 46 AlejandroPorteo,Joséltzigsohn,and CarlosDore-Cabral Urbanizationin the CaribbeanBasin 47

Table 2.9 Evolation of the Labor Msrket in Kingston, 1977—1991 Despite the scarcity and imperfectionsof officialdata, the figuresindi cate that urban labor markets in the smaller countries of the Caribbean 1977 1983 1989 Basin adjusted to the economic crisis in a manner similar to their larger Formal-sector employment 1%)’ 60.4 — 53.3 South American counterparts. In both instances, adjustment involved a Pablic sector and servicm 23.7 — 14.0 combinatson of declining wages, declining formal employment, growing — 26.0 Informal-sector employment (%)° 17.4 informality,and record levelsof unemployment.The growth of unemploy Vendon ment, in allcountries,clearlypoints to the limitationsofthe informal Males 4.1 — 5.8 sector as a Females 8.8 — 12.5 labor-absorptivemechanism. Contrary to the dualisticconceptualiza Small services and ageicalture tion ofLatin American labormarketsproposedbyanalystsofthe Ito and its Males 10.7 — 6.8 Latin American affiliatePREALC, there isno hydraulicrelationshipbetween Females 8.6 — 7.7 formaland informalsectors in which excesssupplyin one is automatically Unemployment (%)3 absorbedby the other. The overallpattern ofresultsseemsmore congruent Males 17.5 21.0 11.4 with the alternative viewofunifiedurban Females 29.9 35.3 21.8 economiesin whichboth typesof Labor-forceparticipation (%)3 activities coexist. In accordance with hypothesis 3, open unemployment Males 82.9 83.5 78.1 rises as a logical consequence of economic contraction. The contraction Females 70.1 71.1 64.0 reducesemployment opportunities and earnings in both formal and infor mal enterprise. Saarces:Gardan and Diaan 1991’rabIes 5, 9; Andenon 1987. Nose: Dash indicates that data see anavailable. I. Formal-sereneemploymentisdefinedas the sam sf gavemment, formal services,white-collar,and regulatedblae-cnllaremplnyrrsene. Summary and Conclusions 2. lnfne,nal-secrsremploymentis defined m anregolseedemplaymenein domesticservice,crafts,sod moesalaceoring,smeeee-eending,services,and Overall, these results support the conclusion of earlier studies that sabaebanagriculmee. “something”significanthas changed in Latin American urbanization 3. As percentageof the warbing-agepapalasien. dur ing the last two decades. Though the three dimensions of urbanization examined do not exhaust by any means all that there is to the topic, they rose, they could not absorba tapidly increasing labor supply.Open unem capture important aspectshighlighted bya voluminousresearch literature. ployment teached recotd levels. The Caribbean findings presented in this chapter do not support such In parallel fashion, in the Kingston Metropolitan Area during the eco simplifiedconclusions as“primacyisdeclining everywhere”or “classpolar nomic ctiaisthere weresimultaneousincreasesin informalemploymentand izationis everywherediminishing.”Indeed, the evidencefromone or more unemployment. The unemployment rate teached record levels between countries runs contrary to such assertions. Instead, what the pattern of 1983 and 1985and declined afterwards.However,this apparent improve results shows is support for the theoretical logicbehind each proposition: ment may mask a rise in the number of discouragedworkers.As shown in primacy decelerates (or does not decelerate) depending on whether the table 2.9,participation in the laborforceactuallydropped,suggestingthat a decentralizing potential of the new outward-oriented model of develop largeproportion ofprospectiveworkerssimplystoppedlookingforwork.As ment is actualized;spatial polarization declines (or does not decline) de in San José, the internal structure of the informal sector evolved in the pending on whether middle-classand poor sectors are able to implement direction of an apparent decline of small entrepreneurs and a rise in infor new strategiesto cope with economic emergencies;the informalsector can mal self-employment.Informalstreet-vendors (maleand female) increased absorb more or less labor depending on the state of the economy and the their participation in the Kingstonlabor force;meanwhile, entrepreneurial successof governmental effortsto reactivate it. activities in small-scaleservicesand agriculturedeclined.The overalltrend The contrasting empiricaltrendsobservedin the fivecountries,addedto wastoward a simultaneousdeterioration of employmentopportunities and those in our earlierSouth American research (Portes 1989),point towarda earnings in both segmentsof the Kingston labor market. second important conclusion.Earlierportrayalsofthe urban “explosion”in 48 Latin current an izacion stood er riea. site approach number of as attention

of Evana reassert

countties quality uum

otder others, ing levels tion urban others industries

José) In the South of housing ization of sensus menting

global

interaction

they

analysis

earlier they

development

the

The

other some

These

extreme

the

exacerbation

Instead,

from (Costa

America

on

to

to

(1989) Alejandro

were concentration of stem latter

American it

and these

that realities. was theories, early the of effects are

the

vigorous

reactivate

instances, programs aspects either

that stage studied their to unemployment

predorory conclusions

similarities

would

was

importance effectiveness

kept

inserted

Rica). from flawed. baaia of

a

the

ranged between

levels

1980a

has

the

proper

and combines

aaserting of own

of

fully

did

specific

at

and Contempotary of Fortes, begin nor

the of state orthodox

confronted

ptopoaed

cities

conceptual

weight of

Similarly, of

bay

were

that

and national to

blanket not Such the

their all

unorthodox

into

crisis

analytic actualized the

the

at

among

(Haiti). the

developmentol. the

repression

converge

by

the

by

of

(Kingston,

absence that

exist all José

promptly

characteristics that reduced

global of

“pervene homogenous

generalizations strong economies.

the

the

focusing lasted type of

were two.

way

moved

a neoclassical

state

notions

only

development. Iczigsohn,

typology

the Latin

a

of the (Guatemala) state

stance

devclopmenr, global

similarly

from

The of also

trends

unique in

and state

or

Latin apparatuses decentralizing

solutions

that

throughout

the national

brought evidence

in

state

Port-au-Prince). in

Ametican

on

aome

ineffectiveness

integration”

felt about

effective

reinforce

empirical would

Much

the

the economy

prevented impact

intervention.

Howevet, of

the

with characteristics

and American

of - or

adverse differently national

state existing

direction analysis

may cases

each,

down changing less-developed

unorthodox

traits

(Guatemala

Carlos or

They

of

be,

pointa

specific

bears but

of

the aysrems, countries

middle-class

it what

have

similar

results not

and

potential

(Dominican

extemal

in count.

aggravated popular by

economic

already in

they

support of

or there.

decade

cities Dore-Cabral

on

particular

of

within of

effective

at some to national he played However,

In follow

role

national

local

promoting

our state

of

trends

are the

situated

obtained

others, a has

world-system

A

City). preclude

cannot

peripheral sectors

In

of observed

environment

third

societiea, of

results.

an mote

instances,

out

level (Guatemala); each

traits,

to and

a

these programs up inequality

the an the

state

emerging development,

useful

in

Republic);

ira

say

processes.

the of

spatial

with

in

useful low-income theoretical

attempt

capital

of the from new preexisting

prior

be

in atep the exports

but about countries All

interven a

character

sweeping

in

wheth

contin

urban role

under

analysis the

giving

export record oppo

theo

of imple

led in polar larger with level

level

(San

dur con

city.

the

the

first

in

the A

to

in

in

to in

F

of derived percentage indirste income-esming ste unremunersced Americsn fines This mum. source Ametican percent vsnsnons ment mum; svsilsble. project Although 1991). growth? dwellers organizations? better phase corporations? national been They

the they from

the

5.

4. 3.

2. Notes

This

I.

from

economic

the chapter

error The This have The

Informs? each A

subjects informal the The

will

of or

to

from

of

the

word sought

still P5BALc;

informal These this Research

worse

and

mere self-employed

source. in These unemployment Faculty all

informal u.n

estimating

rsther

also

of corrmpondmg

capital

same coped

urban

estimates

leaves estimates must

is

project workers

Regional

local

sector, entrepreneurs

and

family

Or

serve sccivitses

crisis? Are s

for to

survival

are figures

trends

than estimates

Table revised

of

Review

sector

primacy be

answer.

with entrepreneurs

city its

do

parcicipann

levels

Social

for the

procedure

some said

see to workers,

illustrate

provided

not different

actual

Or

are

Emplo)-ment

they

for

tend

must

2.3 investigation

in

usher

proliferating

their unregulated

as

series

Fortes sbout 29

version strategies

figure

covered

has

snd perceived

based

the Sciences

the for

The

of

the

presents (2)

hsve

to

changes.

contain

be

snd

urban city the the consequences. 1989

is this

by is the ensuing

receive

the

and inhabitants? for sum 1994.

results

for interpreted in on Urbanization based

in of

average Mess-Lsgo

quality domestic-service by size presentation

questions

the the

role advisability

the (s’iscso). Schsuffler an

Programme these

subordinate nsrionsl

ste LAP

of by what

as

the

are how the

on informal

much AMSJ

article

self-employed the

nsrionsl

the for

chapters. from

capable

and devolved

of

esmings the

best cosintcy’s

processes

sre,

seeds

each state.

self-employed,

data the

received with

the

lower

(1991). Are

census

definition

See a

originally that interpreted

(1993).

Has

in

in

survey

for

people LAs’.

of enterprises used capital

of

of

The city

state for caution. Perez-Same

to the

our

significsntly

Latin esmings.

this

into derailed

worken.

social

coping

the

life

dsta,

Sepstste

interpret Gn

less the

to

was

empirical are

autonomous Caribbean

view,

conducted

authorities of

city.

evslusre midrange

who

second in

published

community

Americs altemative

than

ass

presented whims the

definitions

security

44.7

minus

In

the

with

Estienstes

Benveen

In the

analysis

crested

have

informal result

(199?).

individual

particular,

the

sbove

them

peecent

1989,

indicator

cities

urbsn

bmt

phase

the

Basin

professionals,

by

of

(iataALc) official

perspective.

system.

in

themselves

at

of

definitions

economic

in

the vsry the

only

the effects

by 1980

and of

mrimsres

the self-help both

measure

for

sector

primacy.

become

part (Trejos

of

results figures

urban minor

is mini Latin

mini

large

Loon 1980 from

how 22.7

It

and

our the

the de

49

as

2. of is 50 Alejandro Porres,José Itzigsohn, and Carlos Dore-Cabral

1986,forexample the unemploymentrate in the capitalincreasedby 29 percent; Duquella,A. 1989.“LaPopul; by 1990,it stood at 20.3percent, slightlybelowthe national averagefor the year eographedreport.Port (National StatisticalOffice1990). Eckstein,Susan. 1977.The Pa Mexico.Princeton:Prir EconomicCommissionforLat: References StatisticalYearbookof L Nations. 1988.“PreliminaryC Amaro, Nelson. 1990.Descencralizacidny Participaciônen Guatemala.Ciudad de —. Guatemala:ices’. Noteson Economyand. 1992. 1992Statistical Amato, Peter.1969.An AnalysisoftheChangingPatternsofEliteResidentialAreasin —. York:United Nations. Bogoia,Colombia.Latin American DissertationSeries.Ithaca, N.Y.:Cor nell UniversityPress. EncyclopaediaBntannica. 19? cyclopaediaBritannica Anderson, Patricia.1987. ‘InformalSector or Modem LabourMarket?Towardsa Evans,PeterB.1989.“Predato: Synthesis.”SocialaridEconomicStudies36 (3): 149—76. psrativePoliticalEcon Bairoch,Paul.1973.UrbanUnemploymentinDevelopingCountries:TheNatureofthe logicalFomm4 (Decen ProblemandProposalsfor itsSolution.Geneva:International LabourOffice. Fortuna,Juan Carlos, and So Beneria,Lourdes.1989.“Subcontractingand EmploymentDynamicsin Mexico malizedLaborRelatioi City.”Pages173—88in TheinformalEconomy:StudiesinAdvancedandLess amy:Studiesin Advanc DevelopedCountries,ed.A. Portes,M.CastellsandL.A. Benton.Baltimore: Johns HopkinsUniversityPress. Castells,and L.A. Bei GarcIa,NorbertoE. 1982.“Dr. Beneria,Lourdes,and Marts I. Roldan. 1987.TheCrossroadsofClassand Gender: ment.”CEPALReview Homework,Suhcantracung,and HouseholdDynamicsin MexicaCity. Chi cago:Universityof ChicagoPress. Goldrich, Daniel. 1970. “Po Poblador.”Comparativi Beyer,Glenn H. 1967.TheUrbanExplosioninLatinAmerica.Ithaca, N.Y.:Cornell UniversityPress. Gordon, Derek, and Cheryl Yearsof Growth arid’ Breese,Gerald. 1966. Urbanizationin NewlyDevelopingCountries.New York: Prentice-Hall. Urbanizationin the C tional University,Mia Carrier,William.1988.“UrbanProcessesand EconomicRecession:Bogotdin the Guarnizo,LuisE. 1992.“One 1980s.”Paperpresentedat the seminaron Latin American Urbanization Yorkand the Dominic Duringthe Crisis.Center forLatinAmericanandCaribbeanStudies,Ron da International University. Johns HopkinsUnivet Hardoy,JorgeE. 1975.Urbam Clarke, Cohn. 1975.UrbanDecelopmentassdSocialChange,1692—1961.Berkeley: Books. Universityof CaliforniaPress. Hardoy,Jorge,RaulBasaldila,: Consejo Nacional de Zones Franctu de Exportación. 1992. Data gathered and Mecanismosparasu compiledbyJoséIraigsohn.Santo Domingo,DominicanRepublic. Rel Instinito. Cornelius, Wayne. 1975.Politicsand the MigrantPoorin MexicoCity. Stanford: StanfordUniversityPress. Iglesias,Ennique.1985.“TheL Overview.”CEPALR CorporaciondoIaZorsaFrancade Exportación.1991.Datagatheredand compiled EsrudiosDomini: byJosé ltzigsohn.San José,Costa Rica. Instituto de Dore-Cabral.Santo ID DirecciánGeneralde EstadisticayCensode CostaRica. 1991.EncuestaNacional Inter-AmericanDevelopmen de Hogares.Data compiledbyJoséItzigsohn.San José,Costa Rica. America,1990 Report. Dominican Documentation Center. 1991. Series EstadisticasSobre Empleo. JamaicaStatistical Institute. Comp. EdwinCroes.Santo Domingo,DominicanRepublic. Why Kenya’s Elkanah Odembo Believes All Roads Should Lead Investors to Affica: KnowledgeWharton /0 (htt:l/knowledge.wharton.uenn.edu/article.cfm?articIeid=264O)

kn\v1Ldc’’Vharton

Why Kenya’s Elkanah Odembo Believes All Roads Should Lead Investors to Africa

Published : November 23. 2OO in KnowledgeiWharton

Africa today contributes some 1.5% to world trade and attracts little global investment. Still, the continent s future is hardly as dark as that scenario might suggest. Africa has a growing middle class; governments that are enacting laws to stem corruption, and public and private institutions that are investing heavily in infrastructure. According to Elkanah Odembo, Kenya ambassador to the US, in another decade the continent will grow into a market of one billion consumers. He notes that companies that seize these opportunities today will reap dividends in the future. Chinesefirms, for example, have recognized this potential and are investing in infrastructure projects all over Africa. Odembo visited the University of Pennsylvania recentlyfor meetings arranged by the UgA.—Keni’a(‘hainher of Gommerce and spoke with KnowledgeWharton about thepotential rewards and risks of investing in Africa, including Vision2030, Kenya’cplan to become a middle income nation in the next 20 years. Thefollowing are edited extracts from the conversation.

Part I: Part II: Knowledge@Wharton: What business opportunities does Africa offer and why do so many companies overlook them? Elkanah Odembo: At the moment, we contribute very little, about 1.5%, to global trade. For that reason, to most investors and business people, Africa doesn’t appear to be particularly active in terms of business and trade. But the fact is that in the filture all roads will lead to this continent because of some things that are happening: A rising middle class, developing African governments, and heavy investment in infrastructure. The continent also has commodities, which the world economy values and requires to keep growing. We hope that with all the resources that we have and know are precious to the world, the world will begin to turn its head toward Africa. We want to make sure that we are ready to do business with the rest of the world and grow from 1.5% to 10% in the near future, because we have a lot to offer. The fact is that those on the continent who are investing are doing very well. Knowledge@Wharton: If you were to look into Africa from the perspective of somebody outside the continent, what are the most promising regions in terms of investment? Odembo: In terms of investment, I would, of course, favor East Africa because that’s where Kenya is located. But you also must appreciate the fact that the continent is beginning to think collectively, looking at Africa as an investment destination and a trading bloc. As such, we have segmented the continent into regional economic blocs. By and large, the regional economic blocs are beginning to do very well. Some are fairly young. The East African bloc, with a population of about 150 million -- that’s Kenya, Uganda, Tanzania, Rwanda and Burundi -- offers a significant opportunity because we have a customs protocol, which has increased trade between the countries significantly. A few

At oopynght c/ the Wnartc.n Sch of the s of Per.kana. Page 1 of 5 Why Kenyas Elkanah Odembo Believes AllRoads Should Lead Investors to Affica: Knowledge@Wharton (htto:/Iknowlede.wharton.uenn.edu/artjcle.cfm?artideid=264U) months ago, the five countries signed a free trade protocol, which now enables us to move goods, services and people across our boundaries without any hitches. We are investing heavily in infrastructure, with major roads coming from the ports on the Indian Ocean going all the way to southern Sudan, Ethiopia, Rwanda and Burundi and to eastern Democratic Republic of the Congo. The Southern African Development Community (SADC) is also doing equally well in terms of building regional infrastructure, increasing trade and opening up the region. If you are doing business in one country, you have access to the rest of the region as well. By setting up shop and doing business with Kenya, you do not just have the possibility of [accessing] the East African community ... but you also have the population of all of eastern and southern Africa, some 18 countries, with a population of 400 million. KnowledgeWharton: What are the principal risks of doing business in Africa that international investors should be aware of and how can they protect themselves? Odembo: Whenever businesspeople venture outside their comfort zone, and their familiar environment, they will face an element of risk. The kinds of risks that businesses and investors have had to deal with on the African continent are related to the civil wars that we have seen come and go. We have had risks related to unreliable judiciary processes, [involving] issues pertaining to business contracts and so forth [and] the court procedures taking too long. But if you look at the continent in the last few years, there are fewer civil wars compared to 10 years ago, when at any given time, there were about 10 countries at war. The mindset [of some foreigners] about the continent is often that, if there’s war in one country, there’s war all over the continent. That’s just a geography lesson [about Africa’s] 53 countries. If you look at what has happened in the last few years in terms of improved governance, many countries are becoming more democratic. They’rehaving elections more regularly. The typical tensions that would result in risk have been minimized to a great extent -- wars around the time of elections, civil wars between different communities, fighting between one community and another over natural resources -- we’veovercome those challenges to a great extent. The continent is looking ahead to being a place where there’sa certain amount of predictability. In the past, unpredictability was another risk. Africa now has all the ingredients to minimize the risks that people feared before. One way to establish that is for a prospective investor to talk to companies already doing business on the continent. They would be able to tell you about changes that have taken place over the last five or 10years, and how much we, as countries and as regions, have managed to minimize risks to investors. We appreciate now that we’ve been left behind and we must do what is necessary to create an enabling environment for private-sector business and investment, both local and foreign direct investment. KnowledgeWharton: How do you view China’s investment strategy in Africa? What does it mean for investors from other parts of the world? Odembo: I don’t know if I can talk about the Chinese investment strategy because I’m not privy to [it], but I can discuss what I have observed. When the Chinese first appeared as investors on the continent about 10 years ago, a lot of African countries were very uneasy about the manner in which they were setting up businesses and the types of investments they were making. The Chinese have become much more sophisticated in the last 10 years. They now have a strategy. It appears to revolve around what they have studied extremely well on the continent. They know the demographics: There is a rising middle class on the continent; there’s a very dynamic, young population; and the continent is becoming increasingly urbanized. Therefore, there is a market and purchasing power on the continent. One part of the Chinese strategy is based on the fact that they are reading Africa very well in terms of where we are now and where we are likely to go to in the next few years. The Chinese also appreciate the riches that the continent has. Most other countries have known the riches that exist here. Some northern countries from North America and Europe have already extracted the valuable minerals and metals that they needed to develop their industries. The Chinese have figured out that over the next 10years or so, some of the most valuable commodities that the global economy

All : sty of Prs\-3. P?ç 2 E Why Kenya’s Elkanah Odembo Believes AllRoads Should Lead Investors to Afilca: KnowiedgeWharton (htt://knowledoe.wharton.uenn.edu/articIe.cfm?articleid=264O) requires are on this continent. The Chinese are positioning themselves to do business with African countries, and have figured out that in another 10years, the continent will have a population of one billion people. That’sa very sizable market for selling your products, not to mention the human resource capabilities for producing goods that you might want to export to your own country. Again, I’mnot sure what the strategy is, but I can imagine that they’re seeing it putting them in a very good position in terms of who will benefit the most. KnowledgeWharton: What implications will this have for investors from other parts of the world? Odembo: It’s a challenge. Investors will have to compete with somebody who already has a foot in the door, investing heavily in developing infrastructure, which is where African governments will tell you is where the greatest need has been -- infrastructure, infrastructure, infrastructure. In the next 10 years or so, if this infrastructure has been developed, Africa is going to be able to trade within itself quite significantly. We’ve learned this during the global recession, when our commodities didn’t have a ready market because our traditional markets were experiencing the crisis. We turned inward and started trading with each other. Because of the potential for trading within the continent with a developed infrastructure, people investing in infrastructure will stand to benefit very significantly because they will know the infrastructure very well. Part of being a good business person and investor is knowing how the infrastructure is set up and how things move from point A to point B. KuowIedgeWharton: Turning now to Kenya, what is Vision 2030 and what opportunities does it offer international investors? Odembo: Vision 2030 is Kenya’s goal of making the country a middle-income country by the year 2030. This is a plan we developed over the last three or four years. We have traditionally planned in five-year cycles, which correspond with each government in place. It occurred to us that this isn’t making sense. If we are going to get out of the poverty we are in, we need to project beyond just five years. We embarked on a national planning process involving stakeholders across the board -- government and non-government, and the private sector was very central, because our government made a commitment to make the private sector the engine of growth. We also appreciate that if there’sgoing to be a movement from poverty to becoming a middle income country, wealth will have to be created, employment will have to be created and the economy will have to grow, and the private sector has a key role to play. The strategic thinking and planning process stretched over a period of about a year and a half. Vision 2030 is Keny&svision of what a developed, middle-income Kenya would look like. We have identified a number of pillars for getting us to become a middle-income country. There’sa very strong economic pillar, [in which] the private sector very central. A good part of it was developed in partnership with a number of foreign experts as well. It is about how to position the economy, manage macroeconomics and get the economy to grow at least 10%consistently over a period of time. We have a pillar that looks at all social aspects: Food production, food security, health care, education, shelter, water and sanitation. It is very important that infrastructure development is a part of this. Then there’sthe political pillar, which is equally important because, as you asked earlier about risks that investors fear when it comes to investing in the continent, the fact is that political instability has cost us a lot. In the last 50 years of independence, the political instability that we’veseen is to a large extent very politically motivated. That’snow being managed. Kenya promulgated a new constitution on August 27, which provides a framework for governance. Within that political pillar, governance was big. We’relooking at corruption, for example -- one of the variables not conducive to good business and investment. We can’trun away from that. With the constitution, certain structures and institutions will enable a complete overhaul of the judiciary over the next 12months, because we appreciate that some of the problems with regard to prosecution, for example, and due processes in the courts were a result of [a lack of an] accountable and effective

eif copr;ght of the Schoof of the Usersty of °er’.na. Pege 3 of 5 S Vharton eraIs Why Kenyas Elkanah Odembo Believes AllRoads Should Lead Investors to Africa: Knowledge@ Wharton (httn:I/knowIedcie.wharton.uJennedu/articlecfm?articleid=264O) judiciary.

KnowledgeWharton: Will the new constitution help increase business transparency? It is a matter of tremendous concern to international investors that there should be transparency. Odembo: Absolutely. The first group of people in Kenya to react to the promulgation of the new constitution was the business community. That says something. They came out and congratulated Kenyans for this very historic achievement. They spoke about why they felt this was very important and reiterated that there had been too many things in the environment that made businesses and investors uncomfortable. A big part of it has to do with unpredictability and corruption. In the new constitution, there’s even a chapter on leadership and integrity -- what we expect of our leaders. New structures and institutions have been created to [encourage the private sector. There is a round table involving business leaders and the prime minister’s office [to enablel regular contact between the government and the private sector so concerns are continuously being communicated to the government. That wasn’t the case before. In many African countries, governments did what governments did and the private sector was busy doing what they were doing, producing goods and services. That has now changed.... For example, with Vision 2030, there is a national economic and social committee that has ministers and some key industry and private sector leaders. This is the oversight body monitoring and ensuring that our efforts for Vision 2030 and becoming a middle-income country stays on track. A lot of business people have a certain level of comfort with what the government is doing and the kind of environment that has been created -- their doors are now open. Private-sector people no longer feel like adversaries.... I’m seeing that happening in a number of other African countries. As leadership changes, you’re even having leaders and heads of government who have a business background and appreciate the business community and will do what is needed and necessary to provide an enabling environment for the business community. KnowledgeJ Wharton: You referred earlier to the social pillar. To what degree do you see micro finance and social enterprise programs being set up in Kenya and have you seen any perceptible impact on poverty as a result? Odembo: Absolutely. Micro enterprise and credit programs are mushrooming everywhere. In Kenya, we have certainly seen an impact. For the longest time, a lot of businesses and financial institutions shied away from what they perceived as the poor, the unbankable, because it was perceived that there wasn’t much business to do with that group. Because that is such a large proportion of the continent, this phenomenon we now call micro finance and enterprise was really started, interestingly, in the non-profit sector. The sector quickly appreciated that the very poor people that they were working with also needed access to credit. The first micro credit institutions is Grameen Bank model. Even that started as a non-profit organization with the appreciation that we need to get money and credit into the hands of the poor, that the poor, when they have access to credit, are able to do incredible things to improve their lot. The commercial banks and all sorts of other micro fmance institutions have come in subsequently, such that you now have a fairly significant micro finance sector. We need to make sure we maintain the focus on the poor and enabling them. It’snot just about credit. Because what [non-profits] are able to do very well that traditional commercial banks were not able to do is invest also in building the capacity of the people. It’s one thing to make credit available. It’sanother thing to make sure that the credit is going to be applied properly, that people have good business plans and projections, and that they actually are making money. The prospects are tremendous. We need to see more. I don’tthink we can get enough micro finance and micro enterprise programs on the continent. The continent must go in that direction because it is the way we will be able to grow the economy, from the bottom. Knowledge@ Wharton: I believe that Africa and Kenya are at the forefront of using mobile telephones for mobile banking. Odembo: That’s a part of liberalizing the economy. Just 10 years ago, only 300,000 or so Kenyans had access to a telephone. When we liberalized the telecommunications sector to the point where we

h of the Vht Why (httø://knowledge.wharton.upenn.edu/artide.cfm?articleid=2640) That access transfer now contributed people home would conclusive independence Studies way But centers being Sending When when mobile opportunities [househoidsi. these other tell Know1edge you good that support Odembo: Some Now Nairobi, infrastructure the This continent do place a FARS looking population Kenyas it them now long s have do of in is International: a why in innovative innovations. to returns, young it for of the happen. to sirig!e’pesonal who these where telephone, into at and comes not a support at money system with the you the haul, a Elkanah Africa why the telephone sustainable some Kenya? The the is -- telephone more the want do out large and development money the of are can Institute for And 20 [in Wharton: size one to in not they Those with number reprintsoarsintI.com rural we one from Odembo four quickly. their using to things saying place middle million elf partnerships.” to these fly 19631. a to commercial the use An the -- of are-afs of be are sustainable national billion. should companies transfers the make to peripheries most point or copy the parents were the banks where to sky’s for investment manner. the Believes to innovations, 24 investing so that Just one five mindset class close handsets oOvrt market If You of leading go, Development that capitals of mobile a A of disincentives Knowledae@Wharton. you If invest the the quickly development a reason the quick mobile whom to and All because using the with that serious banks to might people of began limit.... Roads manner point facility And P. had ability of when rhe 20 that in continent, siblings. in mobile in (212) isn’t telephone. in on some the dollar telephones, and are will would million. Kenya realized the telephone a are Should if Africa, make the B can transferring investor you -:“ 221-9595 of chance it’s country market you to to a was Studies young hands going make for over disposable the Sctsf rural, continent. services than now transfer transfer predicted or Lead want be is your want people For once then that The riches a and of an x407. a enough, to if of should any bank into Investors people, it quick is poor muItijle the they companies, at long you to investment possible rather address, Kenyans money, changing innovations a why such your Jmesrtv money the money more providers, other partnerships make working loyal that That and income using said, population want period copies euro University to be. all a in I than timeframe Afiica: money in Qf don’t the chore. investment ought partner from but Kenya, that “Let’s a of 5’;’ for their say, -- five a the and custom profit, we’ve -- in in commodities, them compete of place and Knowledge© you you.... know the Safaricom, Safaricom within the economies towns, ‘.:- the to years, time, a telephones. than Money join who, repatriate with reprints, of a room what be ability and want well gone entire people as significant where must Nairobi what that all them an mobile and of and a who that 10 a Wharton would educated, c-prints, the full would foreign incentive course, from to the loyal to continent. provides years also is. put you’re who of your and has be sub-sector the needed banks growing Again, take ‘,,e of -- government All telephone traditionally all posters 300,000 in number be get which see customer Fortune invented you have at profits. didn’t investment investor money of the it sorts long willing the are put for lost, 5 to if to the for Within say? or ingredients the we middle Kenyans bringing most, are any send together plaques. have of of term. sky’s are all the Kenyans companies If out 500 can money a not has obstacles base, these to but business poor you’re sorts money money long incredible. four we banking. of wait the find will CEOs yet please class, None made also the may about using will people then of to hours limit are haul bring having -- in things contact urban the back to to person, in and since of and have have and in it the a all do the and of for

“‘ I’ Il,

IMPACT OF WTO AND IMF ON CARIBBEAN ECONOMIC DEVELOPMENT AND GLOBAL GDP CONSIDERATIONS § 1.03 THE INTERNATIONALMONET&RYFUND 61

25 percent portion of its contribution is paid in hard currencies of other natIons or in the form of special drawing rights (SDR), a unique international reserve asset created and issued by the IMF. The SDR is a stable unit of account that is assigned a value based upon an average of the world’s major currencies. It can be used for transactions with the IMF, to settle international balances between central banks, and to meet IMF membership subscription obligations. In many cases, the IMF cannot effectively use the 75 percent of quota paid in a member’s domestic currency because that currency is not readily acceptable in international transactions. Generally, the IMP uses only 20 currencies during a year, most of that in the form of major convertible currencies such as the dollar, yen and euro. It is estimated that one half of the money contributed to the IMF cannot be utilized in its operations. When the quota contributions are insufficient to its needs, the IMF may draw on a line of credit called the General Arrangements to Borrow, that it established with a number of governments and banks.

[3] Loans and Exchange Transactions The IMF charter requires the Fund to provide temporary financial resources to members having economic difficulties related to trade imbalances. These imbalances arise in nations that do not receive enough foreign currency from exports of goods and services and from tourism to pay for their purchases from other countries. IMF help is needed by such nations to maintain a stable exchange rate for their currencies without incurring severe domestic unemployment or inflation or requiring significant reductions in imports. Quota contributions are the primary source of currencies for IMP loans. The quota contributions form a pool of currencies that can be borrowed by members who need foreign exchange to fund their international obligations and restore their balance of payments. The amount a member nation may borrow from the IMP is based upon the quota it has contributed. If the member needs more funds, the IMF has discretion to provide additional loans totaling up to three times its quota over a three-year period. Most loans are extended through IMP arrangements, which specify the amount of SDRs or foreign currency to be provided and the terms and duration of the loan. The IMP also provides concessional loans that are not related to a member’s quota that support low income members efforts to deal with long- term balance of payment issues. These low interest loans and grants are provided through an Enhanced Structural Adjustment Facility (ESAF) and a heavily indebted poor countries (HIPC) debt initiative. In recent years, the IMF has established new discretionary loans that may exceed these limitations for member nations facing a sudden, disruptive loss of market confidence. When the IMF allows a member to draw on resources related to its quota subscription, the transaction is not cast in the form of a loan. Instead, a member “purchases” another member’s currency or SDRs from the IMF with its own currency, thereby obtaining needed foreign currencies, and agrees to later repurchase its own currency within a specified time. Because a fee is charged by the IMF and the member whose currency is borrowed, the transaction resembles 62 within rates, resources arrangements. Arrangements that credit provides resolve. links problems years arrangements. members quarter its tranches, restrictive payments draw tranche. problem. quota loan, is are time member requirements satisfied. usually demonstrate the show needs 32 Many The Borrowed resolved. When own economic commits See {aJ called [bi period. and the that public IMF of is exceeds 3 of IMF currency) SIIJELL, These established to imposes each of IMF At must all fu]i the Borrowing is up that may arising a purposes. longer it conditions 5 each credit financial not loan Lending any members. debt, applies This Conditionality to years is In amounts how IMF amount the reforms drawing. loans discussed ThE the return equai usually loans freely making a These These subject effect, time, of stated nation’s member stringent at IMF the ensures privatization from amount allows of tmnches. term the at are MONEY, a any Drawing are one against and each of assistance range the reforms draw above 1D it the extend a Second, loans most reasonable arrangements Criteria SDRs amount provided to its below. structural will time member’s disbursed quarter Tnni>.Woau loan a borrowed beginning of quota assistance fees to that drawing. reserve member upon conditions of the introduce IMF its CURRENCY upper specific These simply are on over and will disbursements lending To and and or within sufficient own reserve to the is through of the repurchase draw loans extended usually enable efforts reserve 12 problems tranche the over most currencies The contributed credit a Poimc of the to currency by loans reserve performance first to a criteria to and the nation’s allow like. draw based the stating tranche specified are 4 borrowing TMF’s 18 important, solve it AND currencies longer is to to loan tranches tranche, tranche are first (by months to In made ItsmILrry: referred to larger upon overcome tranche 5 occur that members held obligations. upon repay to effect, its as years FINANCE period that paying Extended economic remedy come subject credit in term different period. soon trade only the criteria by require only member’s is SDRs and it referred the usually two the are amounts is and the to out the Is is through the standby upper tranche, an as its upon not TsRE imbalance as repayment member required as to loan Typically, to balance available standby standards. of repaid IMF. its Fund equivalent amount loan policies. 32 balance specified or regarding such. a considered IMF the is draw payment comlition credit within A to longer hard quota. a subject Coscno? extended segments a A Facility than letter as within conditiona2ity resources must member for arrangement member of by problem of to the upon the is tranches, criteria currencies, the balance amount First, payments Since period payments exchange Stand-By which meet expected of difficulty standby describe standby to that an reserve 4 (EFF) agreed intent credit called CH. (198). to more IMF must IMF may and one and are the the the its 10 to of of

‘4 1 it by member

§ rates, to economic of and comprehensive trade presumably, similar measures. conditionality effective

1.03

state changed

This

the

year

individuals, payments elements: than generates education, from deficit goods

that exports inflows). the deficit to that a countries. that outflows) country’s Other

price

resident

policies

Fund.

IMF

(1) (2) satisfy

(3)

matters. link

owned

nation use

a measures

creates is

reforms

other it elements

The

between The

The purchase

current

is

policies and

deregulation,

a

exports

between

to

the

performance

Loans

In

debit

financed

that

the

exceed

current

total capital would of a enterprises, (BOP)

strengthening

nation’s

and

countries. pay

has

and that

services.33

borrowed

surplus

a

In

Japan,

THE of

is

unpaid

credit

would

to

account to

regarding

long the

for

of accumulated the

generates recent its

payments called

case,

and

an

the

reduce

be

its account

account,

a

either account,

INTERNATIONAL BOP

reserves

what

rest

Japanese

range

the

residents,

IMF consumer current

in

reported

For amount. total

U.S. link

Balance criteria the

funds

conditionality.

increased are

does

years, A

the

payment

of

by

corruption. it

banks

government example,

nation

financial

loan the

records nation structural capital

the

a which

receipts

to which

U.S.

buys

not of spending

account deficit to

in

bond nation’s

would

world. however,

foreign

subsidies,

foreign

on

and

meet

including

of

the

and

earn

capital

must

funding

received

from

is

measures

account.

that

by an when

its

aid

Payments.

the

the

current

from

capital

past,

banking include

The

transformations,

while MONETARY

The specific

enough

a

the use expenditures, The index

economic

currency.

countries other to

exports amount

U.S.

account.

borrowers

the

a

trade

for

IMF

BOP

trade aeeount

from abroad

or

reserves

its

U.S.

government, A

required

a

the

account.

resident

adoption

IMF

social

of BOP

nations. by

nation foreign

supervision, economic foreign

barriers,

is

consists Treasury

Japan

a country’s

A

more trade liberalization.

The and borrowing

transactions

country

(imports considering

(exports

FUND

has

deficit

nation’s safety

commitment

of foreign

reforms that interest

is reverse

currency A

currency

of is In

such foreign

than

restrictiveness

insisted

a

criteria

of

country

money

a

specific

capital

business bond that

net imports

arises has

nets,

capital the and currency

plus

plus

as

from

balance

it

and usually

exports

is

borrowed

trade-related

following

during case, privatization

currency

is

A undertaking

reserves

health from

imports

supply,

established

true,

upon

when

outflow

with to

free capital capital sold

member’s

inflow

exchange

other

more reserves.

and

specific

the

its

relate

of so to of

trade

more

a

a care,

a

and,

and

63 64 MONEY CURRENCY AND FINANCE CE. 1

To illustrate how an IMF arrangement may deal with a BOP imbalance, assume that Country X has a has a BOP deficit because the amount of dollars it receives from exports to the U.S. is less than the dollars it pays for imports from the U.S. If X has reserves of dollars in its central bank, it can use these to meet the deficit until the reserves are exhausted. If the BOP deficit is persistent, the foreign currency reserves are likely to be expended fairly quickly. Instead, X can borrow dollars from the IMP by exchanging its own currency for the dollars. The IMF will extend the loan, however, only on condlitionthat X adopts specified policies that will increase its exports and reduce imports to the point that its DO? deficit is eliminated. Policies to reduce imports may include reductions in total domestic demand induced by tax increases, reduced government spending and credit limits. Policies to encourage exports may include elimination of export barriers and currency devaluations that make foreign goods much more expensive in the domestic market.

The IMF’s guidelines on conditionality require the Fund to respect its members’ domestic social and political objectives and their economic priorities and circumstances. Under these guidelines, conditionality is to be flexiblyapplied and provide for on-going review and consultation. Generally, performance criteria in standby or extended arrangement should be limited to economic variables related to satisfying IMF supported programs. The required policy changes are set forth hi a “letter of intent,” along with the performance criteria the member must meet to receive periodic loan disbursements. The IMF Executive Board regularly reviews the member’s progress toward achieving the stated objectives. Officially,a member’s assurances about economicreforms, even if expressed in a letter of intent to a standby arrangement, is not a contractual obligation. Accordingly, no legal action may be taken to enforce these assurances or commitments. However, the IMF can indirectly enforce these agreements by withholding funds to countries that do not satisfy the loan conditions and restricting their access to future loans. Usually, the IMP will attempt to persuade or pressure a wayward nation into compliance, and in extreme case, it can expel a nation. In numerous situations, however, breaches of agreement have been overlooked. [ci Criticisms of Conditionality IMF lending policies have been the object of increasingly harsh 34criticism. Some of the more common complaints about the IMF are summarized as follows: • IMF secrecy about its activities makes it difficult for outsiders to evaluate its policies. The Fund does not report the details of its standby agreements with member nations nor the status of its loans.

See TheJMF: A Record ofAddiction and Failure, in FE umo Povxan: Te Woai.aB mx IMF, n mx DEvExwa Wov (Doug Bandow & Ian Vasquez, eds., 1994). § 1.03 THE INTERNATIONALMONETARYFUND 65

The IMF voting system based upon monetary contributions does not sufficiently account for the concerns of poor countries. Many of the conditions and performance criteria the IMF imposes do not foster economic growth and therefore, do not improve long-term economic conditions. Moreover, otherwise beneficial conditions often are ineffective because other national policies are not coordinated or work at cross-purposes. IMF conditions are not really enforced. In many cases, members that violate their agreements are granted waivers, modified conditions or newly negotiated loans. Thus, large sums have been provided to nations that misspent prior loans which they are unable or unwilling to repay.

• The IMF does not monitor its performance criteria uniformly, so that great variations exist between programs.

• Free-market solutions such as high interest rates to retain capital, and currency devaluations and austerity programs to discourage imports are overemphasized. These measures often result in high unemployment and dramatic declines in living standards that weaken the nation’s political structure and prevent meaningful reform. • The entire IMF lending program creates long-term dependency rather than short-term 35assistance. Less-developed countries increasingly rely on IMF loans for longer periods.

• IMF loans cannot be shown to improve the borrowers’ economic conditions. Most borrowers of conditional loans are economically worse off than before the loan. It is unclear whether the decline is attributable to the conditions themselves or to lack of adherence to them. It may be both; most countries that meet IMF conditions outperform countries that do not, but borrowers as a whole exhibit low economicgrowth rates. • Many criticisms are ideological, maintaining that the Fund provides too little or too much support to non-market or socialist economic systems.

• The IMF (and World Bank) is a tool of capitalism that operates to maximize profits for big multinationals and maintain U.S. domination over the world economy. • The IMF conditions harm poorer people of lesser developed nations by requiring governments to privatize public assets and reduce expenditures for social services such as health care, education, and pensions. The poor bear a disproportionate burden of these policies. Of course, the issue is whether the short term distress created by the economic adjustments is necessary to achieve sustainable long term growth. In this view, the groups most affected by the economic reforms ultimately will obtain the most benefit from them. In response to this criticism, however, the IMF has begun to focus on “safety net” programs

See JowsoN u SceweR, TIlE IN’rERNAT1oN MoT FUND:OuTnTEn, INEFFECTrVE,u UNIlEcEssY (1997).

countries?

the

consultations

economy

its

surveilla’nce

dollar. sell little

that systems floating has

currency

66

In

As

Because [4]

members.

•

•

•

• •

•

•

membership.

their

See

since

peg

[a]

intervention,

this

noted

provide

maintain

pursue have

implement

systems;

in

IMF industries.

country.

developing conditions.

IMF destroy economic

Removal economy that

population

Foreign

systems

that

that

currencies

the

exchange

the

role, Other

allowed

Charter

of

above,

a

moderate

Currency

programs

and

between The

they

value

affect

industrialized

strong

sound

the

the

the

the

adequate

that

of

classes.

by

multi-national

supervisory

Generally,

economic surveillance

IMF

in

Article

each

nations,

more

from

data

the

Most

value.

IMF

environment

restrictions

variety

the

in

of

MONEY,

eliminating

economic

the

banking

allow

the

the

their IMF

result

the

exchange

member

needed

IV.

actively

Functions

conditions

global

may

Exchange

profits

Most

capital

exchange

Executive

which

the

policies

impact

countries.

abandoned

of

this

currency

role

CURRENCY

in

and

examine

is

policies,

value

systems

market.

for

on

of

lower

and

designed

manage to

tariffs, corporations

inflows;

of

indirectly

bilateral

rate

financial

regarding

the

foreign

effective

that

of

market.

choose

that

the

of

take

Board

of

to

Rate wages

major

economic

and

and;

the

their

A

are

in

its trade

multinationals

require

another by

advantage

to

AND

number

surveillance

sector;

investment

its

gold

decreases

monitor

consistent

use,

currency

Stifi

and IMF

having

the

ensure

industrial

currencies

Surveillance

and

own

barriers

benefit

FINANCE

exchange

others

staff

currency

reform

the

surveillance.

a

poorer

major

of

system

their

country

that

all

of

nations

and

workers’

IMF

with

with

allows

occurs

have

countries

aspects

cheap,

more

to

and

are

currency

IMF

working

on

report

central

standard

exchange

be

their

individual for

has

fixed

to

a

taken

have subsidies

determined,

multinationals

members’

through

sweatshop

than

living

country’s

determining

of

de-regulate

been

exchange

its

have

banks

rate

conditions

floating

a

such

in

findings

out

policies

member’s

standards

the

member

19’78

systems

given

adopted

to

annual

buy

as

of

lower

CH.

labor

with

rate

local local

rate

and

the

the

its

to

or its

of

to

in

a 1 U. 9

1.03 THE INTERNATIONALMONETARYFUND 67

By making each member’s economicpolicies and conditions transparent, the IMF hopes to avoid the kind of sudden loss of confidence in a nation’s currency that led to economic crises in Mexico and Asia in recent years. Effective surveillance requires that members provide their macroeconomic and financial data to the Fund in a timely fashion. The IMF has developed standards for providing such information to the Fund and to the public. The Special Data Dissemination Standard (SDDS) sets forth the statistical information and standards to be provided by members desiring access to international capital markets. This information is posted on the IMF’s Internet Dissemination Standards Bulletin Board (DSBB). The Fund has also established the General Data Dissemination System, which is a general standard for all IMF members in providing statistics and economicand financial indicators. The IMF consults with each of its members at least annually to ensure that their currency policies are prudent and transparent and to obtain information about their economic condition. The consultation is conducted by a team of IMF staff that first collects extensive economicdata about a member, and then meets with its government officials to discuss the effectiveness of its economic and currency policies during the past year and any new policies it intends to implement in the next year. These policy discussions also may include social, environmental, industrial, labor, and governance issues that affect the country’s economic condition. A recent focus of the consultative discussions has been the economic consequences of highly unequal income distributions. The staff prepares a report for discussion by the Executive Board and the Board forwards a summary of the discussion, with suggestions, to the member’s government. Special consultations are held with governments of members whose economic policies greatly impact the world economy. These special consultations are held to assess the global economy and forecast developments in the forthcoming year. The IMF publishes these reviews twice a year in the World Economic Outlook, which members can rely upon in setting their economicpolicies. [bi Technical Training and Assistance The IMF provides training and technical assistance to its members in the following areas:

• fiscal and monetary policies; • institution building, such as central banks, treasuries, tax and customs departments, and statistical services, and; • economic and financial legislation. Specific areas of development have included financial analysis and policy, balance of payments methodology, public finance, government finance statistics, economic management, tax reform and administration, and central bank development. The Fund also provides advice about money and capital markets, banking interest rates, and how financial instruments are used in monetary management. These technical assistance projects are becoming larger and more

which

policies. number

of

economies.

members,

The

poorer,

Washington,

Second

members is

Reconstrnction

countries Finance

share from

Development from the

Five twenty-two the

maintain Monetary.

capital economic

regarding its

Conference

imbalances.

§ experts complex,

68

1.04

[2]

The

The

the

[1]

The

Bank The

The

associated

Washington

board

institutions

Bank

executive

the

staff

each

also

World

World

shares

World

IMF

World

World

economically

Bank

The

Corporation. policy

of also

other

involving

an

THE

and

Lending

to for

development

General

both

Fund

belong

monetary,

The

and

also

executive

member

in

shares

orderly

also

D.C.

finance

(IBRD)

a

U.S.

maintains

Bank

in are

with

Bank

Bank

1944.

Bank’s

War.

administrative

members. five is

in comprises

seven

directors

have

and

provides

the

WORLD

headquarters,

and

provides

controlled

relation

to

assigned

longer

is

year

a

The

is

is

determined

bank.

system

MONEY,

and

After Development

the Activities

Structure

reconstruction

both

developing

largest

different

nation.

directors,

and

fiscal,

the

The

the

initial number

owned

among

40

Bank

term.

IMF.

are

are

a the

numerous

time

The

commonly

to

largest

institutions

institutions

the

offices

completing

substantial

BANK

of

by to

and

industrial

task

a

appointed

by

Daily

CURRENCY

International

therefore,

services.

was

The

remaining

international

roles:

loan

Members

its

of periods

headed

foreign

and

a

International

the

countries

by

statistical

throughout

board

was and

shareholder

other

created

members,

that

President

or

operations

training

governments of

at

reference used

the

work

as

are

countries

to

The

that

by

and

industries

Operation

was

by

regional

posts

amount

of

very

agencies World

subscribe

directors

a

provide

name

AND

the

at

in

legally

governors

the

Development

separate

Bank

multiple

job, problems

payments

together

established

the

is courses

the

Africa, while

World

influential

Bank

to

five

neither

at

FINANCE

to

are

for

Bank

together

of

same

the

world.

employs

locations.

provide

and

of

loans

that

17

including

are

the

to,

the

countries

technical the

conducted

undertaldng.

sources

its

Bank

Bank

for

Asia,

in

for

comprising

percent.

that

acts

time

between

elected

financially

or

a

were

International

Its

member IMF

relative

many

to

at

government

Association

governor

in

purchase

own

more

Reconstruction

president

advice

and

principally

headquarters

shifted Western

contribute

the

as

IMF

determining

of

the

destroyed

holding

acts

assistance

by the

about

areas.

Because

financing.

Latin

nations. Bretton

than

by

nations,

size

the

separate,

one

missions

International

kternational

nor and

primarily

its

a

the

45

7,000

(IDA)

elected

European

governors

officials

minimum

However,

America.

Bank

the

governor

to

of

director.

to

focus

percent

support

Bank’s Woods

in

an

to

foster

are

bank

all

trade

their

CE

most

staff

and

and

and

but

the

for

its

85

by

of

to

in

tp

at 1 §1.04 THE WORLD BANK 69 percent vote is needed to change the Bank’s capital structure and Charter, the U.S. maintains an important veto power. Most other Bank decisions, including loans, are decided by majority vote. A portion of each government’s subscription amount is paid immediately and the rest may be called upon if required to meet the Bank’s obligations. Most of the operating funds the Bank lends to members are obtained by issuing bonds through world capital markets and directly to governments, agencies, central banks, private institutions, and individuals around the world. The bonds are highly rated (AAA)because the Bank’s member governments guarantee their repayment. The IDA part of the Bank makes concessional, low interest loans, that are financed by grants from donor nations. The bank’s lending activities are generally profitable. The bank’s main activity is to provide low interest loans to its member nations that will finance specific projects. Loans are extended after the Bank’s advisers and experts determine that the borrower can meet specified conditions ensuring productive use of the funds and ultimate repayment. The project must be feasible and economically sensible and the borrower must be unable to obtain the loan from other sources. Periodic reports to the Bank are made by the borrower and the Bank’s observers regarding the use of the funds. Under the Bank’s charter, a loan can only be made for productive purposes with due regard to the prospects for repayment. However, the Bank must ascertain that the funds cannot be obtained elsewhere on reasonable terms. Each loan must be for a specific project and guaranteed by the Government involved. The loan terms cannot restrict use of the funds to purchases in a particular country. World Bank loans are made to governments of developing nations, their agencies or to private businesses in their territories, with repayment arrangements that are most favorable to the poorest countries. A developing country with a per capita gross national 37product (GNP) of about $1,300 or more may borrow from the IBRD at an interest rate slightly above the market rate for a 12 to 15year period. These loans are funded by bonds saks. A poorer country with a lower per capital GNP, currently around $900, may borrow from the IDA interest free for a 35 to 40 year period. Essentially, these loans constitute outright grants that are financed by credits contributed by a number ofwealthier member nations. Although the terms of IBRD and IDA loans differ, both institutions apply the same standards in assessing a project’s viability. During the first years of the Bank’s operations, most of its loans were provided to fund infrastructure projects relating to electric power and transportation for large cities. More recently, Bank support has focused on projects that provide more direct benefits to poor people in developing countries. For example, many transportation projects now concentrate on bringing goods from farms to market and power projects on lighting for villages and small communities. Many recent World Bank loans relate to agriculture,

Per capita GNPis determined by dividing thevalueofgoods and services a nation produces in a year bythe numberofpeoplein the country. 70 MONEY,CURRENCYAND FINANCE CH. 1 rural and urban development, water safety, waste management, health care, family-planning, nutrition, education, housing and small enterprises.

[3] Criticisms of World Bank Activities Like the IMF, the World Bank has been subject to harsh criticism. Some of the more common complaints about the Bank are summarized as follows: • Bank funded agricultural projects often harm small farmers and favor larger producers. This occurs when projects encourage growing cash crops that require fertilizers, pesticides and contribute to soil erosion. Large irrigation projects, such as dams, usually benefit the large growers that have political power. • The Bank has funded projects that harm the environment including dams, mines, and logging ventures. Pollution control agreements often are ineffective because developing nations resent restrictions on the use of their resources that did not apply to the richer’nations during their early periods of economic expansion. • Bank policies favor the interests of the richest industrialized nations. These countries require poorer nations to deplete their natural resources, such as oil and lumber, in order to repay massive debt loads. Environmentally harmful projects are shifted from richer nations with substantial regulations to developing countries with less restrictive standards. Unemployment and low domestic wages make these activities attractive to poor countries despite the environmental hazards. • Loans to governments that violate human rights help maintain these regimes in power. In such cases, a loan to a repressive government to build a school releases other funds for the army and weapons purchases. Some critics contend that the Bank has denied loans to countries, but later approved funding for the same project when a more authoritarian regime took power. • The Bank funds projects that require forced resettlement of native inhabitants. This occurs when local populations are removed from the land required for projects such as dams or roads and when urban projects force residents to relocate. Often, the financialpromises made to induce a population to resettle are not kept. A number of dam projects funded by the Bank have been harshly criticized because of the large scale forced migrations involved.

• Bank projects disproportionately impact indigenous populations tribal land rights, ethnic identities, and cultural autonomy. Although the Bank has adopted guidelines that allow tribal people a right to veto projects that affect these matters, critics contend that there has been little compliance. • Bank funded projects do not proportionately benefit women. This may be true even for projects that have overall positive economicoutcomes. For example, a project that provides employment for women does not account for the increased burden on a typical woman who must continue §1.04

•

Bank

initiatives. to

regimes. projects to governments, centralized Many means ineligible obtain establish Low

perform

bafl

projects interest

projects

them

that

commercial

because

for

a

By

This

all

and

governments

good

out.

loans

the

her support

loans

the

sponsoring

regulated.

often

they

Bank

credit

homemaking

Bank

from

loans

to

THE

know

state

results

encourages

failing

the

and

rating.

may

at

WORLD

that

sponsored large

World

IMF

competitive

undertake

in

economies

duties

the

Indeed,

support

supports

projects Bank. economic

BANK

Bank

in

development

speculative

addition

nations

rates,

or

do

for

create

IMF

development

that

not

corrupt

thereby

with

to

will

“moral

provide

are

rather

and the

provide

good

and

new

risky

controlled

making

hazard.”

that

than

incentive

ineffective job.

credit

financing economic

is

private

highly

them

This

can

by

71

to Organisation for Economic Co-operation and Development Page 1 of3

.3ANS>. rV)N E)Nc Al. co-c T c i ow

Economy: Developing countries set to account for nearly 6o% of world GDP by 2030, according to new estimates

16/06/2010 - The rapid growth of emerging economies has led to a shift in economic power: forecasts based on analysis by late economist Angus Maddison suggest that the aggregate economic weight of developing and emerging economies is about to surpass that of the countries that currently make up the advanced world.

According to Perspectives on Global Development: Shifting Wealth, a new publication from the OECD Development Centre, the economic and financial crisis is accelerating this longer-term structural transformation in the global economy. Longer-term forecasts suggest that today’s developing and emerging countries are likely to account for nearly 60% of world GDP by 2030.

- Share of the global economy in purchasing power parity terms

2ci:U 2010

o!r

While the 1990s was a lost decade for much of the developing world, growth rates picked up significantly in the 2000s, with the number of developing countries beginning to converge strongly with the affluent OECD countries leaping from 12 to 65 (Fre 2). The strong performance of China and India has had a significant impact on the rest of the developing world.

Responding to this trend, the OECD has set out to strengthen its relations with major emerging economies. It has strengthened its links with Brazil, China, India, Indonesia and South Africa and recently welcomed Chile as its 31st member and it has extended invitations to join to Estonia, Israel and Slovenia. Russia is also negotiating to become a member.

What does the rise of large developing countries mean for development?

In converging countries Since 1990, the number of people in the world living on less than a dollar-a-day has fallen by over one quarter - approximately 500 million. So far, however, these reductions have mainly been concentrated

in one country — China. Other countries have made progress but at a pace insufficient to counter the effect of population growth. Poverty reduction still represents a major challenge for the developing world. Inequality in many rapidly growing developing economies has also been increasing. 933264htt://www.oecd.org/documentprint/O,3455,en_ 95945467980_i_i_i 1,00.html 11/1/2010 Organisation for Economic Co-operation and Development Page 2 of 3

Thanks to the rapid growth rates in emerging economies, their governments can now afford to boost public spending on social protection. This is a powerful tool to reduce inequality.” said Angel Gurria, Secretary-General of the OECD (read the u!i sneech). “Investing in social infrastructure may also contribute to diminish the propensity to save of these economies, contributing to a more balanced global economy.” he added.

In poor and struggling countries Due to their rapid growth and sheer size, India and China influence the key macroeconomic variables that matter for poor countries: interest rates, the price of raw materials, and wage levels for ow-skill jobs. They also have major impacts on global trading and investment patterns.

Poor and struggling countries will need national development strategies which respond to these global trends to ensure that they thrive in a global economy in which China and India have greater weight. The report finds that more could be made of the economic ties between developing countries. ‘South South links” in trade, aid and investment are an increasingly important source of knowledge and finance for development. For example, lowering tariffs on trade between developing nations to the levels that prevail between northern countries would be worth almost double the gains achievable by a similar reduction on North-South trade.

rure3 - Potential gains from South-South trade liberalisation • Pryv ctc

I,IS fdL

Overall, shifting wealth is good news for development and good news for the global economy. Growth in the developing world is an opportunity for the global economy to shift up a gear, which is confirmed by the role some emerging economies are playing in the current economic recovery”, Mr. GurrIa commented.

Read more about the report: Perspectives on Global Develonment: Shifting Wealth • Does the de’/eioonq world hold the key to building a stronner olobal economy ? (Article by Angel Gurria) For more information, journalists should contact Elodie Masson, ekcbemassonWoerd am, Tel; +33 1 45 24 82 96

Also available: 2d30. scion de nouveles estfrrnOons d(;cnsn5e ; Les pcys en ddveloppement repr&;eriterod prés de 5flJc du PlO rnondial en (French) 45htto://www.oecd.org/documentprint/0,3 5,en 2649_33959454679801 111 ,00.html 11/1/2010 PART I

— ———————— CARICOM’s Total Trade with Principal Trading Partners and the Rest of the World CARICOM’s TOTAL TRADE WiTH PRINCIPAL TRADING PARTNERS AND THE REST OF TIlE WORLD: 1996 -2001

CARICOM’s TOTAL TRADE

CARICOM’s total imports expanded from ECS22.9 biUion in 1996 (twelve Member States reporting) to EC$27.O billion in 2001 (eleven Member States reporting) at an average annual growth rate of 3.4% over the period. CARICOM’s earnings from total exports moved from EC$l 5.5 billion in 1996 (twelve Member States reporting) to ECS 17.9 billion in 2001 (eleven Member States reporting) at an average annual growth rate of 2.9% over the period. Due to the different rates of growth of its imports and exports, CARICOM recorded trade dejIcits throughout the period moving from ECS7.4 billion in 1996 to EC$9.l billion in 2001 (Tables 1.1(a) & (b)).

Major Contributors

The MDCs dominated CARICOM’s total imports and accounted for an average percentage contribution of 83.8% over the period. Imports of the MDCs increased from EC$ 19.0 billion in 1996 (all five Member States reporting) to EC$23.l billion (four of five Member States reporting) which accounted for 82.8% in 1996 and 85.3% in 2001 of CARICOM’s total imports. As a result the LDCs contributed an average percentage contribution of 16.2% of CARICOM’s total imports over the period.

With regards to CARECOM’s exports, the MDCs dominated with an average percentage contribution of 93.0% over the period. Exports of this group moved from EC$ 14.4 billion in 1996 (all five Member States reporting) to EC$ 16.8 billion (four of five Member States reporting) which represented 92.7% in 1996 and 93.7% in 2001 of CARICOM’s total exports. The LDCs as such accounted for an average percentage contribution of 7.0% of CARICOM’s total exports over the period (Tables 1.1(a) & (b)).

As it relates to the performance of individual Member States, Jamaica and Trinidad and Tobago were CARICOM’s top importers over the period. Jamaica was the top importer for 1996, 1997 and 1999 and accounted for 34.4%, 31.4% and 30.6% respectively of CARICOM’s total imports. For 1998, 2000 and 2001, Trinidad and Tobago captured top spot with percentage contributions of 31.2%, 32.3% and 36.1% of CARICOJyI’s total imports. These two Member States together accounted for an average percentage contribution of 62.9% of CARICOMs total imports throughout the period.

3 For exports, Trinidad and Tobago was CARICOM’s leading exporter throughout the period, with percentage contributions of 44.6% in 1996 and 65.4% in 2001. Jamaica was the next highest exporter for the period, with recorded percentage contributions of 24.1% in 1996 and 18.4% in 2001. Collectively these two Member States represented an average percentage contribution of 72.9% of CARICOM’s total exports.

CARICOM’S TRADE BY PRINCIPAL TRADING PARTNERS

Major Trading Partners

CARICOM’s trade by principal trading partiers did not change significantly over this period. Its major sources of imports were the United States of America (USM, Latin American Integration ,4ssociation (LAJA), the European Union (EU) and C4RICOM Siiig1 Market and Economy (CSME), which collectively accounted for an average percentage contribution of 79.7% of CAlJCOM’s total imports over the period. For exports, the trading areas That dominated CARICOM’s exports were the United States of America (USA), CARICOM Single Market and Economy (CSME), the European Union (EU) and Other Caribbean countries which collectively accounted for an average percentage contribution of 82.1% of CARlCOMs total exports over the period (Tables 1.7 and 1.8).

Table 1 7 revealLd that ARICOM s t4 souice for its imports was the USA which on aveiage accounted for 43.6% of CARICOMs total imports over the period. The EU was next major sourãe of the Region’s imports with an average percentage contribution of 13.1% followed by LAJA and CSME with average percentage contributions of 12.4% and 10.6% of CARICOM’s total imports for the period, 1996-2001. Canada. another source of CA.RICOM’s imports on average accounted for 3.3% ofCARICOM’s total imports over the period.

For CARICOM’s exports, the USAwas the 1ding destination and on average accounted for 369% of CARICOM’s exports over the period. CSME and EU were the next major destinations for CAR1COM’s exports with average percentage contributions of 19.6% and 17.3% respectively over the period. Other Caribbean Countries and Canada were also important destinations and acouned for average percentage contributions 8.4% and 5.4% of CARJCQM’s exports (Table 1.8).

4 Cç

Table 1.9 revealed that CARICOM’s trade balance with its respective extra-regional trading partners recorded deficits as well as surpluses over the period. The destinations with which the Region enjoyed a positive trade balance throughout the period were Other Caribbean Countries, European Free Trade Association and The Bahamas while it recorded deficits with other trading blocs.

Distribution of CARECOM’s Member States Trade with Major Trading Partners

The MDCs dominated CARICOMs trade with its major trading partners throughout the period 1996 — 2001. For imports this group accounted for over 75% of CARICOM’s total imports with most of its trading areas while for exports, the MDCs registered more than 90% of CARICOM’s exports with most of its trading partners.

Imports for Selected Years

1996 Jamaica and Trinidad and Tobago were CARICOM’s highest importers for 1996 and accounted for 41.0% and 31.0% respectively to CAR1COM’s total imports (Tables 1.10.1 (a)-(c)). With regards to CARICOM’s major sources of imports, Jamaica dominated CARICOM’s imports from the USA and

CSME with imports of EC$4. I billion from the USA and EC$0.8 billion from C’SME.These values represented 48.3% and 40.4% of CARICOMs imports from these respective trading partners. Trinidad and Tobago was CARICOM’s top Member State to import from the EU and LA.LAwith imports of EC$1.0 billion and EC$1.4 billion, which accounted for 37.6% and 62.7% of CARICOM’s imports from these respective trading areas.

1998

In 1998, Jamaica and Trinidad and Tobago continued to be CARICOM’s major importers. Jamaica ‘s percentage contribution to CARICOM’s total imports declined to 34.0% while Ii-inidad and Tobago ‘s percentage contribution expanded to 34.5% (Tables 1.10.3 (a)-(c)), Jamaica continued to dominate CARICOM’s imports from the USAand CS/vIEwith imports totaling EC$4.l billion from the USA and EC$0.8 billion from CSME. These values represented 38.0% of CARICOM’s total imports from the

USA and 34.6% of CARICOM’s imports from cSME. Trinidad and Tobago continued to be

CARICOM’s top importer from the EU and LAJA with imports from EU amounting to EC$l .3 billion

5

and

exporter

exports. Analysis Jamaica

leading Exports

trading

1996 accounted

from CARICOM’s from billion, while

from In 2000 CARICOM’s

2001 In

EU Member from 34.0%

imports continued

accounted

2000,

2001,

stood

Tobago

EU

USA

the

the

its

followed

which

partner.

exporters

from

to

Of

for

of

continued

USA

State

and

CARICOM’s

at

imports

Trinidad

EU.

to

for

for

the

amounted

Tables

EC$l.0

Selected

CARICOM’s

to

top

the

imports total

LAIA

64.4%

accounted

37.8%

USA

and

to

Imports

the

its

by

CARICOM’s

USA

for

from

import

imports

1.10.1

EC$l.l

and

imports

to

with Jamaica

and

billion

USA

of

and

Years

from

to

1996

and

dominate

CARICOM’s

leading

the

CSME

of

Tobago

for

EC$4.

imports

and

35.6%

from

(c)

CSME from

major

which

CSME.

billion

Trinidad

and

LAIA

from 64.0%

—

with

CSME

imports

markets

(g)

I

LAJA

EU

importer

accounted

CARICOM’s

respectively

and

billion

from

CSME

represented

respectively.

export

totaled

revealed

percentage

from

of

Trinidad

and

total

totaled

and

Jamaica

CARICOM’s

and

EU

from

while

LAL4

which

CSME

destinations,

amounted

was

ECSI.5

imports

EU

Tobago

totaling

for

that

and

the

EC$3.0

Jamaica

of

34.4%

contribution

respectively.

Thinidad

imports

markets.

continued

55.1%

Trinidad

represented

which

Trinidad

CAR1COM’s

USA Tobago

6

from billion,

EC$l.8

from

total

to

of

billion

and

represented

dominated and

EC$1.2

Trinidad

from

CARICOM’s

L.41A.

and

Its

and

imports

and

continued

LAJA

as

CSME

which

of

29.8%

billion

imports

39.0%

Tobago

the

Tobago

Tobago CARICOM’s

and

32.4%

total

billion

amounted

and

from

USA

with

the accounted

ECSI

respectively

or 36.0%

of

to

imports

from

(Tables

continued

imports

EU

and

with

Tobago

49.9%

the

dominate LAJA

imports

which and

.7

market.

Jamaica

Region’s

LAL4 and

billion,

percentage

to

CSME.

two

while

(Tables

for

of

from

accounted

1.10.5

EC$2.3

35.2%

was

totaling

of

to

CARICOM’s

CARICOM’s

40.4%

amounted

top

Exports

be

its

CARICOM’s

were

which

the

Jamaica

CAR1COM’s

imports

(a)(c)).

1.10.6

importers

imports the

of

EU.

contribution

billion,

EC$3.9

and

CARICOMs

for

CARICOM’s

Region’s

represented

of

to

(a)

42.1%

from

62.0%

Trinidad

Jamaica

from

imports

imports

imports

ECS2.9

— billion

which

which

total

(c)).

top

this

top

the

of

of of 62.8% and 73.5% of CARICOM’s exports to USA and C’SMErespectively. Jamaica’s exports to the EU totaled EC$l .2 billion, which accounted for 50.9% of CARICOM’s exports to this market.

1998 In 1998, Trinidad and Tobago and Jamaica continued to be CARICOM’s leading exporters and accounted for 48.7% arid 27.4% respectively of CARICOM’s total exports. Of the Region’s major destinations, Trinidad and Tobago continued to dominate CARICOM’s exports to the USA and CSME with exports totaling EC$2.3 billion and EC$2.0 billion which accounted for 50.4% and 71.4% of CARICOM’s exports to the USAand CSME respectively. Jamaica continue to dominate CARICOMs exports to the EU with exports amounting to EC$1.0 billion which represented percentage contribution of 41.1% of CARJCOM’s exports to EU(Tables 1.10.3 (e) — (g)).

2000 In 2000, Trinidad and Tobago and Jamaica continued to dominate CARICOM’s exports with percentage contributions of 63.0% and 19.1% respectively. Thnidad and Tobago remained CARICOM’s top exporter to the USA and GSME markets with exports to these markets amounting to

EC$5.0 billion and EC$2.6 billion which represented 67.6% of CARICOM’s exports to the USA and 75.1% of CARICOM’s exports to the CSME. With respect to CARICOM’s exports to the EU market,

Jamaica continue to dominate with exports totaling EC$ 1.1 billion which accounted for 35.0% of

CARICOM’s exports to the EU (Tables 1.10.5 (e) — (g)).

2001 In 2001, Trinidad and Tobago and Jamaica maintained their positions as CARICOM’s leading exporters with percentage contributions of 69.6% and 19.6% respectively. Trinidad and Tobago continued to dominate CARICOM’s exports to the USA and the CSME with exports totaling EC$4.8 billion and EC$2.8 billion which represented 75.3% and 80.4% of CARICOM’s exports to the USA and CSME respectively. Jamaica also maintained its position with its exports to EU amounting to EC$l.0 billion which represented percentage contribution of 45.5% of CARICOM’s exports to EU

(Tables 1.10.6 (e) — (g)).

7 CARICOM’S TOTAL TRADE BY SECTIONS OF THE SITC

Machineiy and Transport Equipment was CARICOM’s highest imported commodity with average percentage contribution of 29.3% over the period. For CARTCOM’s exports, MineralJi.iels, Lubricants and related Materials and Crude Materials, inedible, except Fuels dominated the period with average percentage contributions of 29.7% and 18.5% respectively (Table 1.11).

Major SITC Sections

A closer analysis of Table 1.11 showed that for imports, Machineiy and Transport Equpinent reflected a percentage contribution of 28.0% in 1996. In 1997 the percentage contribution of this commodity strengthened to 34.1% but weakencd thereafter to 31.6%, 28.9% and 27.6% in 1998, 1999 and 2000. For 2001, its percentage contribution advanced to 29.4%, which resulted in an overall increase over the period. Manufactured Goods classified chiefly by materials was the second highest

imported commodity during the period 1996 — 1999 while Mineral ,ñtels, Lubricants and related Materials captured this position for the remainder of the period.

For exports, the percentage contribution of Mineral fuels, Lubricants and i-elated Materials to CARICOM’s total exports declined continuously &om 26.3% in 1996 to 22.2% and 20.5% in 1997 and 1998 respectively. For 1999-2001 the percentage contribution of this commodity advanced steadily to 27.9%, 39.7% and 41.7% respectively. The second highest exported commodity throughout the period was Crude materials, inedible, except fuels with increased percentage contribution from 19.7% in 1996 to 20.4% in 1997 and 20.7% in 1998. In 1999, its percentage contribution declined to 19.0% and continued to decline with recorded percentage contributions of 16.0% and 15.1% in 2000 and 2001 respectively.

Distribution of CARICOM’s trade, by SITC Sections with Major Trading Partners

Imports for Selected Years 1996 Machiney and Transport Equipment and Mamtfactured Goods were CARICOM’s highest imported commodities for 1996 and accounted for 27.3% and 16.0% respectively of CARICOM’s total imports. Analysis of Machineuy and Transport revealed that the USA was the main source with a percentage Machinery percentage Tables However 2001 lubricants percentage Selected Mineral commodity For commodity. lubricants imports to Selected trading percentage represented as CARICOM’s percentage 2000 contribution top In 19.3% CARICOM’s 1.13.3 1998 Manufactured the 1998, 2000, two major (a)-(c)). while blocs 1.13.6 of commodities fiels, Machinery Asian Asian the CARICOM’s and and 27.1% contribution contributions and contribution (Tables contribution 90.9% These Selected of sources major percentage collectively imports related related lubricants (a) Countries Countries Transport 485%, Goods, and trading of — 1.13.5 and sources of CARTCOM’s Asian of materials imported 21.4% (c) materials, to highest of the CARlCOMs Transpoi-t of of Machinery CAPJCOM’s contribution 20.6% with and accounted biocs revealed (a)-(c)). Equipment and the 43.7%, 52.1%. Countries of EU respectively. related Manufactured USA EU percentage imported with continued accounted in was L4JA Eqiiipnient 15.1% this total EU that declined further and for percentage next expanded continued imports of materials major year. and imports followed Transport Machinery 79.5% commodities and the to for contribution The line expanded Andean The top to Goods 9.6% sources and 56.7% USA of USA, with their of of contributions 19.5% CARICOM’s to with percentage 9 Machinery next Manufactured Machinery Equipinent, CARlCOMs (Tables be declined ‘ommunity were and contribution and percentage Selected to were were percentage but the of and 56.3%, 49.7% Transport the 20.3%. with USA, Machinety the 1.13.1 contribution 15.3% and to and USA, Asian of imports the USA, while of were 53.6% declined Goods contribution imports EU 31.8% Transport marginally contribution These Transport (a)—(c)). USA CARICOM’s EU, respectively. Countries Equipment and EU the the in and continued while continued LAJA and of 2001. three of two and Selected percentage percentage Selected Transport Equprnent this Equipment. to 16.6% of and major the c’SME and to trading The 20.6%. and total commodity 22.1% For CARICOM’s to to CSME. EU Asian the major Asian respectively. be dominate sources Equipment contribution Mineral with imports contribution Mineral EU areas expanded Also in CARICOM’s With followed countries. These sources 2000. Countries continued respective in together (Tables for respect of freels, with fuels, 1998, total The four this this and For its of of by to

a ‘33 declined to 17.7% in 2001. LAJA and the Andean Community continued to be the major sources of CARICOM’s imports of Mineral fuels, lubricants and related materials with percentage contribution of 47.3% and 34.4% respectively. The combined percentage contribution of these two trading areas accounted for 81.7% of CARICOM’s imports of Mineraijiiels, lubricants and related materials.

Exports for Selected Years 1996 Mineral Fuels, Lubricants and related materials and Food which accounted for 28.7% and 17.0% of CARICOM’s total exports in 1996 were the Region’s two highest commodities exported in 1996. Analysis of Mineral Fuels, Lubricants and related materials revealed that the USA, C’SMEand Other C’arihbean Countries were CARICOM’s main destinations for this commodity. These trading areas accounted for 46.5%, 22.9% and 17.3% respectively of CARICOM’s total exports of Minerals Fuels, Lubricants and related materials. For CARICOM’s exports Food, the main destinations were EU CSME and USA with percentage contributions of 52.2%, 18.0% and 14.4% respectively (Tables 1.13.1

(e) — (h)).

1998 In 1998, Mineral Fuels, Lubricants and related materials and Food continued to he the CA.RICOM’s top two commodities exported. However, the percentage contribution of Mineral Fuels, Lubricants and related materials declined to 22.1% while the percentage contribution of Food expanded to 19.4%. With regards to MineraThFuels, Lubricants and related materials, the USA, c’SME and Other Caribbean Countries continued to be the main destinations for this commodity. The percentage contribution of USA to CARICOM’s exports of this commodity declined to 36.5% while the percentage contributions of C’SMEand Other Caribbean Countries advanced to 28.1% and 19.8% respectively. EU, CSME and USAmaintained their positions as the Region’s top destinations for Food with strengthened percentage contributions of 52.3%, 21.9% and 16.0% respectively (Tables 1.13.3 (e)-(h)).

2000 Analysis of (Tables 1.13.5 (e)-(h)) showed CARICOM’s total exports in 2000 continued to be dominated by Mineral Fuels, Lubricants and related materiaLs and Food. In this year the percentage contribution of Mineral Fuels, Lubricants and related materiaLs expanded to 42.1% while the percentage contribution of Food declined to 13.7%. For exports of Mineral Fuels, Lubricants and

10 35

FIGURE 1.1 BALANCE OF CARICOMS TOTAL TRADE: 1996-2001

30,000

25,000

20,000

15,000

0 o io,ooo 0 uJ 0 5,000 0

-5,000

-10,000

-15,000 Years

Imports Exports s- Trade 8alance

17 ______

FIGURE 1.6 MAJOR SOURCES OF CARICOM’S IMPORTS: 1996

EuropeanUnion 14%

United Slates 44%

ricsME United States Latin America European Uron OJapan 0 Rest of the World I

FIGURE 1.7 MAJOR SOURCES OF CARICOMS IMPORTS: 2001

European Union 14%

Latin America 14%

•CSME • United States • Latin America

European Union OJapan DResloithe World j

27 ‘37

FIGURE 1.8 MAJOR DESTINATIONS OF CARICOMS EXPORTS: 1996 Rest of the World CSME 12% 18%

European Union ) 18% Other Caribbean 8%

United States 39%

• CSME eOther Caribbean United States Canada 9European Union DRest of the World L. -

FIGURE 1.9 MAJOR DESTINATIONS OF CARICOMS EXPORTS: 2001

Rest of the World

European Union 12%

Other Caribbean 10%

United States 39%

•CSME • Other Caribbean • United States Canada DEuropean Union DRestof the World

29 Statement Prepared for the International Monetary and Financial Committee of the Board Page 1 of 4

Dopariment ol Finance .inistèrID cbs Finances ( I Canada Canada ‘...(II(I(iJ

Home > N€.ws > Statement Prenared ¶or the International Monetary and Financial Committee of the Boad of Go’.e rrc’ the internahonal Monetary tind - October 2010

Washington, DC, October 9, 2010 2010-096 STATEMENT PREPARED FOR TilE INTERNATIONAL MONETARY AND FINANCIAL COMMITTEE OF THE BOARD OF GOVERNORS OF THE. INTERNATI ONAL MONET.ARY FUND The Honourable Jim Flaherty, Minister of Finance for Canada, on behalf of Antigua and Barbuda, the Bahamas, Barbados, Belize, Canada, Dominica, Grenad4 Ireland, Jamaica, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines

We agree that the International Monetary Fund (IMF) played an important role in helping the global economy through the financial crisis and towards recovery, particularly through fostering international economic co operation. With a new set of global economic challenges lying ahead, the Fund will have an important role to play in ensuring a healthy and well-balanced international monetary system. It will do this by promoting sound economic policy frameworks; providing financial assistance when neled that strikes the right balance between financing and adjustment; and sustaining co-operation and consultation among its members.

In doing this the IMF must ensure that the proper steps are taken to protect against another severe financial crisis. The IMF can play a critical role in promoting an open international monetary system that facilitates timely, orderly exchange rate adjustment. Future IMF reforms, particularly to the Fund’s lending instruments and resources, can help to prevent future crises, but must also encourage members to adopt sound policy frameworks. Canadian Developments The Canadian economy continues to recover from the deepest global recession since the 1930s. Real gross domestic product (GDP) in the second quarter of this year increased by 2.0 percent, after posting gains of 5.8 per cent in the first quarter and 4.9 per cent in the fourth quarter of 2009. The economic recovery has been underpinned by Canada’s Economic Action Plan as well as a strong recovery in private domestic activity. As a result of this strong performance, Canada has virtually recouped real economic activity lost over the recession, the only Group of Seven (G-7) country to do so. Canada’s solid economic performance has also supported a recovery in the labour market, as all of the jobs lost during the recession have been recovered.

The priority of the Government is to complete the implementation of Canada’s Economic Action Plan—a two- year C$62—billion plan (equivalent to about 2 per cent of GDP on average per year) to support economic growth and create and maintain jobs.

To maintain and preserve Canada’s strong financial position, the Government is committed to return to budgetary balance over the medium term, consistent with the G-20 commitment to halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016. In Budget 2010, the Government set out a three- point plan to bring Canada’s finances back to balance over the medium term. First, it will end the temporary measures as scheduled in early 2011. Second, targeted measures to restrain the growth of direct program spending have been put in place. And finally, the Government is undertaking a comprehensive review of its administrative functions and overhead costs in order to secure further efficiencies and savings. Irish Developments Irish Economic Developments Turning to the Irish situation, following two exceptionally difficult years it now appears that the economy will record some marginal increase in activity this year. The exporting sector is leading the way, in part a reflection of the substantial—and necessary—competitiveness adjustments that have occurred over a relatively short timeframe. An encouraging feature has been the broadening of the export base in recent quarters, which bodes well for the future. Domestic demand, however, lags behind. Excess supply continues to weigh on residential investment and will continue to do so for some time. Household spending remains subdued, on the back of declining real incomes and weak confidence. Having said that, the latest labour market data point towards stabilization.

httrr//www.fin.gc.caJnlO/10-096-eng.asp 11/1/2010 Statement Prepared for the International Monetary and Financial Committee of the Board ... Page 2 of 4

Apart from supporting the banking sector, the most pressing issue is the need to ensure the public finances remain on a sustainable path. While revenue and expenditure plans for this year are in line with expectations, the underlying deficit—that is after excluding one-off issues related to the banking sector—will nevertheless be of the order of 11.9 per cent of GDP. The Irish Government has recently reiterated its commitment to reducing the headline deficit to below 3 per cent of GDP by 2014, and will publish a four-year budgetary plan setting out the annual consolidation measures necessary to achieve this early next month. This is to be welcomed, as it will underpin confidence and credibility in the sustainability of the public finances in Ireland, and as such help support economic growth over the short and medium term. Irish Banking Developments

The Irish Government has recently reiterated its strong commitment to restoring the Irish banking system to health. This involves a number of actions, some of which have already been undertaken, with more planned by the Irish Government. A Government guarantee of banks’ liabilities has been extended to ensure the banks remain able to access the necessary liquidity. The Irish Government has worked to provide certainty on the final costs of repairing the banking system. The National Asset Management Agency provides a facility to ensure that the losses of participating institutions are recognized upfront and that the most impaired loans are removed from their balance sheets. Together with the capitalization of the banks and the resolution and reorganization of the most impaired institutions, this should allow the banking system to play its essential role in providing the finance required to underpin economic recovery and fiscal sustainability. In addition, the Central Bank of Ireland has replaced the previous dual structured Central Bank and Financial Services Authority of Ireland. The new structure has a unitary board chaired by the Governor with a specific focus on prudential regulation, protecting consumers and maintaining the financial stability of the financial system. Caribbean Developments

While the economic outlook has improved for members of my Caribbean constituency, medium-term growth is expected to be subdued and beiow the Western Hemisphere average. Meaningful strengthening is not expected until 2011, underpinned by only modest prospects for tourism and foreign direct investment (FDI) inflows. There are considerable downside risks, mainly associated with lowered expectations for the primary trading partner, the United States, amid household sector deleveraging and weak employment trends. The impetus from Europe is also likely to be mild, as households adjust to fiscal austerity measures. The Caribbean region also expects greater challenges in attracting FDI inflows as global flows normalize at below pre-crisis levels. Caribbean authorities believe that structural reforms to improve the business environment can help to improve these prospects, as can effective and well-targeted public sector investment programs. They acknowledge that reforms must occur within a framework of fiscal consolidation to reduce high debt burdens and to enhance the economies’ resilience to future shocks. While three Caribbean countries have taken on IMF programs to guide the adjustment processes, the region’s engagement with the Fund has more generally intensified through the Fund’s heightened surveillance activities and the increased technical assistance being provided, particularly through the focused work of the Caribbean Regional Technical Assistance Centre.

Enhancing financial sector resilience and stability is a top priority for the Caribbean. The authorities are intensifying their efforts to strengthen and consolidate the supervision of non-bank institutions, and to fortify bank balance sheets against weakened credit quality and strained liquidity conditions. Co-operation among supervisors and regulators is also advancing more vigorously, given the increasing regional connectedness of the financial system—underscored by the need for a speedy resolution to failed insurance sector operations, which spanned multiple jurisdictions. Many Caribbean authorities are also strengthening their international co operation mechanisms, having concluded a significant number of Tax Information Exchange Agreements to improve their standing with the Organisation for Economic Co-operation and Development. They continue to urge, however, that global initiatives to promote transparency and financial stability do not impinge upon the ability of legitimate jurisdictions to benefit from the provision of international financial services. IMF Reform

Since the onset of the crisis, a range of surveillance and lending reforms have been put in place. These reforms have added to the Fund’s existing tools for safeguarding the stability of the international monetary system. The challenge now is to utilize these reforms to assess the risks to global financial and economic stability arising from unsustainable global imbalances and possible financial sector vulnerabilities. Reforms to IMF surveillance and the scope of IMF lending can help to prevent future crises. In addition, complementary reforms to the Fund’s governance structure are required to ensure that these tools are used appropriately. Surveillance

We are encouraged by recent efforts to enhance the quality and substance of Fund surveillance. Last year’s introduction of the Early Warning Exercise and revamping of the Financial Sector Assessment Program should help facilitate the identification of vulnerabilities stemming from the financial sector and global imbalances in a timely fashion.

htto://www.fin.gc.calnl 0/10-096-eng.asp 11/1/2010 Statement

htttv//wwwiin.c.caJn10/10-O96-eng.asp

through Future

sector Fund

surveillance set Statement Lending

Recent global provision In there improved These introduced.

ensure IMF Similarly, To undue part adequacy

resources,

to One ensuring Voice countries’

Fund’s Securing

compromise and already constituencies. in

Quotas that fundamentally each growth. In way

representation must A Corporate

IMF.

clarification Fund,

We undertaken

step introduced

legitimacy.

addressing

strategic

the

this basic number

addition

programs.

of analysis

representation of

also

quotas was

of

vulnerabilities,

and

economic member reforms reforms

with First,

do

structure risk.

reforms

that

the

the end, pursuing poorest

Prepared

Instruments more

enhancing

constitute

done

votes,

of

that

lending

a reaffirm our

a

a

of

of

Representation

voice

in

quota current

main

of Governance

new We products More global

the

further

since

US$250-billion

surveillance

to

at a

IMF

properly

Surveillance

to

of and

of

extensive line

the

best

so other

all

substantial

to

represent

quota

and Much the

have

and must

sound the members.

proper

cross-country enhance

of crisis,

quota

and

of

options

to elements

members resources the recently,

and

instruments.

liquidity Ministers pragmatism. with

our financial for

to

emerging

the

the quota the

Fund

have increase

roles ratify

the

governance of

and representation

dramatically should of

substance work and

ensure

reform,

reflect

Executive

economic desire the

the emerging the

deal bulk

Fund’s IMF governance

the

examination

introduction

Reforms

whereby for

priorities

a the

significant Fund

and

review,

the

intenational Priorities

increase concerns

IMF membership’s the International

bearing to of

and are general

safety

Executive without financial

that

of

increasing

be

in

that global market

accountability

to

IMF implementing

2008 ensure responsibilities

role

spillover

overall

Fund

Resources

The

quota As substantially

properly

relied

Governors see

of

Board

reforms

meets policies

markets

but

the

altered

senior

reform

a nets,

and

Fund

in

in on

in

structures quota Special New

economic expanding

change. and

an first

with

has

sector

of and

and

this

the

resources the

the

IMF upon

voting particular Board,

access

promote

reform, capital

second Ministerial the open,

effects,

providing

surveillance

Arrangements represented. balance

that reformed

step,

can management

clarification

developing global their

centres calls

size aggregate is the

and Monetary agreement.

membership

play

Pittsburgh

as

Drawing reform

of

also

changes

expanded

Before

power

will

help

of are

to Fund’s transparent

weight,

of

are flows developing the much

to it global

overall

alternate

this

the

a will

accountability. the economy.

can

Fund the

should

the of

be

maintain

consistent

on

primary

a

engagement enhance

Executive in the

effort

payments impacts will

at

be undertaking

various

range will

guide instrumental

IMF case

Rights as

aggregate efforts

economies lending should

place

to

economic

of

The

and and

financing.

Implementation the commitments Fund FCL

is its necessary

is to

go

possible

the

remain the

be

Executive quota

of

selected

most

at

countries

available and

Borrow current role

align

Fund. of In Fund

a to Financial

the

and

the critical.

allocation,

landscape the

to

risks bodies of resources focus

the with

long Board

toolkit

options

particular,

maintain

problems

merit-based

enhance precautionary

Fund’s in

created appropriately effectiveness,

with

weight, should

increase

a G-20

incentives

surveillance

country at

so

further With

They

strong, establishing arising

priority way

in

towards

(NAB)

on

regardless quota

the

and Directors in

as

Existing

resources

through

and

order

Fund

will

for

further

is

the

such

status

Committee

to towards

of so

also and

be

Executive of accountability

a

while

Fund the

aimed

resulting

significant substantially

it

should

countries was level. review, require from

the streamline

sustainable

far

new

for this

offset 1MF

issues

to

is

a

in

the

represent

heavy

management

legitimacy

bilateral

the more

clear

as as and

for

those IMF enhancing

realign a of management. represented reserves increased

protecting

credibility

the agreement

governance

and

Precautionary global

at

Flexible effectively

manner

to

a

candidate reflect

by

increase

large

a

together

will

be

reducing Board

Executive from,

quota-based

responsibilities,

strategic

that

proper

spur introduced significant

seeking

a changes,

members

of

a

analysis.

relative

be and

imbalances. and

scaling

the

strengthened and

multi-country vehicle

the accumulation, of

the the

Credit

that

to

excessive

and

needs essential.

analysis,

and

the

the multilateral

financial selection

in

will balanced

alignment

enhancing due with

at

nationality. US$500 structure

incentives

voice Board need financial

direction

Board

quota,

laid

promotes voting

the

Credit legitimacy

back quota

we

institution

that

element

increase

The

new

for

Line

oversight

to

institution.

possible

bare

to

need

table.

and

increase.

Governors

particularly

Specifically,

risk-taking.

have

IMF of

it Second, is

obligation ... and

process (FCL)

billion,

the global

restore shares

power

Line.

the

assistance.

should

is

of

another

of

NAB

Fund

financial to

by,

to

of

Done

the

essential

Page

member

increase

the

of

not

reforms

by

take

for

was

the

of

the

voice

as

11/1/2010 a the

We

be

in

to

the

of

3

of

V-fD

4

httyf/wwwimLorg/external/np/sec/prt2009/prO924Thtm

Press

kR :L4ts

Sn’

IkS

Release:

Monetary

Iniernalional

IMP

and

World

Fund

opportunity

the

Going

congratuiate

for

“We

reduce

FUnd immunization

teacher

education,

HIV/AIDS allocated

mechanism

reporting.

administration

In

government

declaration

procurement. focusing

strengthened

Implementing To

more downturn.

political of

major

(MDRI)

(1S$265 the

country

International the

Debt

July

Poor

Haiti

Press

Debt IPW

Bank

addItion,

growth

reforms

World

reach

are

International

completion

1,

have

Countries

forward,

was

service

stable

Release

and

Approve

natural

Haiti’s

2009

training

Relief

very

(US$972.7

conditions,

to

poverty

over

the

Bank’s million)

prevention

In

granted

and

granted

and

These

despite

reach

by

to law,

Haiti

World

the

macroeconomic

accounts,

education,

pleased

completion

savings

debt

No.

rates

public

Monetary

its

20 allow

disasters,

managing

and

Haiti poverty

US$12

made

(HIPC)

point

program. for

and

Haitian

Director

strengthened

reduction 09/243

national

the

reforms

percent

and

Development

burden

US$1.2

Haiti

a

for Improved

million).

and

must

over

expenditure

adopting

challenging

HaIti

and Bank

progress

that completion

resuit

under

the

Billion

ensuring

measles

reduction”

Initiative

authorities Fund

debt

Haiti the

a

future

point,

50,000

for

treatment

take

of

In were

the

poverty

Multilateral

and

food

billion

spending,

from

the

Impact

recurrent

Approve

health,

environment

the

Debt

debt

relief.

established

(IMF).

a

Boards

toward

advantage

effectively

tax

aimed

Haiti

and

and

borrowing Association

law

commitment

Enhanced

approved

environment

Caribbean.

chIldren

management point

the

of

said

Relief

reduction

management

and

on

This

of

debt

fuel

on

DPT3.

plan

Haiti

Haiti

can-led

HIPC

of producing

Debt

the

implementing

at

spending

this

Yvonne

under

public

customs

for

the

will

crisis,

US$1.2

establishing

relief

and

a

to

approved

free

Is

of

global

and

prudently,

Heavily

achievement.

Initiative by

financing

Haiti

Relief

(IDA)

now

Bank

attend

out

‘We strategy.

this

significantly

the

to

Improved

the

marked

resources

at

Tsikata,

by

by

difficult

to

an

and audited

a

the

economic

Initiative.

Initiative

and

Boards

and reaching

better

number

Indebted

Billion

asset

school,

an

a

the

26 th

and

a

Francals

Haiti

the

the

by

11/1/2010

Page

of

1

of

4 1’41 Press Release:IMP and World Bank ApproveUS$12 BillionDebt Relief for Haiti Page2 of 4in continuing Its efforts and progress towards stronger public expenditure management and public procurement,” Tslkata added. Debt relief under the Enhanced HIPC Initiative amounts to US$140.3 million in end-September 2005 net present value (NPV) terms& Haiti is expected to receive the equivalent of US$265 million of debt relief in nominal terrnsZ under the HIPC Initiative and expected additionai bilateral relief. Haiti’s public debt as of end-September 2008 amounted to 36 percent of GDP, most of which— about 28 percent of GDP—isowed to external creditors. The largest share of Haiti’s external debt Is owed to the Inter-American Development Bank (41 percent of total external debt), the World Bank (27 perctnt), and bTh.tcrJ creditors (24 percent).

By reaching the HIPC completion point, Haiti now is eligible under the MDRIfor further debt relief from IDA and the Inter-American Development Bank (IADB). MDRI relief would save Haiti US$972.7 million in debt service of which US$486.7 million owed to IDA and U5S486 million• to the IADB. While the IMF is a participant In the MDRI, HaIti does not have any MDRI-eilgibie debt to the IMF. “This is a very positive development for Haiti”, said Finance Minister Daniel Dorsainvil. “The debt relief will help us Invest In growth and poverty reduction programs. Haiti has demonstrated over the past four to five ,ears that It can commit itself to a menu of reforms and respect this commitment.” “To reach the completion point under the Enhanced HIPC Initiative Is a key milestone, and the authoritIes are to be commended for this important achievement amid severe external shocks” said Corinne Deléchat, mission chief for Haiti In the IMF’sWestern Hemisphere Department. “Debt relIef will significantly reduce Haiti’s debt burden and make it possible to Increase poverty-reducing spend!ng, allowing further progress toward the MIllennium Development Goals. In spIte of the debt relIef, Haiti’s vulnerability to shocks remains high. A major challenge ahead will be to lock in the ga!ns of debt relief through prudent fiscal policy, improved quaiity and efficiency of public spending, strengthened domestic revenue mobilization, and donor grant financing.”

IMF and Haiti ANNEX The IMFapproved a first three-year Poverty Reduction and Growth Facility in November 2006 in the amount of SDR 73.71 million (about US$114.4 million); In June 2008, an augmentation of SDR 16.38 millIon (about US$25.4

httn://www.imEorg/external/nn/gec/prtlOO9/pr09243.htzn 11/1t2010 PressRelease:IMPand WorldBankApproveUS$12 BillionDebtRelieffor Haiti Page3 of 4 IN-3 million) was approved to help Haiti cope with the impact of high international food and fuel prices.

A second increase in financial assistance, of SDR 24.57 mIllion (about US$38.1 million), was approved by the Executive Board in February 2009 to help mitigate the negative effects caused by a series of hurricanes in 2008 as well as the global downturn. World Bank and Haiti Beyond debt relief, the World Bank approved a disbursement of US$13 million in June 2009 as the second instaliment of a US$ 23 million Economic Governance Reform Operation program. The grant, which was approved on January 30, 2007, supports Haiti’s efforts to increase transparency and efficiency in the use of public resources and external assistance. Since January 2005, the World Bank has provided a total of US$278 million in grants for Haiti. In addition, approximately US$20 million have been granted from trust funds. The Heavily Indebted Poor Countries Initiative In 1996, the World Bank and IMPlaunched the Heavily Indebted Poor Countries (HIPC) Initiative to create a framework in which all creditors, including multilateral creditors, could provide debt relief to the world’s poorest and most heavily indebted countries, and thereby reduce the constraints on economic growth and poverty reduction imposed by the debt-servIce burdens In these countries. The Initiative was modified in 1999 to provide three key enhancements: • Deeper and Broader Relief. External debt thresholds were lowered from the original framework. As a result, more countries have become eligible for debt relIef and some countries have become eligible for greater relief; • Faster Relief. A number of creditors began to provide interim debt relief immediately at the decision poInt. Also, the new framework permitted countries to reach the completion point faster; and • Stronger Link between Debt Relief and Poverty Reduction. Freed resources were to be used to support poverty reduction strategies developed by national governments through a broad consultative process. To date, 35 HIPCcountries have reached their decision points, of which 26 (including Haiti) have reached the completion poInt.

hnn://www.hnforu/external/nv/sec/vr12009/pr09243.htni 11/1/2010 Press lii4+n.Ilnnzniiv

Release:

hnfnnIevn1Inn/qn’J&2flfl9/mO9243.hbn

IMP

and

World

The The At

The indebted leaders to Goals. reduce Afr!can Association, resource institutions

than relief Bank MDRI does commercial HIPC future In below MDRI

servIce

IMP Public Phope: Fax:

l’et

the

the It

aim

MDRI

Muidiateral

E)CERNAL operationally.

the

Approve AftNbs not

completion

on

present

is

debt 202423-73CC 2024234278 July

use

US$380

debt

further

Development

pledged

forgiven

not of

eligible•debts

to

countries,

above-mentioned

Involve

is

terms

of

this

2005

relief —

help

service

creditors,

comprehensive

the

separate

IMP

RELATIONS

US$12

value

the

the

in

Multilateral

to

International

them

over

G8 Pen: Media Fix:

to

participation

refer

point

order

resources.

Debt

World

debt

cancel

Under

most obligations non-HIPCs

of

Summit Reladons

Billion

Fund

a from 202-623-7100 2J2623-67fl

or

to

reach to

debt

DEPARTMENT

to

Unlike

period

of Relief

Bank’s

of

the

of

countries

the

the

ensure

HIPC5 —

three. the Debt

multilateral

Debt

which is

In

the

in

actual

MDRI,

debt

provIde

the Monetary

of

the

its

of

Initiative

whose

(Interest Gleneagles, HIPC

International

Relief

Relief Millennium official

and

time.

creditor

uniformity The

discounted

are

HIPC

of

having

dollar

three

Initiative

the

provide

income

100

located

IMP

for

Intiative

institutions

bIlateral Initiative,

Fund,

and

world’s

Haiti

coverage.

value

multilateral

percent

reached also

Scotland,

Development

of

principal).

sum

Development additional

per

in

and

but

treatment

provided

of

was

Africa.

or

most

capita

the

linked of

debt

the

debt

the

other

It

to

all

G8

Page

is

I

1/1t2010

4

of

4

N4 Press Release:IMP OpeningResidentRepresentativeOfficesin the Caribbean Page 1 of 2 IL15

ikhsh4sIiiLeniational ‘.S’Monetary Fund IMF Opening Resident Representative Offices in the Caribbean Press Release No. 10/174 April30, 2010 The International Monetary Fund (IMF) is opening two new ies!dent representative offices, in Jamaica and in Antigua and Barbuda, the latter to cover IMF member countries in tre Eastern Caribbean Currency Union. The establishment of these offices willfurther deepen the IMP’sdialogue with the country’s authorities and other Important regional stakeholders, Including trade unions, the private sector, academics, and non-governmental organizations. The IMP already has a Resident Representative office In Haiti.

Mr. Gene Leon has been named to serve as the IMP’s Senior ResIdent Representative In Jamaica, while Mr. Wendell Samuel will head the newly-created Regicnai Representative Office for the Eastern Caribbean, based In AntIgua and Barbuda.

A presence In the Caribbean will help the IMPto better understand local circumstances and constraints and foster the already close and productive dialogue with policymakers In the region. The resident representatives will serve as an on-the-ground resource on technical and policy matters that the authorities can tap as they implement their economic programs,” said Mr. Nicolas Eyzagulrre, Director of the IMP’sWestern Hemisphere Department. ai am confident that their presence will help the IMPto develop closer ties to the people In the region and help both sides to Improve their understandIng of each other,” Mr. Eyzagulrre added. Both new resident representatives have extensive experience in the Caribbean. Mr. Leon, a national of St. Lucia, has been In the IMPfor more than 13 years, most recently in the Middle East and Central Asia Department Key assIgnments have Included developing the first Fund program for Iraq and leading teams working on the countries of the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UnIted Arab Emirates). Mr. Leon was the head of research at Central Bank of Barbados, as well as an associate professor at the State University of New York. He hoids a PhD In economics from the University of Southampton, United Kingdom.

httnIIwww.imf.nru/extarnaI/n&secfnr/2O1O/Dr10174.lm 11/1/2010 Press

htto://www.imf.org/external/np/sec/pr/20

Re’ease:

IMF

Opening

Resident

joining has Mr.

both Central York of

)epartmert

ectrer

IMF

Pbhc

Fox:

‘[ore:

the

Samuel,

been

EXTERNAL

the

Af University.

202-623-6276

West Representative

(‘2-623-73C0

the

Bank’s

n

Dominica

working

toe

IMF,

10/pr

Indies,

since a

RELATIONS

national

Department

Research

101

he

eda Phone: 6ex:

in

2001,

and

74.htm

was

He

Offices the R&ations

202-627-7100 202-623-6772

of holds

Antgua DEPARTMENT

the

IME’s

where—among

Department

St.

or

in

head

a

Vincent

the

Economics

Western

PhD

&

Caribbean

of

Barbuda

in

the

and

in

economics

Hemisphere

St. Eastern

others—he

at

the

teams.

Kitts,

the

Grenadnes,

Umvarsity

Caribbean

from

and

Prior

led

a

New

to

Page

11

2

/

1/2010

of

2 IMF AND BARBADOS Barbados -- U.S. Commercial Service Caribbean Pagelof2

BUYUSA.GOV -- U.S. Commercial Service Caribbean

BARBADOS

Overview

• Market Overview • Economic Indicators • Market Opportunity

Market Overview

Barbados, the easternmost Caribbean island, is an Englishspeaking country, 21 miles long by 14 miles wide, with approximately 275,000 inhabitants and a labor force of 142,000. Stable Democratic Government: Barbados enjoys a longstanding democratic

tradition and a strong commitment to the rule of law and political and economic freedom.

Solid Economic Performance: The Barbadian economy grew by approximately 3.5 percent in 2006. At the end of September 2006, the 12-month moving average rate of inflation was estimated at 7.6 percent, compared to 5.1 percent at the end of September 2005. The unemployment rate dropped to the lowest level ever, or 7.6 percent, in the last quarter of 2006. Net International Reserves stood at USD $1.1 billion. Tourism rose by an estimated 2.5 percent, reversing a 2.2 percent decline in 2005. The overall growth in visitor arrivals was because of greater air travel capacity, which offset the fall-off in cruise passengers during the same year. The non-traded sectors continued to provide the main impetus for growth, led by the surge in the construction industry, which increased by 20 percent, mostly due to Cricket World Cup preparations. The Central Bank of Barbados anticipates a 4-4.5 percent growth in GDP for 2007. Strong U.S. Market Share: The United States has a trade surplus with Barbados, and 40 percent of Barbados’ imports come from the United States. High Level of Development: Barbados’ per capita income is the highest in the Eastern Caribbean region at USD $17,300, and the country ranks high in the United Nations Development Programs Human Development Index. Unemployment has been declining. Poverty, corruption, and crime remain low. Stable Monetary and Fiscal Policy: The main objective of Barbados’ monetary policy is to preserve the fixed exchange rate with the U.S. dollar, which has with a debt to GDP ratio of over 70 percent in 2006.

Economic Indicators Population: 280,000 (2006 estimate) GDP Per Capita income: 17,300 GDP: 2.976 billion httn :Ilwww.buvusa.gov/caribbeanlenlbarbados .html 9/29/2010 Barbados --U.S. Commercial Service Caribbean Page 2 of 2 49 Exports: 359 million (merchandise) 1.41 billion (commercial services) Exports to the U.S.: 33.9 million Imports: 1.6 billion (merchandise) 636 million (commercial services) Imports from the U.S.: 442.5 million Exchange Rate: BDS$2 = US$1

Market Opportunity

Cricket World Cup 2007: Barbados will host several games, including the final, in the International Cricket Council (ICC) Cricket World Cup 2007. This event will attract worldwide attention.

Telecom Liberalization: Barbados has recently liberalized its telecom market, with full competition in the cellular, domestic, customer premises equipment and international sectors. Liberalization has created new opportunities for U.S. telecom companies, and should continue to bring down the relatively high long distance rates to the benefit of all international businesses.

CARICOM Single Market: Barbados is a Caribbean Community (CARICOM) leader in implementing the CARICOMSingle Market and Economy (CSME) commitments. Once fully in place, the CSME will reduce or remove restrictions on the movement of goods, services, labor, and capital throughout the region. (See www.caricom.org for more information.)

Tax Incentives: International businesses enjoy substantial tax incentives, including a maximum tax rate of 2.5 percent, and lengthy tax holidays for exporters.

Best Prospects: Barbados imports 70 percent if its food, over a third of which comes from the United States. Trade opportunities will remain for U.S. Exporters of hotel and restaurant supplies, construction materials and specialty agriculture and consumer products. If you are a Barbadian company wishing to import from the U.S., click .1here Links

1. http://www.buyusa.gov/caribbean/en/61.html

Last updated 2008-04-29 © 2001-2010 Allrights reserved

httn://www.buvusa. ov/caribbeanJenJbarbados.htm1 9/29/2010 Doing Business in the Caribbean Region-- U.S. Commercial Service Caribbean Page 1 of 2

BUYUSA.GOV -- U.S. Commercial Service ribbean Is’ands of Opportunity

• Five Compelling Reasons to Do Business in the Caribbean Region • Best Prospects in the Caribbean Region • Your Connection to the Caribbean Region • Country Specific Information

Five Compelling Reasons to Do Business in the Caribbean Region

1. Close Proximity: The Caribbean Region is a natural commercial partner of the United States, tied closely together by geography, history and culture. 2. 3rd Largest Market in Latin America for U.S. Exports: The Caribbean Region as a whole represents a market of about 235 million people who collectively imported over $18.5 billion of U.S. goods in 2007! As a result, the Region is the 3nd largest export market for U.S. manufactured goods in Latin America behind only Mexico and Brazil. 3. Cooperative Trade Relationship: The Caribbean Basin Initiative (CBI) launched in 1983 and renewed in 2000 through legislation enacted by Congress established1 trade programs to facilitate the economic development and export diversification of the Caribbean Basin economies. U.S. exports to the CBI countries have more than tripled since the CBI’s creation, from $6.5 billion in 1984 to over $25 billion in 2000. 4. Free Trade: On August 5, 2004 the United States and the Dominican Republic signed a Free Trade Agreement (CAFTA-DR) The agreement was implemented on March 1, 2007 ensuring that more than 80% of U.S. manufactured goods enter duty free to the DR. In addition to tariff reduction, CAFTA-DRalso2 provides unprecedented access to government procurement, liberalizes the services sectors, protects U.S. investments, and strengthens protections for U.S. patents, trademarks, and trade secrets. in the DR. 5. Regional Integration: The Caribbean Community (:. CARICOM is an organization of Caribbean nations and dependencies working to promote economic integration3), and cooperation among its members. The CARICOM Single Market and Economy (CSM) treaty signed on January 1, 2006 by 12 member countires, establishes deeper regional integration through harmonized tariffs and duty free trade. Currently, the CARICOM CSM member countries and the Dominican Republic are scheduled to sign an Economic Partnership Agreement (EPA) in July 2008 establishing free trade between the DR and the CSM member countries.

Best Prospects in the Caribbean Region

• Household Consumer Goods • Building products • Air Conditioning • Telecommunication Equipment & Services • Franchising • Computers and Peripherals • Automotive Parts and Services • Food Processing and Packaging Equip. • Cosmetics and Toiletries • Electrical Power Systems • Hotel & Restaurant Equipment & services • Drugs and Pharmaceuticals

“Your Connection to the Caribbean Region”

Whether your company is trying to enter or expand into the Caribbean Region, we can help you succeed!

httrr//www.buvusa. ov/caribbeanlen1is1ands of oooortunitv .html 11/1/2010 Doing Business in the Caribbean Region -- U.S. Commercial Service Caribbean Page 2 of 2

Our Caribbean Regional Office provides counseling on market entry/expansion, identification of potential business partners, matchmaking appointments, market research, due dilligence reports, promotional events and other customized services. Learn more about Our 4Services for U.S. companies, or Contact .5Us Country Specific Information

• Dominican Republic • Jamaica 6 • Trinidad7 & Tobago • Other Caribbean8 9Islands Links

1. http ://www .ustr. gov/Trade_Development/Preference_Programs/CBI/Section_Index. html

2. http ://www . buyusa gov/caribbean/en/cafta_dr. html 3. http://www.caricom.org/ 4. http://www.buyusa.gov/caribbean/en/services_for_usexporters.html

5. http ://www. buyusa . gov/ca ribbean/en/caribbeanstaff. html 6. http://www.buyusa.gov/caribbean/en/35.html 7. http://www.buyusa.gov/caribbean/en/36.html 8. http://www.buyusa.gov/caribbean/en/37.html 9. http://www.buyusa.gov/caribbean/en/other_caribbean_contacts.html

© 2001-2010 All rights reserved

hti, //xrx,u, hii,ii anv/cnrihhpn/n/is1ands of orrnortunitv.html 11/1/2010 ______

Public Information Notice: IMF Concludes 2004 Article IV Consultation with Barbados Page 1 of 5

i:ic Ste Man Site t cc’. International . Nloneiarv L’und Public lnlorinauon ;‘ Jiol Moae.n lund pcl1jc 1nthnai:ion Notice No 04o Notices ‘Pi 700 19th Sueci. . Ma 14. ‘- \Vashbvtton.D.C. 20331 USA Barbadosandthe I\4I: IMF Concludes 2004 Article IV Consultation with itcaiicn Barbados

:teceive emajis On May 5, 004. the Executive Board oi the International loauicr\ when we cost new . . . en of nterest rand (tM.f) conoluced the Article i\’ ernsalLaL:oo wiLt r aces.— you cr Background eyyo’.r aOtte TI-c maji sl.avs of the economy arc tourism and financial services. the pol:uIciion is about 275.000. per capita incorne is about and the a employment rate is sliubi iv less than Ii maccm. The [unted Nations Development i>roarams Human De clOfirnout Iflcx

ranked Barbados 27th amona 175 countries in 2003.

Barbados economy did well in the I990s, supported ny r;rudenr p01 ices and a fhvorable external erni:ronrnenl, During .1993—2000.per capa real CUP growth averaged 2.5 ercent per year. annual inflation was 2 percent or less, and unemployment ateelmed shaptis. The structure of the economy shifted from aericulture to tourism end financial services. fhisperibrrnaucc was achiexed in the aontext of small tiscal deficits (less than 2 pelcera of’GDP). a coiisec monetary policy wInch resulted tn a sttbstaattat c;rcuuan ol external reserves). and a raflge of niarket—orieniedrelbrms.

1he economy shifted. into a reeesston in 2001 . reflection the ciobal slowdown., and the impact of the September 11 events on the tourism sector, Real GOP dropped by a cumulative 4 percent in 2001—02.To mjijate the recession. the government launched a national emergency program of public investment proeets aimed at promoting econoniIc activIty and ung.radirg the tourjsm and economic infrastructure. 1iwse and other measures contributed to an increase in the eciurni - go en ineut de c I trout 2 3 ncree ot CUP in Y 20(10UI ( n March) to 9.5 percent of GOP in bY 2002/03, including extra- budgetary spending of about 4 percent of (tDP, As a result, the central government debe-to-GDP ratio rose from 63 percent in March 200 [to 76 percent:in March 2003.

Oei’ the past year, the economy recovered partially from the 2001-02 recession. as real GDP grew by an estimated 2 percent in 2003. led by a recovery in the t:ourismsector. Inflation remained low at 1.5 percent, reflectimi the currency peg. The external current aecaurit

i-itr IJ’.y,rnrxr m f nvaIvtrn 1 InriIcc/nn/2 004/nn 0456 htm 8/31/2010 • PublicInformationNotice:IMP Concludes2004Article IV ConsultationwithBarbados Page2 of 5 S3 deficit widened in 2003. as merchandiseexports declinedand imports recoveredfromtheirlow recessionlevels. The central 2ovemr’eiu deficit narrowd to 6.5 percentof GDP in FY 2O03O4.including extra-budgetaryspendingof ck,sc to 4 ptrcent of (Jl)P. T;L\reentz increasedby 1¼ percentoIGDP. on accouct of higaer -:e:pts fren the alue-acfded tax. a1’d c.:al cxpct.dituredciiced bya similar Srnt.nL More than half of the goenmcri de1eit was linancat throughpr”tt&aton pcocecdsresiliig in a rarginal dceire in the governmentdebt ratio. to 75 ccent. Notwithstanding Seit of the eurrnt tccount dcficft.the net internationalrcs:n :s stood at l:8S751 million(six monthsof importsof goods and sen ices) at the end of the year.

Broudmoneygrowthdelekratcclin 2003, althoughit wasstiUfaste” than GDP grovu.h,anc banksbecainc ne:eadrg llçiid. Inan effort to unwindthe excessivebuildupof liquk i.y. the cent’a! bankreduced the governmentsecuritiesratioto 16ptrcer4in November2002: in December2002, the centralbank reduceJthe minimumadministered interest rate on dine and savings deposits,from 3 pcrcent to 2.5 ercr.t, and discontinxicdsettingmaximumindicutie lending ‘aws for banks on Felectedloans.V!iiJe the banking system ’insrem. sound,the ratio loansto toirL4 loans has generally of nonpertbrmng increasedto about 9 pcrccnt,:nd profiwb!htybdicasc’rshave weakenedsome’ hat.

Overthe past year, importcntprogresswas made in the areaof structuralretbrnis,as stepsweretakento echance the budgetprocess. strengthenthe nztionai pensionsystem.promote ‘rat -‘ar3neyin the public sector, improvefinancialintermediation,and enlici’e the supplyresponsivene’sof the economy.

Executive Board Assessment

ExecutiveDirectorsobserved that Barbados’economy Ss startedto recoverfromthe 2001-02 recession.led by die s’zongpuformance of the tourism sectorand supportedbythe ceuntereyelica fiscalstance adoptcdin the downturn. However,this fiscalstancegaverise to a substantialincreasein the goernnicnt debt ihieh must now be nncrsed. Directorswereencouragedby the improvementin the public financesin fiscaler 2003 04and stressedthat. oer the mediumterm, debt sustainabilitywould criticallydependon the go annienCs success in fiirthcrreducingits deficit and deepening reformsto boostgrowth.They welcomedthc strengtSein of the internationalresene positionover the last threeyears. :.bich retlccts Barbados’continuedaccess to foreign financingand strong private capital inflows.

Directorsstated that. notvdthstandingthe improvementin fiscalyear 2003/04.the current level of the government’sdeficit implied continuedhigh governmentdebt ratios and has contributedto large. albeit declining,externalcurrentaccountdelicits. They cautionedthat

htt,. linnun, irnfnrnlavtern.lInnIqpeInnflAA4Innfl4i6 htni 8/31P2010 PublicInformationNotice: IMP Concludes2004 ArticleIV ConsultationwithBarbados Page3 of 5 sLt. these factorscould pose a riskto the fixedexchange ntc ancl’or.the central pillar of Rarbados’policy framework.cipechJ:y in ie event of a turnaroundin privatecapitalflows.A numberof l)irectors thereforerecon’mendedthat the fiscaldeficit be reducedto ensure adequate reservecoveranda dccliningdebt ratio, and thatgradual fiscal tighteningbe combinedwith vth-en;ancitj stricwral flflOl’flI$. Inthis regani. Directoisalsoatweccoimportanceto anchori’igthepace of fiscaladjustmenton lhrbadcs’ !cr.gxnanding &ameworkof socialconsersui. At thesamethm, otherl)!cect.’s. noting the size of the fiscal imbalancetu:dU’eSig: deti !vel. trgec tie authcrities to builddontesic consensu, for a mc’rerapd iiscal adiusmen.

Directorsagrc:d ‘withthe governnen.’s focus on expenditureconirol and siekomed the commitmentto wugerct4raintand the .cdprqj2c reductionin extra-budgetaryspending. mainly transfersto1public enterprises.whkh remains high and has diminishedthe transparency of fiscal operationsin recentyears. But they dlso saw a needto iatensit’ the revenueeffort, bothto facilitatedeficit reductionand to protect socialspending.Directorsencouragedthe aurhoritiesro consider, in particular.measuresto reducee\elnptiotsbfrtn the V41’. as well as iccreascsin the rar.csof the VAT and excises.‘l’hey commendedthe authoritie&proposalsto hanmnfre the domes!c and offshoretax regimes and supportcdthe proposedreductionof hwc,e tax rates. Dfrccors recommendedthat pthatization pmcxcs. which havebeenused to financeextra-budeLar>spending,shoL’ldin the flaure be allocatedmainlyto the rct!rementof gocr.i’z’c.’. dec.. ‘l1ie’ urgedtne authoritiesto reviewthe tailtThof mejor public enterprises. concurrently‘witha reductionin governmenttransfersto these entities.

Directorsencouragcdthe authoritiesto move to more nw,rke-hased mechanismsof monetarycontrol,to enhancecontrol of credit expansionandxduce distortionsin financiulintermedin:!oa Accordingly,theywelcomed the initialstcpsby the cetaralbankto prepare the technical nfrastructurefor open market operations,and recommendedphasingout, in due con. the adnth’!sircd raicbnu.ii interestrate on sa i:igsand time deposits. Regardingbroader financialsectorreforms.I)irectors welcomedthe actionstakento implementmost of the 2002Financial Sector AssessmentProgram recommendations,includingimprovementin the supenisory and regulatoryframeworksfor the bankingand insurancesectors. They encouragedrapid implementationof the remaining recommendations,includingincreasingthe independenceof the central bank,and the strengtheningofeliorts ‘sith regard to Ant:_ Money1aundering/Combatingthe Financingof Temrlsrn stes. Directorssupportedthe authorities’sequencedappreachto capital account liberalization,in line with the ongoing strengtbeningofthe financial sectorand the developmentof indirectinstrumentsof monetarycontrol.

httn’llvsww frnfnrulevternsil/nr.IserJrant2004/nn0456.hfrn 8/31t2010 Public Information Notice: IMF Concludes 2004 Article IV Consultation with Barbados Page 4 of 5

Directors shared the :i’ ethics iew on.the conilnued anproprinieness of tbc Pxed cxc ace rate tnc:imc for da:hado atthough it as also suggested that tac authori es keep the rivat regime under re\ ic. ‘i’hcynoted that the lo:xg ad ig rep. to he LS. col te a supitorteu by prudent dscal and monetary pole h. has acted as a strong anchor of price stability and i xsa.: ecczdt:ee. Directors emphasizcu. hovc ur. that the [ot2g-terr V1t fIfty of e regime requited that the public dent d) nnm;.cs be tearcerl tO :1 sustainable position. ender rohast economic policies end relbrnis to boost growth and cemetitiveness.

I)ireators noted that the decline of aadcul.ture tuid a c. ha it recent vents lughlights the aced tO inoad.en the pro,ucn- e ixise. In this rtuwrd. they welcomed the hoti ties’ recent stalciurni retlria achics ements 1\vhicl.’include the roforta of the N tiotef Iaserance Scheme: establishment ola regulator Fa’arevotrk.fbr private v’rsiall schemes: corno tuzatton of the Port. Aethori ty; r.thr :he. of rh:’ i3arb’tjos l\htional IDak: and the move toward cater ant 1 ha- in the telecommunications sect-ar. Lookirat ahead, Dh Cta

the aathot ities’ fbeus on refbrrns relati nit to the 121’cci. tax mti cv. O\ enme1:t petistoits. and enhancing the supply rcspraoi\ enn- otlhe econoin\. Dtrectors coran-eaded the atuctauttes br thete continued comm tinent to further trade tt[teralizauon in the coat ‘at of the CARJCO\l, the WiQ, and the envisaged FTA:\, and recent

1atttai:vcs to enhance labor market flrnathtllt\

Directors noted that, while the statistical informahan provided by l3arbados is hroad1 adequate ftr surveiIlancL PurPoses. there mmatins scope for substctriial improvement, particularly w ith retinal 10 the operaltons of the puN ic enterprises and the capital account of the balance of payments.

Barbados: Selected Economic Indicators

1999 200() 200.1 2002 2003

(Annual percentage changeNI Output and prices Real GDP 2.4 —3.4 -0.4 2.1 Consumer prices (12-month increase) 1.6 2.4 2.8 0.2 1.5 tourist arrivals 0.4 5.8 -6.9 -1.8 6.7

Unemployment (percent ol labor force) 10.4 9.4 9.9 10.3 10.7

Money and credit 1/ Net domestic assets 7.8 -4.2 -8.6 5.7 -2.7 Public sector credit (net) —0.4 —4.3 —8.1 12.2 3.6 Private sector credit 11.6 2.1 -0.3 2.4 0.6

T-itti-v/Iwww imf -raIpvtprnl/rn,/cpr/nnflflfl4Irn,fl4S6 htm SR 1/201 0 Public Information Notice: IMF Concludes 2004 Article IV Consultation with Barbados Page 5 of 5

Broad monev I L6 70 5.6 10,4 6.5

In rrce1t of GDP) Public secEor operations 2/ Nonnranc:ai public sector belnace -1.2 -3.1 -5.2 -10.4 -7.5 Central uOvCt’fllnent -1.3 -2.3 -4A) -9.5 -6.5 Surplus oii\atiostal !nsurance Scheme 1.0 1.2 1.6 1.5 1.5

Public enterprises 0.0 —0.8 —0.4 —oA) —1.0

xternoi sector EXternalcUTOnt account batance -6.0 -5.6 -3.6 -6.6 -7.8 Public external debt 3/ 18.5 22.5 28.8 27.0 26.] Net international reserves (it millions of 306 184 707 683 751 U.S. dollars)

Sources: Barbadian.authorities: and IMF staff estimates. 1/ Changes in percent of begmmng—of—periodbroad money. 2/ Fiscal years (April-March). 3/ Rcfers to central government and gocrnment guarmuced debt.

1 Under A:::ole IV of the iMFs Articles of Aereement, the IMF holds hi atea discussions ith members. usually every year. A s:aft’team visits the country. collects economic and hi:anir intormetior:. arn cl;scses with offlcials the coun:ry’s economic deveiopmeus and policies. On return to bead ur:rers. the stall prepares a report, which fbrms the basis for d:seuss:on b\’ the Lxcat:’ e Board. At the cord sma of sac I c,s:on th Manam D:rctor ( ju o thc.Be d p .s s. of . I C and this summary is transmitted to the counirvs nushonties.

IMEEXTERNAI_ RELATlOb.S DEPARTMENT

Public Affhirs: 202-623—7300— Fa\: 202-623-6278 Media Relations: 202-623-71.00 - Fax: 202-623-6772

I,++,.s. I/mrnrXT ;mc nrct/cvtvnl I 4Innfl,/QpIn,I’)flfl Mm 8/31/2010 LESSON 2- WHAT IS THE TNTERNATTONAL MONETARY FUND AND WHAT DOES IT DO?

ACTIVITY 2.1A CASE STUDY: BARBADOS AND THE INTERNATIONAL MONETARY FUND (IMF)

The Country: Barbados is a Caribbean island country located in the North Atlantic Ocean. It was uninhabited when the British settled it in 1627. Slaves worked on colonial sugar plantations until slaver was abolished in 1834. Barbados became independent from Britain in 1966 and has been politically stable since then, Historically, the econom was dependent on the production of sugar cane, but during the 1990s tourism and light manut’acturing became more important. Barbados also provides financial services for foreign businesses, which helps to bring in foreign curren cv.

The Problem; The balance of payments (BOP) is a record of’all the money coming into a country from abroad and all the money going out of a country to other countries during a specific time period, usually one year. For example. money comes into Barbados when tourists spend money there and when other countries import sugar from Barbados. Money goes out when people in Barbados buy foreign goods or make investments in other countries.

In the early 1990s the BOP deficit increased sharply; more money was going out of Barbados than coming in. This was (lue in part to a drop in tourism and a large increase in the government budget deficit. There weren’t enough foreign currency reserves to pay for the imports and other assets that people in Barbados wanted to buy from abroad. Inflation was on the rise, economic growth was stagnant and unemployment was high. Barbados sought help from the TMF.

The IMF-supported Program: Barbados requested financial assistance from the TMF,which is normally granted if the government implements an economic reform program designed to eliminate the underlying problems over time. The TMF-supported pro gram in Barbados focused on improving the economy through sound fiscal and monetary policies and on helping to make the country’s businesses more competitive in the world. The government tightened fiscal policy by drasti cally cutting its spending and improving the efficiency of the tax system. Wages of government workers were cut, and sonic government workers were laid off and encouraged to find work in the private sector. (This action was later ruled illegal, and the government had to restore wages when the economy improved.) The central hank used monetary policy to raise interest rates; this action discouraged excessive spending and reduced inflation. In the private sector a wage program which kept labor costs down was implemented. This meant that Barbados could keel) down the prices of its exports and compete better with other countries. Its low prices also attracted tour ists. All of these measures were designed to curtail inflation and improve long-term economic growth. This would attract more foreign currency to Barbados by increasing exports, tourism and fbreign investment and would help to bring an end to the unsustainable BOP deficit.

A.lthough some of’these measures sound harsh and might be unpopular, there are seldom many options for cor recting a BOP deficit. One possible alternative wOUldhave been for Barbados to devalue its currency, resulting in lowe)’ prices for tourists in Barbados and those buying Barbados’ exports. however, the government was commit ted to maintaining the value of the Barbados dollar, which was pegged to the U.S. dollar. The Outcomes: Barbados and the IMF achieved the desired goals in a relatively short period of time. The BOP deficit turned into a surplus, and reserves of international currency increased in 1993-94 due to increased tourism t’roni Europe and a drop in government spending and the associated imports A program was initiated to revive the sugar indus try t.o increase exports. Although there were initial declines in GDP (with resulting increases in unemployment) due to the decrease in the size of the government sector, GDP growth picked up by 1994-95. Inflation fell to a very manageable rate of one percent. However, there is always a possilnlity that problems will arise again in the future because the Barbados economy relies heavily on toum-isni.which has its ups and downs.

NY. (3 NVi’IO\\I, (UUNC!l. ON feOXorvile NOUCATJON, \‘ORK. WHAT IS THE INTERNATIONAL MONETARY FUND AND WHAT DOES IT DO? - LESSON 2

ACTIVITY 2.1B CASE STUDY: ESTONIA AND THE INTERNATIONAL MONETARY FUND (IMF)

The Country: Estonia is an Eastern European country bordered by the Baltic Sea, Latvia and Russia. Estonia was forced into the Soviet Union in 1940 and remained under communist control until 1991 when the Soviet. Union broke up. Along with other former Soviet Republics, Estonia is a transition economy; it is in. the process of changing from a planned economic system to a market economic system. Estonia is considered one of the most economically free and successful former Soviet Republics, and was admitted to the European Uflion in 2004.

The Problem: The early years of transition were difficult in Estonia and the other former Soviet Republics. The economy expe rienced 900 percent inflation in 1.992, a year after the economy switched to a free market system. This means that on average what. cost 100 Estonian kroons iii 1991 cost 1000 kroons in 1992. Production fell 20 percent, resulting in declines in income. However, unemployment was not as high as expected due to em:igration to Western countries. Estonia’s problems were caused in part by the shocks associated with the break in the trade and financial links that had existed within the Soviet Union and the lag in establishing a functioning market economy. Although Estonians desperately wanted to have a free market economy. they lacked the skills, experi ence and institutions necessary for such an economy to function.

The IMF-supported Program: It has been a challenge for the IMF to help Est.onia and other former communist countries reorient their econo inies toward market systems and become integrated into the global economy. The IMF provides advice and assis tance to help liberalize and privatize the economies: to end price controls and replace government ownership with private ownership. The IMF also provides advice and assistance to help stabilize the economies by controlling inflation and unemployment and promoting economic growth. The IMF assists in restructuring the economies by guiding the process of establishing institutions such as banks that are necessary if the new markets are to func timi.

The first LMF-supported program for Estonia was approved in 1992. and was aimed at macroeconomic stabiliza tion and the establishment of institutions to ease the transition to a market economic system. The IMF provided loans, policy advice and technical assistance. Estenia established a currency board to control the money sup ply and stabilize ts new currency through a fixed link with the Deutschernark, the German currency at that time. Estonia also avoided having a government budget deficit for a number of years, and introduced a policy to restrain wage increases. ‘l’his policy kept down business costs and prices of goods for export, which encouraged other countries to import goods from Estonia.

‘Fhe second phase of the IMF-supported programs for Estonia took place from 1994 through 1998, and was directed toward increasing economic growth. After 1998 IMF assistance consisted only of advice and techmcal assistance; Estonia did not need to draw on the loan funds available. From 1999 through 2003, the goals were to continue to help the Estonian economy develop and quality for admission into the European Union.

The Outcomes: Estonia is viewed as having successfully made the transition from a planned to a market economy. while bringing inflation under control and promoting economic growth. Estonia’s rate of inflation fell to 35 percent in 1995 and as of 2004 was less than 3 percent. rI1.1esuccess in curtailing inflation is attributed to the successful operations of the currency board. Compared to other transition economies, real GDP recovered from its initial declines quickly, and as of 2004 was increasing at rates averaging 6 percent annually. Despite its successes, in 2004 the IMF was concerned about Estonia’s large current account deficit. This means that Estonia was spending more on imports than it earned by exporting goods.

ç NATIONAL couNcil. oz IiCONOiUC EDIJCA’IlON. \IW YORK. N.Y. 7 LESSON

ACTIVITY Korean by The tries North The recession. An including

these THE went 18 drew The

vided ment, CASE building included conduct quickly and The On practices that government under nomic ognized To venting believe The that The Korea S large times reform Asian December Republic to Asian Country: ProbJem: protected were IMF-supported that, Outcomes: bankrupt. money conglomerates’ assistance Korea. a the growth implemented correct peninsula. that because loan firms. crises. monetary government-guided up higher restoring

INTERNATIONAL were financial experienced Korea. The 2- failing loan the financial

STUDY: reserves in spending from that South of WHAT 4, financial picked some currency; Foreign them raised the Whether agreement Korea than iKorea, of under 1997, This were the Korean policy It the the crisis future Korea of

2.1C crisis strong from became of management North up IS country to crisis very under Program: the sought crisis. the confidence closed investment sometimes the international and the international THE this quickly, took to foreign stocks more presented underlying 1MF (along and rapid Emergency reforms aim

SOUTH Korea’s, exposed business won, conglomerates control a is The rather place help could INTERNATIONAL country actually always approved should for and and economic with competition. depreciated, reforms of © called and from was an in Nrra)\ borrow and investors and many than and a other currencies. inflation sectors problems standards. 1997-98. inflation rrai.van new be j)OSSib]e Financing their after allowed repaid the macroeconomic to is South. Korea’s supported done were I. underlying growth

KOREA assets. encourage equal situation called from (‘Ot’NCII.. IMF real World

MONETARY of in and was substantial to Singapore the Korea, It designed rate is in in the Responding as in financial to Financial request Mechanism, began chaebois, deal a The businesses its from ON there MONETARY kept War economy, needed. November difficult that by of’ economy; for I economy, freer weaknesses CONOMIC with is stock 5 the the II policies in the in was percent of to an for

AND and when situation, amounts check. r1hai1and some government. help trade Tn statements underlying 1970s TMF. East question. marlcet banks, a to a where EDUIAl restoring Hong part which loan 1997 significant Overall advice recommended it Korea and European by Asian Many FUND through Korea in was because to ION, in other earlier Kong) it eliminating plunged, investors and

FUND to allowed the support from had the recover separated were ohjechves N economic country stabilize GDP people, IW Financial AND did Korean rapidly financial risk form is YOSK. 1.997. been Union than there the open not growth, one Korea and lost economic by of WHAT from including 1MF, N of on prohibited. borrow subsidies scheduled. the South spread weaknesses economy; inflation. of the of’ from was to countries.

(IMF) the a supervision confidence the institutions the the to three-year the value audits the containing IMF. country little receive DOES communist-controlled southern Korea’s four IMF-supportecl Asian all to reforms. government those to winch As of other Many the by public ‘Asian domestic the with in IT a the financial fell internationally and funds stand-by G.DP inside and result, Korea half inflation countries, DO? won, The was of money into information the accounting Tigers.’ businesses the per of available pledged 1MF dominated the businesses goal to a its and the program chaehols crisis arrange severe capita keep very and 1MF. eco pro of with coun pre to icc on is VC( WHAT TS THE INTERNATIONAL MONETARY FUND AND WHAT DOES i.T DO? - LESSON 2

ACTIVITY 2.1D CASE STUDY: TURKEY AND THE INTERNATIONAL MONETARY FUND (IMF)

The Country; Turkey is located in both Europe and Asia at the northeast end of the Mediterranean Sea. Modern Turkey was founded in 1923 from parts of the former Ottoman Empire. There were several military coups in Turkey during the twentieth century, hut civilian governments were always able to regain political power Turkey’s economy is a mix of modern industry and traditional agriculture that accounts for 40 percent of Turkish employment. As of 2005, Turkey was striving to undertake the legal and economic reforms necessary to qualify for membership in the European Union. The Problem: High and volatile inflation has been Turkeys main economic problem. Since about 1980 i.t has averaged between .40and 100 percent per year with peaks of over 100 percent. An annual inflation rate of 100 percent means that the average level of prices doubles every year.) This high rate of inflation resulted from loose fiscal policy, including overly generous social security benefits and large agricultural subsidies. These payments led to very large government budget deficits. When a government, spends more than it takes in from tax revenues, it has budget deficits, which need to be financed. In Turkey this has been done through loans from foreigners and by the central bank printing money, which causes inflation. Tn the l.990s it became evident to economists, private businesses and the IMF that a reduction in inflation would greatly benefit the Turkish economy. Lower inflation would lead to increased confidence in the economy, more foreign investment and higher and more stable economic growth.

The IMF—supported Program: Since 1980 Turkey has had a series of IMF-supported programs designed to control inflation and strengthen the economy, An ambitious set of reforms with IMF loans and assistance had good initial results. But by 1989 the problems of increasing inflation and an increasing government deficit arose again. This failure was due in part to the Turkish government’s inability to control spending as prescribed in the IMF plan. Between 1994 and 2004, Turkey and the IMF tried a number of times to agree on a program to control inflation. rfhese programs were not successful initially because they were not implemented fully, hut since 2001 results have been more positive.

These more successful refbrms have included attempts to reduce government spending by reducing the size of the government workforce, privatizing businesses formerly owned by the government, restraining government workers’ pay increases and reforming the social security system. Efforts have also been underway to reform the tax system to close tax loopholes and improve the efficiency of tax collections. In these ways, the government has lowered its deficit by decreasing spending and increasing tax revenues, in addition, the central bank has been granted independence and given price stability as its primary objective and has been freed from the obligation of printing money to finance the budget deficit. Finally, the IMF granted substantial financial assistance to support Turkey’s balance of payments.

The TMF-supported programs to improve fiscal policy and lower inflation in Turkey have been criticized because they have taken a long time to take effect. Outside events such as political turmoil in 1997 have hindered the efforts, and at times the government has not been fully supportive of the proposed reforms. However, since 2001 the reforms have been more fully implemented and appear to be working. The Outcomes: Turkey’s GDP growth averaged a healthy 6-7 percent in 2002-04, and inflation decreased from 70 percent in 2000 to less than 10 percent in 2004. This success is attributed to Turkey’s following the strong macroeconomic stabili zatiomi policies supported by the IME Concerns over fiscal policy remain, however, because Turkey’s government debt is still high.

C NATIONAL COUNCIl. ON ECONOUIC EDuCA’rION, New ross, sr. 9 LESSON people.

the ACTIVITY Despite Uganda road every The reduce in Uganda and The

countries In 1970 THE ified There year owes Country

included ple not CASE In tor more As tion economic The care Uganda very AIDS. program. of including Statistics substantial The The the 10 the foreign 1996 1997 a country’s antipoverty directly need banks. money networks, outcomes Problem: Country: and for period IMF-supported maintenance. to result significant Outcomes: them jobs, year. country are rebel the However, 1985, this and is is Uganda the met (HJPC) privatizing to education.

INTERNATIONAL growth. in As the show countries widespread 2- a related higher amount by it When This of benefited pay

prior STUDY: reduction IMF the progress. landlocked forces 1997 of all human savid its WHAT HIPC, the a because of helping 2004, programs that back large the world, aid meant program. was leaders Uganda’s HIPC since to a incomes HIPC Uganda to and Uganda’s of from country and to commitments 1907. Th.e

2JE poverty businesses helped rights problems some one Uganda IS from its amount in Uganda health Program: Uganda. coming with of export government that program country program, banks Ugandan its were THE foreign the of the carried One Under sought and efforts prior the

UGANDA record foreign the has Uganda Uganda an had debt large problems risk was provided industries known TNTERNATJONAL faces to in of improved are more estimated Despite first that in a loans) debt because this power the been education out reduction that foreign the to Uganda c under and experiencing government debt East encouraging, debt NVIIO\Ai. corruption. many reduce countries to could goods had main for under so program help reduced they introduced due so gain the also Africa in these it under the (coffee human economy. it been debt, they 44 could challenges. committed 1986, not of goals and country demonstrated to ,‘ol poverty and would on the credibility meant

MONETARY HIPC percent the

AND limited gains, :Ncn. to use with run f have over health, also an it services Much strong is HIPC health. use and President rights of reign IMF qualify has IJVIF-supported Uganda’s enhanced Economic not this ON by program, this MONETARY that effectively created a within the more the Uganda Uganda of I•;coNouic to troubled has to access the to program. get countries education economic among money abuses, program its Many past for foreign pay money support for reduce government, that been money their Yoweri population the the a chief 1M1 1 interest HIPC to growth in 10 is is Poverty i;uccxaox, children implements other to history. it IMF-supported clean population. causing accomplished, still to 2000 viewed private money years This the and growth, economic followed is pay and assistance to export) FUND programs fight Museveni debt-relief to large spend a international can banis on it makes water, for

FUND other Action give poor or living It back.it improving drop N was as poverty. investors the the n’ help clean so. low AND was and debts good a growth on countries country an ross. Uganda’s poverty-reductmon agree death one debt doctors, that successful under lurthermnore, it out in has inflation Fund reducing reduce providing a program. and antipoverty water, easy program economic poverty. WHAT was British that N of Uganda of introduced as greatly were to communication of and donors, the (IMF) much the school as facing to important well cut over debt medicine it poverty poverty-reduction medicine, part ensure and first to Heavily owed model poverty DOES unlikely colony rIhe universal the and remains as was policies improved make a relief due problems that program. support increases of countries half part amount reforms, problem with to because its one for that programs. to and until IT for Indebted are fhreign and sure (meaning education million to budget of a t.he during to of DO? the and access Uganda lack want Uganda transportation. from the the now promoting with the 1962. be Uganda that a in IMF to of improved support it; transporta country principal countiies economy. done. of exports. of programs poverty receive providing poorest results to the to the Poor Because HIV/ to poor they money. HLPQ From its and moni to invest used health IM three- qual peo do l in a in

jtpt CASE. STUDY: BARBADOS AND JAMAICA Why GDP Matters: Compare Jamaica To Barbados : NPR Page 1 of 5

Why GDP Matters: Compare Jamaica To Barbados by ALEX BLUMBERG

M9?h 5. 2010 text se A A A

When it comes to economic indicators, none may be more abstract than GDP per capita. It is the measure of all goods and services a country produces, divided by its population. Take two countries that seem alike in almost every important way — from geography, climate, colonial history and government structure — but one has a much lower GDP. The differences between Jamaica and Barbados are striking.

;sr:s T\itioe1 f?ad,o1. ‘Oi ;;‘ roo; o’ 000co;n’:roo; ue ooly Soo is of Use —eothot J es poor

STEVE INSKEEP, host:

Now, let’s take a case history of sorts, comparing a country that ran up big debts and a country that did not. Each country is a Caribbean island - Jamaica and Barbados. Alex Blumberg, of our Planet Money team, visited both. He found the consequences in a change of GDP per capita - gross domestic product. That’s the total amount of goods and services produced in a country divided by the country’s population. That affected other measures, like reading, writing and arithmetic.

ALEX BLUMBERG: Iwent to two elementary schools - one in Jamaica and one in Barbados, both in working class, urban neighborhoods. Jamaica and Barbados are both former British colonies, both parliamentary democracies. But the Jamaican government made a bunch of decisions after independence that weighed it down with debt. As a consequence, its economy barely grew, and now its GDP per capita is a third of what it is in Barbados. And that difference has huge implications in a place like this.

Unidentified Children: (Foreign language spoken)

BLUMBERG: lm in a classroom in Allman Town Elementary School in Kingston, Jamaica, standing nex to a bunch of boys who high five every time they get a right answer on a multiple-choice health quiz. The principal, Kandi-Lee Crooks-Smith, is giving me a tour, and my first hint of how GDP affects the lives of kids.

A low GDP means governments dont have as much tax revenue, which means they can’t spend very much on their schools. In Ailman Town, Crooks-Smith has to find creative ways to pay for bare essentials - extra toilet paper, cleaning supplies, even the whiteboard at the front of this classroom.

Ms. KANDI-LEECROOKS-SMITH (Principal, Allman Town Elementary School): The whiteboard was actually provided by the teacher himself because the school cant afford to change the chalkboards.

BLUMBERG: GDP affects the lives of kids here in another way as well. In Jamaica, every sixth grader takes a test, and the test determines where you go to high school. Ifyou do well in the test, you go to a decent school, which prepares you for college and a professional job. But ifyou dont score near the top

htti ://www.npr.org/templates/story/story .php?storyld 124346527 8/31/2010 Why GDP Matters: Compare Jamaica To Barbados : NPR Page 2 of 5

on this test, you go to something called a non-traditional high school, where there are far fewer resources.

Ms. CROOKS-SMITH: The odds are more against them.

BLUMBERG:And what does that mean when the odds are - what does that mean? They graduate and...

Ms. CROOKS-SMITH: For most of them in the non-traditional high schools, you have a lot of behaviora

problems, and I think most of the students just basically give up.

BLUMBERG: Ifyou graduate from one of these schools, your options are limited to low-paying non- skilled work. You might drop out of the labor force entirely and find work in the informal economy -

drugs, gangs, simply selling stuff on the side of the road. Italked to the Jamaican Minister of Education, who told me the problem is that there simply arent enough high schools in Jamaica.

He figures he needs another 150 to meet the demand, which would take about a billion dollars U.S. to

build - a billion dollars that Jamaica, with its low GDP per capita, does not have. I asked Kandi-Lee Crooks-Smith, the principal, ifthe government did have the money to give her, what would she do with it?

Ms. CROOKS-SMITH: I have hired a reading teacher, not the American history either, but lm thinking if

I could get just one extra person every classroom to focus on the reading alone, I think we would achieve way more than what were doing right now.

BLUMBERG: Now, lets head to Barbados, specifically the Lawrence T. Gay Primary School in the largest city in Barbados, Bridgetown. The principal here, Beverly Paris, walks me around from classroom to classroom. Her school, like the school in Jamaica, has lots of bright colors, lots of shapes cut from construction paper on the walls. But the Barbados government, because of the higher GDP, has access to a lot more money, which means more resources and classrooms like the one Beverly Paris is showing me.

Ms. BEVERLY PARIS (Principal, Lawrence T. Gay Primary School): Television on the wail and so and so.

BLUMBERG: Television is like a little - its like a server closet.

Ms. PARIS: Yes. Multimedia projectors, video cameras here, the whole works.

BLUMBERG: And thats funded by the minister

Ms. PARIS: (Unintelligible).

BLUMBERG: So in terms of what you wish you had versus what you actually have, its not that big a difference, right?

Ms. PARIS: Not really. As I said, in our class (unintelligible) we should accomplish.

BLUMBERG: In Barbados, almost every sixth grader can read. In Jamaica, a quarter can’t. The kids arc just as bright, the teachers as hardworking. The only difference is one little statistic.

httw I/wixiuj nnr nr/tmn1ts/stnrv/storv.nhn?storvId 124346527 8/31/2010 Why GDP Matters: Compare Jamaica To Barbados : NPR Page 3 of 5

For NPR News, rn Alex Blumberg.

Co,;y’ifc . 2QQ ‘c [“.OIiC t’c’’.r’c All rQms rescn’sd. [Jo quotes .‘ 0 e . ‘c to..” cc•Ori;r:I Or ‘tTh .,‘ r’:uco

. any , ‘O’s without ‘, ‘O•:r. to N’tion,;!Pubic PJio. Ti’.,’ ‘i cript is cm’oecl for rotc:: ct en ‘cx’o or on oriy. ‘“ s to c’.’ or”w <:1i].’ !‘.‘;‘ r:’’u.’;e p’tior . : ‘ “ 5”! ate’ o.’sout ‘...‘.. ‘or .:‘. or ‘c’

aie c’ ‘oe or a ‘u.0 ctnc”o.’ue by a co:t:rsctoi :‘:r “ S’ Oru rc’cc.’’.c7 Eutd . ‘‘i j7’.’”:’...u2r 0”o may “ct he in i’s frr’t form .t mu, he .‘pcfaieaor rev..rodin the future. Poor’? to aware thOi the . :.n’:.’0. .‘ ruccrc of ;,:.‘.‘.;i: I... .bn’au .rc.

comments for this story e now or,,.: roe the Community iAQ for more nforrrtin

Recent First Sean Leber-Fennessy (stratowhammy) wrote: QUOTE: “A low GDP means governments dont have as much tax revenue, which means they can’t spend very much on their schools. In Ailman Town, Crooks-Smith has to find creative ways to pay for bare essentials ... even the whiteboard at the front of this classroom’

I teach in the United States, which has the highest GDP in the world, and one of the largest per-capita GDPs in the world. In my classroom paper is rationed, photocopier toner is rationed

and students are not allowed to bring the textbooks home. The room I teach in has not been

updated since 1930 when the building was built, with the exception of the whiteboard that I had to install myself using shower board. This story is not atypical for inner city schools in the United States. Yes, there is toilet paper and paper towels, but where it counts students and teachers do not get what they need. My classroom probably looks more like the classroom described from Jamaica then the classroom described from Barbados. Looking at a countries

GDP is overly simplistic, although I do applaud an economic analysis of the conditions on the ground made simple for a general audience. However, unlike the very sophisticated reporting

I am accustomed to on NPR, this story fell flat. Tuesday, March 09, 2’0 11 4,u8AM Recommend (5) Report abuse

Dean Irwin (Sounbwoy) wrote: How can you justify the generalizations that are so abundant in the story? There are other

schools in Jamaica that are doing VERY well, Oh wait, I guess classrooms have to have TV’s in order for them to learn. How about going back and spending more time talking to other schools in both countries?

I’mupset because you have made what I consider to be gross assumptions and over simplifications, not because I’mJamaican. Suecay M’c 07.20109:49:53AM Recommend (4) Report abuse

Danielle Evans (DaniJane) wrote: This story is but a snipett of a 24 minute Planet Money podcast filled with facts and figures from both primary and secondary sources that are disclosed. You may look them up for

htto ://www.nor.or/temo1ates/story/story .php?storyld= 124346527 8/31/2010 A,nericcin

http:I/n’ww.ae

copyright

judiciary; mance have [ion human productive

is secure

hundreds causation supporting 1955; higher colonizers

determined Simon Since whose ful

level

[email protected]);

Stanford versity, financial [email protected]). and Faculty Policy Development, Mays gratelully Bendor, Brown. Chad seminar members very

Economic A

©

Recent

balanced

Discussant:

5Henr:

way

1998,

between

National helpful long

laws

of

Jones.

Douglass

Undergraduate

property to Research.

Cecilia Stanford,

Johnson,

and Fellowship,

a (Adam

levels

colonizers Sir

participants

income, 1999,2000, support

he

of

acknowledges

University,

org/a

line

of

country’s

research Review: Graduate that

by

comments contracts

Courtney economic the

private

John

established

said physical

Institutions centuries

and and

years

l3ureaa

Conrad,

institutions

William rticles.php?doi---10.1257/der.99.2

Caribbean

observing of

of

from

CA

provide

Smith

rights, C.

the

2001,

Rapley. the

to

the

and

Popers

work

the income restricted

at

94305—5015, economic

School North

he ago

did

the

Siaofnrd Blackman,

and

Fellowship.

nature moves William

of

Freeman Miller: Brookings, Stanford, 2002,

capital;

financial

Stanford

A. James Henry

colonial

are

activity.

ago—can

caused John

facilitating

By 1776;

emphasizes discussions. Tracy Economic

Policy &

Dark)’, have, incentives

FROM

not

strong

2003,

Proceedings of and

that

1990). MACROECONOMIC

today

enforced

Department PETER

of

A.

A.

gratefully from Center

Business,

by

A.

support

Spogli (Daron

2004,2005,

government Robinson,

transactions. Institute

Rcnce W.

Research versus

countries’ Darity and

on Jr..

MIT, CA economic Brookings by

Investors

We

countries

Robinson

origin—literally

art

property

in

Duke Rich

Research than

average, Arthur Cynthia

its AFRICA

correlation

investment

for BLAIR

94305 to and

Institute.

thank from Bowen,

Jr.,

no

independent

the

2009,

present-day

of

Stanford effectively, for

acknowledges Acernoglu,

2006,

Institute,

engage

University.

International

Kevin

Paul

countries

Stanford meaning

countries

Economics,

Institution,

Ihe

correla

colonial Economic

Fry

rely

perfor Policies:

99:2,

.261 Jonathan

2007,2008,

Lewis

whose power

2001).

HENRY (e-mail; (e-mail:

Eleanor

rights

much

Romer,

Mellon

Miller

Davis,

Gunn

Uni

AND

on

and

in 261-267

in

to

for

261

2009,

AND

origins outcomes.

countries also impact comes. gins and

regulation (Rafael and countries and less comes also THE than the instance,

tural broke resorted els healthy arrangements The years more relied economies piece tutions after nomic that exert of take framework

2010

A

NARRATIVES

Case

While

CONRAD

their

of

are

Andrei

lower

colonial

have

provide

exert corruption,

by Tale

divergence

place.

governments makeup, the World

than of DIASPORAt into

later

just income,

enables the on of

Countries

over

less

play outcomes,

studies

La

dose

evidence

to economies

following

American

inherited property

a

unemployment. Differences centuries-long

have pl’operty’ institutions

than two

a

as

ten Shleifer

central prone

Porta, following South

long-run within

As

the of periods causal

War

of investors

MILLER*

and

much

researchers

but separate

of

times

almost

seem

countries state

a

greater

Economic

Two dominant

of

smaller with

II matter

to

in

Korea’s

the Florencio legal

starkly rights

the

planning

which the

fromn

influence 2008).

the

choose- rights

ostensibly

government

as influence

intervention).

favor

of

to

as

impact

the English

in

undoubtedly

Armistice

Association. with

identical

macroeconomic

economy.

Islands nations

the

East

suggest

time

large linancial

origins

of

the

on their

with

span those

informal partition

to role. different

of

In

and

income

broader

arithmetic,

stronger

long—run to

estimate

while legal

and the on turn,

Lopez-de-Silanes.

somewhat

on

as

common

colonial

on civil

provides

with

markets

implement

emphasized policy that

ethnic

economic

ownership

view North

economic

literature.

of

West

development,

tradition the North

More

common

per

South

of

institutional

1953,

law

institutional economics,

similar institutions

affect

protection

the

economic

that

Lrajectory Germany

decisions

capita

and

masters

law long-run German Korea’s.

policies

brigins

another than

(with shorter

causal

Korea

Korea Korea

insti

out

that

eco ori

and out

may law cul

lev

For

by

50

is

a

diverged

strates,

their

in economic,

tion Jamaica

sugar.

nantly

Parliamentary colonies,

who

the

institutional

stretch

Korea

whose

a

and

the a

strates

1. income

influenced

rate

and

262

English very

pair

Barbados

In

Standards

beginning

ones

of

growth.

policy

independence were

medium-run

contrast

As

inhabited

and

property

the

clilTerent

of

the

in

income

levels

in

in

small

inherited

former

spite

common

countries—Barhados

brought

standard

East

the

relevance

and

(to

the

hy

and arrangements - . -D (. 0 a CD

CD 0) x

0 CD of C) C MOURN C) CD

a CD

to

democracy,

of

roughly

name

are

existing

island

of

fiscal, and 0.2

0.4

Living 0.6

rights,

the legal

1.2

Jamaica kind

levels by

0

the

British

growth

no

to

the

from

examples

law.

of

the West

I.

almost

observation

a

the

of

of obvious

STANDARDS

living

economies,

institutions:

monetary,

in

few).

40-year

sum

and

diverge

descendants

literature

Yet,

policy

the

colonies,

Great

are

Barbados

Caribbean

Germany,

constitutional

rates

of

legal

of

point

in This

as

both

identical

of

their

differences

the

Britain.

a

Figure

period experiment

OF

North

that

over

AEA

systems and

series

period.

article

former on

LIviNG

and

Barbados

by

two

and

economies

Westminster

and

we

of

to

are

institutions

PAPERS

Jamaica—

examining

a

following

and

countries

1

predomi

p01

exchange

Africans

cultivate

Jamaica

examine

of demon

IN .N

40-year

protec

demon

heavily

British

rooted

in

South itical,

BARRAD0s

short-

from .fo

and

AND

the

at

Year PROCEEDINGS

AND

‘-i>

percentage

period percent

subject

omy

year economy

cally point

down

is

price

ing is

sample Jamaica,

(0.356 GDP Jamaica’s.

by 42-year

of not

economy

the

index through

dollars)

index

that

the One

JAMAICA

the Figure

%CJ

42)

that

index

j’

exactly

has

from

than shock

(laid

sharp

in

per

income

is

growth

of

index

divided

to

particularly

versus qo

per

sets

is

a

world

2002.

period

in

one

contracted so

real the

DI’ERGE

similar

performed

is

1972 capita

2.2 To I

out

it

points

year.

in

decline

in

Barbados

that

experienced

is

plots

zero did

c’

same

in

he

GDP

in

per

0.8

economic

in

after

1973

by

percent

0.917

By

to

1960

the

Jamaica cii’

and

in

exact,

more AFTER

structure

In

for

faster

42).

in

head

percent

1987.

construction,

the

external

in striking

Barbados. per

c

precipitated

1972.

oiher

average

at

for 1960.

—

Barbados reasonably

\°J

substantially

so Jamaica’s

INDEPENDENCE

and

a detail

natural

c 5

in per

by

than

capita

Barbados,

Barbados

growth, rate

ri’)

that

slowed

Barbados

a

Of

per c0

words, 2002,

Jamaica (see

BErbados

While

Jamaica

shocks,

year

growth

feature

it

growth

course,

of

later

c

the

did year

While

(measured

Table logarithm

ri)

over

2.3

the

a standard

c 1 ’

the

moie

but

(0.917

well

natural

general

for Barbados

in

and

in

whose

grew

grew

for

percent

value

better

of miracle,

rate

the natural

from

Jamaica. the

I)

the

the

a

Jamaica’s

0.356

dramati

Figure

over

and

Jamaica

15-year

WA

divided

first

central

of

by

paper)

by

of

econ

log

entire

in

of

slow

of

12009

1960

than

was

real

per

3.5

liv

has

1.2

log

the

the

oil

US

for

its

an

of 1 ((4

VOL. 99 NO. 2 INSTITUTIONS VERSUS POLICIES. A TALE OF TWO iSLANDS 263

TABLE l—B,\ISBAE,os AND JAMAICA HAVE SIMILAR ECONOMIES

Barbados Jamaica Exports as percent GDP 58.4 50.0 Trnports as percent GDP 68.6 60.7 Agriculture as percent GDP 3.7 5.7 Tndustry as percent GDP 18.0 33.1 Services as percent GDP 78.3 61.2 Population 300,000 2.700,000 Area (square miles) 166 4,244

Turning from growth rates to levels gives a 85 percent of the populations of Barbados and tangible sense of the impact of these growth-rate Jamaica. Slavery was abolished in the British differentials on long—runstandards of living. In West Indies in 1834. and following World War 1960real GDP per capita was $3,395 in Barbados I the region began a process of “constitutional and $2,208 in Jamaica. in 2002 Barbados’s decolonization” that led the islands down a grad GDP per capita was $8,434 while Jamaica’s ual, if difficult, path toward greater se1fgovern- was $3,165. The $1,187 income gap that existed ment (Trevor Muisroe 1972). Reporting on his between Barbados and Jamaica around the time visit to the region in 1922, Major H. F. L. Wood, of independence now stands at $5,269 dollars. Britain’s Under Secreta:ry of State for Colonies Put another way, the income gal) between the wrote: two countries now exceeds Jamaica’s level of GDP per capita. “The whole history of the African popula Since their initial conditions were similar at tion of the West Indies inevitably drives the time of independence, it stretches credulity them towards representational institu to argue that Barbados and Jamaica diverged tions fashioned after the British Model. because of differences in colonial origins, legal Transplanted by the slave trade or other origins, geography. or some other exogenous circumstances to foreign soil, losing in the feature of their economies. We argue below pmcess their social system, language and that the explanation for the divergence lies not traditions... Small wonder if they look for with differences in institutions but differences political growth to be the only course and pattern that they know, and aspire to share in macroeconomic policy. in what has been the particularly British gift of representational institutions” II. Institutions (Wood 1921).

Jamaica won its independence from Britain in 1962.Barbados in 1.966.At the lime they became Three subsequent empirical observations sovereign nations, both countries possessed the demonstrate the accuracy of Wood’s predic two institutional characteristics that the litera tion that the British West Indies (Barbados and ture identifies as critical to long-run prosperity: Jamaica in particular) were destined to establish strong constitutional protection of private prop institutions that mirrored the mother country. erty and English common law. A brief review of First, as sovereign nations, both Barbados the islands’ colonial histories verifies the state and Jamaica organized their governments as ment in the preceding sentence. parliamentary democracies in the Westminster- The English settled Barbados in 1627 and Whitehall tradition (Anthony Payne 1993). wrested Jamaica from the Spanish in 1655. Since independence, Barbados and Jamaica Both islands entered the modern era as planta have maintained two-party political systems tion economies that produced sugar and other and consistently held free and fair elections with agricultural commodities using slave labor (Eric no unconstitutional transfers of power. While Williams 1970). By the end of the eighteenth sporadic violence often accompanies elections century, African slaves comprised more than in Jamaica, neither Barbados nor Jamaica has (9C1

264 4EA PAPERS AND PROCEEDINGS MAY 2009 suffered a coup or civil war, and both countries For most of their histories, both countries shared have a free and vocal press. Four postjndcpen— the Judicial Committee of the Privy Council in dence elections in Jamaica iesultecl in the ruling England as their highest court of appeals. party peacefully turning over power to the Because Barbados and Jamaica possess simi opposition. Three such transitions occurred in lar economic institutions and legal systems, nei Barbados. ther the property-rights nor legal-origins theory Second, the constitutions of Barbados and of long-run income determination can explain Jamaica explicitly protect private property. The their postindependence divergence Although joint parliamentary committee that drafted the institutional structures of Barbados and Jamaica’s constitution was chaired by Norman Jamaica are very close, the same cannot be said Manley—a lawyer. Rhodes Scholar, and father of their approaches to macroeconomic policy. of the nation’s future prime minister. Discussing the constitution in front of Jamaica’s House of III. Macroeconomic Policies Parliament on 23 January 1962. Manley says: When Jamaica gained independence in 1962 “We have put into this constitution a clause the Jamaican Labor Party (JLP) held a parlia which provides that property may not be, mentary majority. For the next ten years the JLP in effect, arbitrarily acquired. Property remained in power and GDP per capita grew at a is protected in that it can only be taken rate of 5.4 percent per year, with the lion’s share under a law which has been passed. And of growth stemming from two principal sources: when so taken, it must be taken in accor strong US growth in the 1960s created a robust dance with the terms of that law. What the bauxite; and rising law provides for compensation, you must export market for Jamaican incomes in North America boosted growth in get. . .{J.Jtis of the highest importance for a country like Jamaica to let the world know Jamaica’s tourism industry. that., people can come here to invest... But all was not well. In classic Dutch Disease fuHy protected by the laws of the land...” fashion, growth in the bauxite sector drove up (Manley 1962, 306). the relative price of nontradeables, reducing the competitiveness of Jamaica’s agricultural Barbados. which attained full independence sector and precipitating an exodus of workers four years after Jamaica, adopted a constitu from the countryside to the cities (Carl Stone tion with an effectively identical coverage of and Stanislaw Wellisz 1993). Because of strong private property. Both constitutions assert that unions, wages in other sectors did not adjust property cannot he compulsorily acquired downward to absorb the excess labor released except under written law that describes a pro from agriculture (Caribbean Policy Research cedure for determining and providing compen Institute 20(5). Consequently, during its first sation and grants claimants the right of appeal decade of independence Jamaica experienced to a court (Chapter 3, Section 16. of Barbadian the odd combination of strong growth coupled Constitution: Chapter 3, Section 18,of Jamaican with an unemployment i-ate that rose from 13 Constitution). The constitutions also delineate percent in 1962 to 23.2 percent in 1972. similar sets of exceptions to this clause, such as Rising unemployment, income inequality, cases where property is acquired in satisfaction and the attendant societal tensions proved 100 of a tax, property is in a condition dangerous to much for the JLP at the ballot box. In 1972 the the health of others, or property is acquired to People’s National Party (PNP) rose to power pay debt of the insolvent. under the leadership of Prime Minister Michael Third, Barbados and Jamaica adopted legal Manley (son of Norman) and the promise of systems based on English common law (Rose- “democratic socialism: The two cornerstones of Marie Antoine 1999). Describing the essence of democratic socialism and the PNP’s economic this adoption to the Philadelphia Bar Association policies were “self-reliance” and “social jus in 1967,Manley says: “As to the law, we took over tice.” Self-reliance translated as extensive state the English common law holus holus. But what intervention in the economy. The PNP nation was more important we took over the structure alized companies, erected import barriers, and and machinery which England built up for the imposed strict exchange controls (R. DeLisle administration of justice” (Manley 1967, 340). Worrell 1987). Social justice meant income VOL.

redistribu housing may spending basic percent to with

percent

the down of year. investment was cided 1972 Manley to 1973 onset Barbados external observer not external in First in kept 1962 an inevitable kept higher ing percent Blackman the

45 Whatever

Because

The

the

1975, Jamaica.

outward-looking

blame deticit

99

an have voted

fiscal

the

percent have

state

government

By food to

to

Jamaica’s

of

with

NO.

from of

early

energy

accommodative

inflation

of

development

1980 of

rise

1972

1987), of

shocks all, events.

1980

but to

rose

worldwide

ion been

ownership 2

by

out items.

GDP had,

deficit

makes

the

had

2006,

GDP! the

GDP retrenchment Jamaica’s

embrace

merits

Growth Fiscal 26 inflation TAmE

in

1970s,

in

Barbados

Barbados’s Predictably,

borrowing

the

inflation

of

through inflation from

prices,

expenditure.

even

oil country’s

1978.

collapsed

percent more

that it

(see

While

averaee

power.

rate

average in

deficit, spending

in 2—EcoNosmic:

390).

The

was

the

it

rate

price

hitting

23

precipitated

1973.

a

Table

to Barbados that growth

Revenue

schemes,

stagflation,

difficult

policymakers

different

PNP’s

in

reversal

of

cursory

averaged

percent

a

was

job expensive. avoided PNP many percentage

Second,

in

stance

directly

GDP

minimum,

shock

policy

conclusion.

Barbados fiscal

fiscal (to

downward

needed

inflation by

a

2).

under 1972),

INSTITUTIONS

creatIon 27

From

economic

peak

strategy

per 14 tinanced Pot.tcv

have

1978

did

in

for comparison and percent

of of

did

of

from that

deficit deficit

percent

capita

nationalization, response

4.4

the of

from instead

contrast,

it control.

not

GDP

fortune and

1962 of

1973

Government

an GDP

subsidies to

done

climb

that AND

and

in also

rose. is

percent

delayed

spike

programs,

39

keep Jamaica’s.

(Courtney

spiral

Barbados the

adjust

was

program tempting obiective much per the

was

through PErmt’OtmMANCE

in

of adopted

and

number percent

so

VERSUS 1966—1972 of

spiked

While

to

From

Bank could

to

from coin

GDP year, pace 1972

PNP

with

15.5

(see

tak

6.0 6.0 2.3 2.7 per

the

the on

the

on 7.7

of

to

Barbados

1973

POLICIES:

extension, cit was

policy IN periods. ship net

came

deep per in US to from 1973—1980 things, with full ernment stimulate ers, ity recommendation. real their moderate increases workers tripartite parties ductivity the wage-cut demonstrations to maintained bargaining. BARBADos

In

Under

To

14,8 financing base

1991, redluest.

of

result 2.7

dollar 5.3

employment. capita down

unions,

way wages

than

recession

1975

demands

the

thei:r

1989 .4

under

be in

agreed

the TALE

future

and

began

Barbados

protocol

up

hoard

production Barbados International

the

of

proposal Barbados

their

at IV. AND sure, in Barbados

to Jamaica.

of currency,

contracted

to

financial

IMF

and

the

utmions

to

a

OF When the

threat

comes

about

2.9

productivity. JSMAI(’A Exchange

negotiations.

1993

1992.

parity 962—1972

to a in for

the price

TWO

to

broke parity

workers

set

difference the

4.2

4.4 2.3

percent.

recommended the the

Deeply

instead

on

future

provide

entered

9

Privy

was

of assented .larnaica

when

negotiations

antI also

Wage

from

iSLANDS

the pegged

Table

In

and wages

percent

increases, early creation

of Divr.sc;tt protocol

assistance.

negotiations

out

by

of

Monetary

challenged

the Rate

l3$2: Barhadians

Jamaica

ran

that

1973—1980 return pay

attached

of

Council

and the 5.1 ihc Barbados

Since

better

antI

1990s

—4.3

2 Firms and

formal 23.0

in 15.5

midst

devaluing,

a

to

its

and

Policies AfTER

culminated raises

US$1.

of

percent central

currency, tighter

the summarizes

macroeconomic

a

involved

currency prices

the Price

the

one-time

a devaluation much

agreed

data Among

began.

and

over government’s

with

Fund to national

of

promised

(Alvin

negotiations

economy in

government

in

resisted

The

suffered

monetary

the

real

the bank,

Protocol. in

on court,

line

per

the the

employ of

to

and

1993. (IIVIF) parity

to stabil public with

costly

which

crisis cut

other

GDP

defi

Wint

keep

year

gov with

two

pro

265

the

the

the

by

all all

to to

in

to

a

a

70 266 AEA PAPERS AN!) PROCEEDINGS MAY2009

2004, ch. 3). Nevertheless, the center held. in the global economy. On the contrary, we The fall in real wages helped restore exter think that important general lessons lie at the nal competitiveness and profitability, thereby heart of this Caribbean parable. Recent work achieving the same result as a devaluation but focuses on the very long-run effects of insti without the risk of triggering an inflationary tutions to the point of exclusion of almost all spiral. The economy recovered quickly. From other factors. But the macroeconomic deci 1993 to 2000 GDP per capita grew by 2.7 per sions of governments can exert just as much cent per year. influence on the trajectory of the economy Linlike Barbados, Jamaica devalued its cur as the. institutional framework within which rency several times between 1975 and 2002. those decisions take place. Countries have no From this fact, many observers draw the spe control over their geographic location, colo cious conclusion that the difference in exchange nial heritage, or legal origin, hut they do have rate policy accounts for Barbados’s superior agency over the policies that they implement. economic perfornianc&. But Barbados’s fixed Of particular importance for small open econ exchange rate did not cause its economy to omies (i.e., most countries in the world) is the outperform Jamaica’s. Rather, the proximate response of policy to macroeconomic shocks source of Barbados’ superior performance was such as a fall in the terms of trade. Pedestrian a set of growth-facilitating policies—monetary as it may seem, changes in policy, even those restraint, fiscal discipline, openness to trade. that do not have a permanent effect on growth and ultimately wage cuts to restore competi rates of GDP per capita, can have a significant tive unit labor costs—that had the side effect impact on a country’s standard of living within of enabling the monetary authority to maintain a single generation. the exchange-rate parity without losing external competitiveness. in contrast. Jamaica’s policies were never consistent with maintaining commt REFERENCES ment to any parity the government might have wanted to adopt. Acemoglu, Daron, Simon Johnson, and Tames The differences in exchange rate policy do, A. Robinson. 2001. “The Colonial Origins however, raise an important issue. Faced with a of Comparative Development: An Empirical scenario like that of Barbados in 1991. would Investigation.” American Econoinic Review, Jamaica he able to achieve the social consen 9l(5): 1369—1401. sus needed to adopt the measures required to Antoine, Rose-Marie. 1999. Commonwealth avoid a competitive devaluation? As stated in (.uribbea,i Law and Legal Systems. London: the previous paragraph. we think the Jamaican Cavendish Publishers. record speaks for itself. Answering the deeper Blackman, Courtney. 2006. The Practice of Eco question—why do some democratic societies nonzic Management. A Caribbean Perspec (of which Barbados is just one example) manage tive. Kingston: Ian Randle Publishers. to reach constructive policy compromises while Caribbean Policy Research Institute. 2005. Thking others (such as Jamaica) do not?—remains an Re.cponsibilits:The .!amnaicanEconomy Since important research challenge. Independence. http:llwww.takingresponsibil 2 ity.org/. V. Conclusion La Porta, Rafael. Florencio Lopez-de-Silanes, and Amlrei Shleifer. 2008. “The Economic Conse It may he tempting for readers to regard this quences of Legal Origins.” Journal of Ecu paper as a quaint tale of two exotic islands nommcLiterature, 46(2): 285—332. better known for their beaches, music, and Lewis, W.Arthur. 1955. The Theory of Econonuc Olympic sprinters than their significance Growth. 1-fomewood,Illinois: Unwyn Hyman. Manley, Michael. 1987. lip the Down Escalator: Del’elopmentandthelnternationalEcononm)cA Hon. Edward Seaga, “The Caribbean Single Market: ./amaican C’aseStud’.London: AndreDeutsch. Beneficial Path or Wayward Journey.” Jamaica Observer, Manley, Washington. February 10, 2006. Norman 1962. “The mdc See Donald Robothani (1998) for clues about answers penclenceConstitution.” In Norman Washington to this question for Barbados and Jamaica. Manle’ and the New Jamaica: Selected VOL. 99 NO. 2 INSTITUTIONS VERSUSPOLICIES: .4 TALE OF TWO ISLANDS 267

Speeches and Writings /938—68, ed. Rex Net the Western World, Encyclopedia Britianica. ileford, 1971.London: Longnian Caribbean. Stone, Carl, and Stanislaw Wellisz. 1993. Munroc, Trevor. 1972. The Politics of Decoloni “Jamaica.” In The Political Economy of Pot’ zation: Jamaica, 1944—1962.Jamaica: Univer errv, Equity, and Growth: Five Sinai! Open sity of the West Indies Institute of Social and Economies, ed. Ronald Findlay and Stanislaw Economic Research. Wellisz, 140—218.New York: Oxford Univer North, Douglass C. 1990. institutions, Institu sit)’Press. tional Change, and Economic PerJirinance. Williams, Eric. 1970. From Columbus io Cos Cambridge: Cambridge University Press. ta,’: The History of the Caribbean 1492—1969. Payne, Anthony. 1993. “Westminster Adapted: New York: Random House. The Political Order of the Commonwealth Wint, Alvin. 2003. C’omnpetitii’enessin Small Caribbean.” In Democracy in the Caribbean: Developing Economies: Insights from the Political Economic, and Social Perspectives, Caribbean. Kingston: University of the West ed. Jorge I. Dominguez, Robert A. Pastor, and Indies Press. R. DeLisle Worrell. Baltimore: Johns Hopkins Wood, Hon. E. F. L., M.P. 1921.Report of a Visit University Press. to Certain West Indian Colonies and to Brit Robotham, Donald. 1998. “Transnationalisrn in ish Guiana, as cited in Anthony Payne (op. cit.) the Caribbean: Formal and Informal.” Ameri 1993. 58—59. can Ethnologist, 25(2): 307—21. Worrell, R. DeLisle. 1987. Sinai! Island Econo Smith, Adam. 1776. An inquiry into the Nature mnies:Structure and Perfbrmunce in the Eng and Causes of the Wealth of 1”Jations. In lish Speaking Caribbean Since 1970. New Mortimer Adler red.), 2005, Great Books of York: Praeger. Doing Business in the Caribbean Region -- U.S. Commercial Service Caribbean Page 1 of 2 \13

BUYUSA.GOV -- U.S. Commercial Service Caribbean Islands of Opportunity

• Five Compelling Reasons to Do Business in the Caribbean Region • Best Prospects in the Caribbean Region • ‘Your Connection to the Caribbean Region” • Country Specific Information

Five Compelling Reasons to Do Business in the Caribbean Region

1. Close Proximity: The Caribbean Region is a natural commercial partner of the United States, tied closely together by geography, history and culture. 2. 3rd Largest Market in Latin America for U.S. Exports: The Caribbean Region as a whole represents a market of about 23.5 million people who collectively imported over $18.5 billion of U.S. goods in 2007! As a result, the Region is the 3nd largest export market for U.S. manufactured goods in Latin America behind only Mexico and Brazil. 3. Cooperative Trade Relationship: The rf’ Caribbean Basin Initiative (CBI) launched in 1983 and renewed in 2000 through legislation enacted by Congress established1 trade programs to facilitate the economic development and export diversification of the Caribbean Basin economies. U.S. exports to the CBI countries have more than tripled since the CBI’s creation, from $6.5 billion in 1984 to over $25 billion in 2000. 4. Free Trade: On August 5, 2004 the United States and the Dominican Republic signed a Free Trade AQreement (CAETA-DR) The agreement was implemented on March 1, 2007 ensuring that more than 80% of U.S. manufactured goods enter duty free to the DR. In addition to tariff reduction, CAFTA-DR also2 provides unprecedented access to government procurement, liberalizes the services sectors, protects U.S. investments, and strengthens protections for U.S. patents, trademarks, and trade secrets. in the DR. 5. Regional Integration: The Caribbean Community (‘ CARICOM is an organization of Caribbean nations and dependencies working to promote economic integration3), and cooperation among its members. The CARICOM Single Market and Economy (CSM) treaty signed on January 1, 2006 by 12 member countires, establishes deeper regional integration through harmonized tariffs and duty free trade. Currently, the CARICOMCSM member countries and the Dominican Republic are scheduled to sign an Economic Partnership Agreement (EPA) in July 2008 establishing free trade between the DR and the CSM member countries.

Best Prospects in the Caribbean Region

• Household Consumer Goods • Building products • Air Conditioning • Telecommunication Equipment & Services • Franchising • Computers and Peripherals • Automotive Parts and Services • Food Processing and Packaging Equip. • Cosmetics and Toiletries • Electrical Power Systems • Hotel & Restaurant Equipment & services • Drugs and Pharmaceuticals

“Your Connection to the Caribbean Region”

Whether your company is trying to enter or expand into the Caribbean Region, we can help you succeed!

http://www.buyusa.gov/caribbeanlen!islands of opportunity .html 11/1/2010 Subsidies on trial in Caribbean rum rumble Washington Examiner Page 1 of 5 i7if

home deflvery Washington Examiner classifieds autos I jobs real estate home listings advertise

P Making this Right. •• Restore Gidf communities

View todays E-Dition wash ingtonexa— miner - corn EefunQr1I — Freeemail alerts! “ tu Wixammcr

Home Nows Politics Lcca Opinion Economy Spor LiftyN CI Nation World BeltwayConfidential Yeas &Nays OpinionZone CapitalLand MobileSite

POLITICS

[Print] [Email] C • ‘:: 6 relweet Subsidies on trial in Caribbean rum rumble By: TIMOTHY P. CARNEY Senior Examiner Columnist November 18, 2009 If you drink Captain Morgan rum, you probably don’t care where it came from. But to the governments of Puerto Rico and the Virgin Islands -- and to the top- shelf K Street lobbyists they have hired in recent months -- where to distill Captain Morgan is a billion-dollar question.

Diageo is a multinational liquor giant that hires a Puerto Rican distillery to make Captain Morgan rum. Puerto Rico’s next-door neighbor, the U.S. Virgin Islands, however, is trying to lure the Captain away with a raft of subsidies. The special arrangement these two territories have with the U.S. government ropes Washington into their cutthroat competition for more booze business -- which means more K Street lobbyists.

This column obtained a copy of a June 2008 agreement between Diageo and the government of the Virgin Islands. In the contract, the Virgin Islands promises Diageo a handful of generous tax credits and direct subsidy payments if the company builds a new Captain Morgan distillery in St. Croix, the main island, thus cutting ties with the Puerto Rican distillery. The agreement specifically states, “Absent such financing, tax, production and marketing incentives, Diageo would not locate the Project in the Virgin Islands.”

httn//wwuj wchiricrtnnpyminpr 9/29/201 0 Subsidies l,-..

Then enough Even obtaining reasonably bureaucratic

credit shall The excise

targeted lowered. The could

interest

taxpayers

//rrri1i limited gallon All “Marketing The Incentive Morgan the federal payment production government. for from officials, representative, subsidies). On

Republican

this

on Puerto

Nov.

U.S.,

agreement

direct

Virgin

be

if

come

using

ever

on

trial

taxes of

you

government.

subsidy to

excise

to

completely

payments

at

who Lower

all 1,

molasses.

the

all the

Payment.”

in

make

would

subsidy

U.S. get Rico

Islands

necessary,

the

don’t and

Support

the more one

aide

atcnpymjnpr its

Caribbean

on necessary

hurdles:

The

U.S.

federal

have

taxes.

permission

tax

income

tells

taxes Senate then grants drinkers.

money

raw

company, Pedro

your

David

guarantee

like

than

same

government

and

courtship

payments

credits.

started

exempted”

The

Payments”

materials

me

subsidies

So

excise

In rum,

rum

“The mouth

and

Pierluisi, to

other 10

estimated

Hoppe derived

will

of permits.

is

short,

Virgin nnm/nnl the

it

the Then

rumble

percent

Puerto

less true to turns

they

reading

Government

to The

come

that

tax

Captain

of special

water.

pay

fullest

are

push

to

imported,

when to red Islands

come

for

from

from

makes itics/Suhsjdies-on-triaj-in-Caribbean-rum-rumble... Captain

for

Virgin introduced function

on

about

I

Diageo

lobby

Washington Rico from

only much

sell

tax

of

tape Puerto

the through

that

back.

They

extent

tax

would the

property

their a

the

the

payments.

hired

Islands

a

to

Virgin

the also 6

on public

more

Morgan are

bottle

shall

cuts dime

never

more

and Captain percent

“Molasses

the

The

rum. start

Rico.

the cover-over

Virgin

a

permitted

get

would

the

Quinn great,

Examiner

just bill

the

Virgin

Islands-made

do

blatant. service

territory’s

on taxes,

offered

issue.

as

is

pays

with

subsidized

Tincentives”

has

in

all sent

When of

every

customs Morgan

Islands’

corporate

for

give

Gillespie

but

April

the

things

Subsidy

Islands

special

angered

more

The

gross

Diageo,

of

for by

back

Diageo First,

no

Diageo

the

dollar

cover-over

marketing

prohibiting

congressional

law,

Conservation

subsidies

project.

“cover-over,” smaller

than

fees

materials,

and

receipts

to

tax

help

and and

welfare

bottle

Diageo

in

Payments,”

Puerto

including

a to

the in

a

the

take

would

breaks

16 90

longtime

taxes Puerto

assist

in

“Production

Also,

Virgin

competitor

of

cents

contract

percent

Captain clearing

into

(a

would taxes

territories than

such

Rican

rum

subsidies

also

consultant

it

are

Diageo”

Trust

breaks

“Diageo

Rico

liquor

an

Islands’

owes.

in

per

as

actions

is

or

pocket

be

which annual Page

tax

is

sold

out

9/29/2010

of

on

for

in

2

of

in

of

5 Subsidies

htto://www.washingtonexarniner.

Reader

Optional:

All

advocate

views

Corrents

The Joe

Puerto

partner welfare

Investment boasts

leading companies

Puerto

points

lower Friday. municipalities

[email protected]. Timothy

comments

More

Velasquez

on • • •

• •

Virgin

of

jobs

for GE vs. ‘Obama

Naked Strickland DISCLOSE patronage

Comments

Login taxes,

the

trial

out

Rico

violence, of

Rico’s

James specialist. subsidy

more

from

Big

for

backed

P.

in

Examiner

working

in

on

Islands

a

below.

U.S. regulatory

tHs Tobacco

with

Carney,

has

Corporation

is

corporate

Caribbean

hole

but

this

Timothy

play

profits

anti-business’

in

for

competing

racism,

regulations

pEçe Act F.

Ohio

hired

agencies.

hyper-subsidies

page

in

Miller, or

in

the

empowers

with

government Miller here

from

a robbery:

its

a

The

welfare

are

or

race

Democratic fight. rum

standard

staff.

P.

closed.

‘green’ “the libel

is

that

subject

whose

takes

Examiner’s

[and]

Carney

corn/politics/Subsidies-on-trial-in-Caribbean-rum-rumble...

is

for

rumble

something

to

Big

lobbyists

comment

as

really

killed

Export

business

provide

well

Pharma

to

credit

the

online

has

free-market

a

GE

our

if

as

cry

Washington

activist

the Inter-American

box

Import

comments

hired

Terms

lobbying

He

for

like

more

biography

aren’t

Virgin

is

writes

creating

limited

the

bilateral of

and

Bank,

taxpayer

Use

Examiner

argument.

written

Topics Washington

Puerto

Strawn Diageo, Corporation, Hoppe, Bank, B

in

Islands

firm

editor;,

former

to

an

and

a

200 paints

the

“tax

race

Winston

op-ed disarmament:

Overseas

Rico

in do

Development

,James

Joe

St.

words.

ALL

can

subsidies.

not doesn’t.

Overseas

Clinton

incentives

to

Croix, ,

Examiner,

Velasquez,

Virgin

It a

Inter-American

CAPS

necessarily

column

be

roll

portrait

F.

turns

comments

Private

and

Miller,

reached

Pedro

Islands,

are

back

White

But

Strawn,

Private

Captain

out

not

Investment

Winston

that

Bank,”

for

We

Export

Pierluisi,

of

reflect

the

regulations

permitted.

that

that

K

Development

House

a

coal,”

EL:..: at

won’t

Street,

appears

predicament

corporate-

Morgan,

Import

the

and

including

which

David

aide

and

Page

bribe

9/29/2010

and

are

3

of

5 News Release Ex-Im Bank Approves $250 Million in Export Financing for 211,000 For... Page 1 of 1 r1r]

News from the Export-Import Bank of the United States

August 5, 2010 Contact: Phil Cogan, (202) 565-3200

EX-IMBANK APPROVES $250 MILLIONIN EXPORT.FINANCING FOR 211,000 FORD MOTOR COMPANYVEHICLES Ford, Small Business Suppliers and Workers in 41 States to Benefit

WASHINGTON, DC - The Export-Import Bank of the United States (Ex-Im) has approved a $250 million working capital loan guarantee for Ford Motor Company in Dearborn, Michigan. The loan facilitywillfinance $3.1 billionof export sales for over 200,000 vehicles being sold to buyers in Canada and Mexico. These exports represent 15 percent of Ford’s 2009 production and the vehicles willbe manufactured in plants located in Chicago, Illinois.;Dearborn and Wayne Michigan; Kansas City, Missouri; Louisville, Kentucky; and Avon Lake, Ohio. The Private Export Funding Corporation (PEFCO) willprovide the funding for the revolving $250 million loan backed by Ex-Im’s guarantee. The loan, fees and interest willbe paid off in one year.

“Ex-Im’sworking capital loan guarantee enables both Ford and hundreds of its small business suppliers to maintain their competitiveness in the global marketplace,” said Fred P. Hochberg, chairman and president of Ex-Im Bank. “This transaction alone willsupport thousands of high paying export-related American jobs by exporting superior goods and services to international buyers.”

“Ford is committed to using our U.S. manufacturing plants as a growing source of exports to regions all over the world,” said Mark Fields, Ford Motor Company president of the Americas. “Our partnership with Ex lm Bank highlights a public-private relationship that supports American jobs and the economy.’

Models to be exported using the Ex-Im loan guarantee facilityinclude the F-150 pickup, Explorer SUV, Focus, Escape, Expedition, E-Series Van, Taurus, and Lincoln MKSand Navigator. Of particular note is that the loan facilitywillsupport the export of the new, highly fuel-efficient crossover Ford Explorer SUV. Itis scheduled to go into production at the Chicago assembly plant later this year. Ford’s investment in the Chicago assembly plant is adding 1,200 new jobs there.

Ford reports that key suppliers to the Explorer alone are investing in new facilities and hiring for more than 600 jobs in Michigan, Indiana and Illinois.According to Tony Brown, group vice president, Ford Global Purchasing, more than 650 companies in 41 states produce parts and components for the vehicles being exported. At the same time thousands of other indirect suppliers provide other services to Ford.

This is an innovative transaction and the first of its kind at Ex-Im Bank. The loan is formula-based and secured by vehicles in transit to Canada and Mexico. The flexibilityof the formula-based loan facilitywillfacilitate the continued growth of Ford’s exports.

Ex-Im Bank is an independent, self-funding federal-government agency that operates entirely on the proceeds of the fees and interest that it charges. Ex-lm fillgaps in export financing, strengthens U.S. export competitiveness, and helps creates and maintain U.S. jobs. The Bank provides a variety of financing mechanisms, including working capital loan guarantees to help U.S. businesses acquire the capital needed to produce goods and services for export, export-credit insurance to protect against nonpayment by foreign buyers, and loan guarantees and direct loans to assist foreign buyers of U.S. goods and services.

In fiscal 2009, overall Ex-Im Bank financing totaled $21 billion.In the first nine months of fiscal 2010 (through June 2010), Ex-Im Bank authorized $17.4 billionin loans, guarantees and insurance - more than the total authorizations for all of fiscal 2008. For more information, see Ex-Im Bank’s Web site at www.exim.gov.

Original URL: http:Ilwww.exim.govlpressrelease.cfm42BEO2AO-DFB9-2BCO-36C4F6788D7222301

Export-ImportBankofthe UnitedStates 811 Vermont Avenue, N.W. Washington,DC20571 Tel: 1 (202) 565-3946(EXIM)or 1 (800)565-3946(E)(IM)

http://www.exim.gov/pressreleaseprint.cfmI428E02A0-DFB9-2BC0-3 6C4F678 8D7222BO 11/1/2010 Overseas Private Investment Corporation Page 1 of 1

Close Window Print this pase I

Overview

C is an independent U.S. government agency whose mission is to mobilize and facilitate the participation of U. S. private capital and skills in the economic and social development of less developed countries and areas, and countries in transition from nonmarket to market economies.

OPIC assists U.S. companies by providing financing (from large structured finance to small business loans), political risk insurance, and investment funds. OPIC complements the private sector in managing risks associated with foreign direct investment and supports U.S. foreign policy.

OPIC was established as an agency of the U.S. government in 1971 and currently does business in over 150 countries. For more information about OPIC, click on Our Work.

To determine if your company can work with OPIC, please read the Investor Screener.

OPIC does have certain policy requirements in the areas of environment, worker and human rights, and economic impact.

Copyright 2010 Oversea Private Investment Corporation. All rights reserved. Terms & Conditions.

htto:!/www.ooic.ov/sites/a11/themes/zenJooic/Drint.nho 11/1/2010 Overseas

1-tr•

Below Fiscal

Dollar CurrentOPlCProj

Showing Iy]

Fiscal Year

1993 1984

//xrjsrsr

•2 .1 .7 .3 .5 .4 •6 .8 .9

Year:

Amount: is

Private

a

last next,

records

Latin RegionlCountry list Panama

Africa

of -

nnir

current

I

America through ______arid

Investment

any/citpe/i11/t1wmc/zen/nnic/nrintnhn

OPIC

the

30

of

projects

Middle

and

741

the

as -____

of

Corporation

East

Caribbean,

the

end

Israel

of

the

ects

last -

fiscal

Description: Name: Project Name: Type: US Type: Description: Name: US

year.

Sponsor:

Sponsor:

Finance

Finance

The

DESARROLLO

RUSSIA ISRAEL

fiscal

Coffee

Venture Herbert

Apax

year

GROWTh

PARTNERS

listed

Partners

farm

R. in

capital

the

DE

Lee

expansion database

FUND

RIO

&

fund

COMPANY,

Co

represents

PACORA

for

Israel

Israel

the

year

L.P.

SA

(growth

during

which

fund)

Close

the

project

Window

Amount

$167,000 $D0

originated.

Page

000 Print

11/1/2010

this

000

1

once

of

4 Overseas Private Investment Corporation Page 2 of 4

US Sponsor: Siguler Guff& Company Europe and Eurasia, Europe and Type: Investment Funds 1993 $75,000,000 Eurasia Regional Description: A newly organized, privately owned investment company Name: RUSSIA PARTNERS COMPANY, L.P. Europe and Eurasia, Europe and US Sponsor: Siguler Guff& Company 1994 $37500000 Eurasia Regional Type: Investment Funds Description: DIRECT EQUiTY INVESTMENT FUND Name: COMPANIA GENERAL DE COMERCIO E INDUSTRIA SA Latin America and the Caribbean, 1994 US Sponsor: Marriott International Capital Corporation $4,000,000 Argentina Type: Finance Description: Refurbishment and operation of Plaza Hotel Name: Compania General de Comercio e Industria S.A. Sponsor: MARRIOTI’ INTERNATIONAL INC Latin America and the Caribbean, US $34,306,400 1994’ Argentina Type: Insurance Description: hotel Name: Grenada Electricity Services Limited Latin America and the Caribbean, US Sponsor: W R B ENTERPRISES iNC 1994 $7,500,000 Grenada Type: Insurance Description: electric services Name: Coca-Cola Nigeria Limited US Sponsor: COCA COLA CO Middle Nigeria $48,600,000 1995 Africa and the East, Type: Insurance Description: soft drink concentrate & beverage base Name: DRAPER INTERNATIONAL INDIA FUND US Sponsor: DRAPER INTERNATIONAL Pacific, India 1995 Asia and the Type: Investment Funds Description: DIRECT EQUITY INVESTMENT FUND Name: INDIA PRIVATE EQUITY FUND US Sponsor: CIBC World Markets India $97,985,823 1995 Asia and the Pacific, Type: Investment Funds Description: DIRECT iNVESTMENT FUND Name: PAJTON ENERGY COMPANY US Sponsor: Edison Mission Company Pacific, Indonesia $2oOOooooo 1995 Asia and the Type: Finance Description: Coal fired electric power station and facilities Name: AGRIBUSINESS PARTNERS INTERNATIONAL US Sponsor: AMERICA FIRST COMPANIES Europe and Eurasia, Europe and 1995 Type: Investment Funds $67,500,000 Eurasia Regional Description: PRIVATE EQUITY INVESTMENT FUND FOR RUSSIA AND THE NIS Name: AGRIBUSINESS PARTNERS INTL (BALTICS) Europe and Eurasia, Europe and US Sponsor: AMERICA FIRST COMPANIES 1995 $7,500,000 Eurasia Regional Type: Investment Funds Description: PRIVATE EQUITY INVESTMENT FUND Na me: BANCROFT EASTERN EUROPE FUND LP Europe and Eurasia, Europe and US Sponsor: BANCROFT ADVISORS LLC 1995 $70,000,000 Eurasia Regional Type: Investment Funds Description: PRIVATE EQUITY INVESTMENT FUND Name: NEW CENTURY CAPITAL PARTNERS, L.P. Europe and Eurasia, Europe and US Sponsor: NCH Advisors 1995 $46,875,000 Eurasia Regional Type: Investment Funds Description: Direct Equity Investment Fund Name: NEW CENTURY CAPITAL PARTNERS, L.P. Sponsor: NCH Advisors Europe and Eurasia, Europe and US $140,625,000 1995 Eurasia Regional Type: Investment Funds Description: Direct Equity Investment Fund Name: KATEL Joint Venture US Sponsor: T K TEL LTD

httn://www.onic. ov/sites/a11/themes/zenIooic/orint.nht, 11/1/2010 Overseas

1995 1996

1996 1996

1996

1996

1996 1996

1996 1996 1996

1997 1996

1997

//wwwnni

Europe Africa Morocco Africa Private All

All Pacific Asia Asia

Europe Latin Brazil Latin

Latin Colombia Costa Latin Costa Africa Latin Rwanda Venezuela

OPIC

OPIC

and

and

America

America

America

America

America

Rica and Rica and

and and

Regional c

and

Investment

the

the

ov/sites/al1/themes/zenJoDjc/rint.flhp

Countries,

Countries,

the

the

Eurasia, the

Eurasia,

Pacific,

Pacific,

Middle

Middle

and Middle

and and

and and

the

the the

the

the

Kyrgyzstan

All

Turkey

All

Asia

Philippines

East,

East,

East,

Caribbean,

Caribbean, Caribbean,

Caribbean, Caribbean,

Corporation

Countries

Countries

and

Kuwait

the

Description: Type: gateway US Name: Description: Type: Name: plant US Description: Type: Name: US Description: MARKETS Type: Description: Name: Name: Type: US US US Holdings Description: Type: Name: Type: Description: US Name: Type: Name: Description: US Name: US Description: Type: Name: Description: Name: US Type: Type: Description: Description: Name: Name: US US LIMITED Type: Description: Type: US Type: Description:

Sponsor:

Sponsor:

Sponsor:

Sponsor:

Sponsor:

Sponsor:

Sponsor:

Sponsor: Sponsor: Sponsor:

Sponsor: Sponsor: Sponsor:

in

Insurance

Finance

Insurance

Investment

Investment

Investment Insurance Finance

Insurance

Insurance Insurance

Insurance Insurance Finance JORF

EQUATE

AQUA

GLOBAL ASIA

CE

Morgan DOGA Morocco Termovalle

P.H. P.H.

WILPRO SORWATHE

Casecnan

FUND,

Don Rio

Cellular PrivatizationlExpansion

petrochemical Direct CMS LASFAR Direct UNION Tarrant Direct

Irrigation GEF

bank electric MIDAMERICAN South DEVELOPMENT electric Edison tea electric MORGAN

TERMOVALLE natural GENERAL 14 GENERAL TEA The

PARTNERS

ENERJI

Stanley

MW

Volcan,

plantation

Pedro, Petrochemical

ENERGY ENVIRONMENT Funds

Funds Funds

Williams

Management

Generation

IMPORTERS

S.C.A.

Asia II

Equity Equity

Equity

Mission

Partners Water gas

energy Telephone

services

services

hydroelectric CARBIDE

S.A.R.L.

ENERGY and

do

S.A.

Capital compression

S.A.

STANLEY

ELECTRIC ELECTRIC

E.S.P.

Brasil

Fund Investment

Investment

hydroelectric

production

and

LP Companies,

SERVICES

and

Company

Company

INVESTMENT

Energy

ENERGY

Corporation Company

PARTNERS,

System

Ltd. thermal

CORP

Ltda.

INC

COMPANY

power

EMERGING

GROUP

of

C/O

services

CAPITAL CAPITAL

Fund

Fund

Company,

1320

with

Inc.

(EL

energy

power

Olympus plant

K.S.C.

HOLDINGS

FIJRRIAL)

international

MW

INC

L.P.

CO

generation

power

CORP

CORP

(Closed)

Inc. power

L

Capital

L

plant

C

CO

$24,500,000 $200,000,000

$200000000

$200,000,000

$80,000,000

$100,000,000 $125,000,000 $95,000,000

$50,000,000

$200,000,000 $40,032,940

$47,346,000 $165,000,000 $1,259,257

Page

11/1/2010

3

of

4 Investment

httns August Combined Notice Original

September Posted

Response Sep Archiving Original Automatic, Sep V

Archive

Original October

Set N/A

Classification N/A R

926 NAICS Commercial Added: Synopsis: The

markets, supports 1971. agriculture, --

27,

Aside: 27,

://www.fbo.gov/index?s=opportunity&mode=form&id=3 Professional, --

Overseas

Type:

4,

Administration

Date:

2010

2010 Code:

Posted Aug OPIC

12,

Response Date:

Set

2010 Policy

Synopsis/Solicitation

Policy: complements Date:

U.S. 2,

15

2010

manufacturing

04, Sectors Aside:

2010 4:00

4:00

days

helps

Code:

Private

Agency: Solicitation Investment

Office: Date: Location:

foreign

2010

and

administrative,

pm

pm

after

Date:

of

U.S. Statutory

Eastern 4:55 Eastern

Contracts

Investment

Economic

response

policy.

Overseas

the

Contracts

pm

and businesses

Number:

private

Policy

infrastructure.

Requirements

OPIC

and

and

date

Programs/9261

Corporation Private

and

management

sector Administrative

OPIC-1O-R-0021

and

invest supports

Administrative

Investment

Statutory

in

OPIC

overseas,

(“OPIC”)

managing -

a 50

OPIC-10-R-0021

support

wide

Services --

is

Corporation

Regulation, Services required

was

Requirements

fosters

range

risks services

established

by

associated

of

economic

Licensing,

U.S.

520b5445a0f23 investments,

(Archived)

law

as

(Title

an

development

with

and

agency

IV Inspection

foreign

including -

of

Federal

3

the

600b2b7a5...

of

the

direct

Foreign in

of extractive

new

B...

U.S.

Miscellaneous

investment,

Assistance

government and

Page

industries,

emerging

11/1/2010

1 V

of

and

Act

in 4

https://www.

Investment

considered.

considered:

The

its

rights

complies

ensures

labor,

Task

requirements

responsible

The

of

•

•

•

• Statutory

•

•

•

•

• •

Statutory

Support Assist

Preparation 1961)

Independent

Independent

Independent

role

Human Labor

Impacts

Environmental,

Office

Categories

policy

and

that

of

with

to

in

human

Reguirements

and

the

fbo.

of

Policy

for

areas.

Rights.

independent

any

evaluate

for

on

IC

Requirements.

all

Investment

related

policy Independent

working

gov/index?s=oppormnity&mode=form&id=3 of

project

support

reviews

statutory

industry-specific technical

OPIC-supported

insuring

rights

draft

and

health,

and

to

certain

reports

conditions. affected

policy

social

Statutory

of

should

auditing

Policy

procedure

and

that

project

project

and

Consultant

ICs

contractual

areas.

policy

and

to

OPIC

safety

performs

people.

also

OPIC

technical

reviews.

or project

should

working

environmental

Requirements

revisions.

monitoring

issues

The

projects

impacts.

identify

management

(IC)

meets

in-depth

requirements

identify

office

reviews

conditions,

is

for

to

which

are

of

statutory

every

also

provide

matters

OPIC-supported

the

analyses to

-

implemented

monitors

or OPIC-l0-R-0021

support

of

including

Statutory

project

in

OPIC’s

support

the

requirements

which

environmental,

on

following

policy

project

it

all

outside

associated

include:

supports.

Requirements

to

projects

in

520b5445a0f23

projects.

OPIC’s

decisions

a

performance

in

stakeholders.

Tasks

manner

environmental,

(Archived)

health,

proposed

management

Office

OPIC’s

or

for

for

consistent

policy

safety,

of

which

to

which

Office

for

3

Investment

ensure 600b2b7a5...

-

revisions.

OPIC

Federal

social,

health,

systems.

they

of

they

with

that

Investment

support

labor,

would

would

safety,

Policy

B...

OPIC’s

a

project

and

and

in

like

like

social,

11/1/2010

Page

meeting

statutory

Policy

human

to

to

2

be

be

of

is 4 About

http://w-ww.iadb.org/enlabout-us/about-the-inter-american-development-bank,5 About

We

inequality. to and Established While integrity,

Besides shareholders borrowing Our vulnerable Given As transfer JOB

increase

SI a

Home

the

Fund

result,

we

our

jtt

the

1DB

Caribbean,

loans,

that >

transparency

are

for

shareholder

members, We

the

member About

our

efforts in

the

Inter-American

are Secjl benefit a

1959,

aim

we

regular

1DB

Us

48

Inter-American

also

to by

with

inenJt

countries.

we is member

to

Operations

who

bring

Latin

able

base provide

bank

and

our

Inter-American

are

a

have strong

about

America

to accountability.

clients.

the

and

in

countries,

borrow

grants,

many

a

largest

prudent (FSO)

commitment

majority

development

and

in

Development

ways,

Development

in

technical the

provides

source

including

international

the

management,

ownership

We

region.

we

Development

Caribbean

©

to

have of

are in

2010

assistance

concessional

achieve development

Bank

26 a

also

sustainable,

an

Latin

of Inter-American

markets

evolving countries

we

the unique

measurable

Bank American

have

and

1DB.

financing

at

financing

in

do

climate-friendly

a

to

competitive

some

strono

research. -

reduce

Bank

and

Development

Inter-American

results,

to

agenda

key

for

Caribbean

financial

our

poverty

respects. Latin

Our

rates

increased

most

that

way.

America

poSition.

Bank and

and

seeks -

All

Rights

Development

IDE MO Basic

Ninth Development

Public Five know Policies Strategies

Presidency

things

Reserved.

Facts

Capital

about

Information

you

the

Increase

Effectiveness

need

1DB

Services

Bank

to

995

html

Share

Page

11

Comment

/

1

1/2010

of

I

http://wwwiadb.org/enlprojects/projects,

Projects

toe

development

development The

investments Types

How

Development

Project 31DB

Home

1DB does

of

Cycle ousranteen

Financing Group

> the -

Projects

to

Effecliveness

Inter-American

effectiveness?

programs.

1DB

fund

uses

improve

and

loaDs.

Inter-American

The

access

The

banks.

the The

The

identify

measuring cooperation that

$402

and

results.

Projects

•

•

•

expected

1DB

Bank

Bank

social 1DB

produce benefit

monitor

measure

billion

Development

The

to

Development

the

Since

Group

partners

grants

has

supports

development

the

Bank

reasons

the

and

in

©

project

evidence

results.

adopted

the

1959,

investments.

impact

is

2010

most

and

knov:ledoe

offers

a

with

achievement

Bank

clients

key

for

the

consulting

progress,

Inter-American

The

vulnerable

of

specific

countries

of

financing

partner

the

in

1DB

its

what

1DB

in

Latin

1

Bank

proposed

services

projects.

The

the

229thtm1

has

focuses

criteria

with

works

of

for

and

America

to

design

Bank’s

and

opportunities

approved

a

micro,

provide

focus

specific

procurement

to

Development

the

intervention,

and

and on

support

of

activities

and

poorest

on empirical

why

small,

projects,

methodolooies

$183

financial

intervention;

actions

the

for in

development

medium

billion

development

Caribbean,

populations.

cover

contracts.

comoanies

Bank

the

evidence

and

resources

implemented

actions

for

the provides

-

and

All

to

projects,

entire

ensure

for with

Rights

interventions.

end

large-size

the

and

interventions.

making

finencino,

an

finencial

spectrum

and

Bank

knowledge

Reserved.

it

mobilizing

emphasis

is

their

companies

will

decisions

able

institutions,

Projecte

technical

impact;

of

support

to:

to

economic

on

more

achieve

and

programs

and

and

and

than

the

Want and

Mechanism

Independent

Integrity

Summary

Public Monthly

Spotllghl

Procurement environmental

Keywords: Search search

Advasred JOB?

Investigation

to

Information

our

do

Operational Share

Pruiert

at

Projects

business the

Sen’th

Consultation

Opportunities

11/1/2010

Page

Impact 1DB

Documents

Services

Comment

with

1

of

25 1 FREETRADEAGREEMENT IMPLICATIONS FOR ECONOMIC DEVELOPMENT The Trade Stimulus Fact Sheet - October 27, 2008 Page 1 of 2

Advanced Search Search trade.gov

Helping u.s. businesses by Download printer friendly version Promoting Trade and October 27 2008 Investment Strengthening Industry The Trade Stimulus Competitiveness Trade is an engine of economic growth -- Approval of the Ensuring Fair Trade Colombia, Panama, and South Korea Free Trade Agreements Browse by organization (FTAs) would help stimulate further growth. U.S. Commercial Service U.S.-Colombia FTA Manufacturing and Services 1. u.s. exports are expected to increase by $1.1 billion under the Market Access and FTA. Compliance 2. 10,000 U.S. companies export to colombia; 8,500 of these are Import Administration small- and medium-sized firms (SMEs). 3. U.S. GDP is expected to increase by approximately $2.5 billion, according to the usrrc.

U.S.-Panama FTA

1. The Panama canal expansion, valued at $5.25 billion, is an historic opportunity for U.S companies. The FTA will level the playing field for U.S. firms eager to compete for canal projects. 2. 6,400 U.S. companies export to Panama, of which 5,200 are SMEs. 3. American SIIEs would directly benefit from the FTA as 39 percent of total U.S. merchandise exports to Panama are Shipped by SME5.

IJ.S.-Korea FTA

i. U.S. exports are expected to increase by $10.3 billion. 2. Korea is a $1 trillion economy. Within the first 3 years of the FTA, 95 percent of U.S exports of consumer and industrial goods will enter this huge market duty-free. 3. U.S. GDP is expected to increase as much as $20 billion, according to studies.

Free Trade Works — Trade Stimulates the American Economy

• From January to August 2008, U.S. exports totaled $850.5 billion -- a huge economic stimulus that kept America growing1 despite the effects of the domestic housing market. • Net exports contributed 2.9 percentage points to total GDP growth in the 2nd quarter of 2008, and are the MAIN reason that America’s economy had positive growth in the first half of the year. • Exports of goods and services grew by 18 percent to $1.3 trillion in the first eight months of 2008. • 706 days have passed since the U.S-Colombia FTA was signed. In that time, U.S. exports to colombia have faced tariffs over $1.3 billion, which the FTA would eliminate. U.S. exporters face more unnecessary tariffs as they wait for approval of the Panama and South Korea FTA5.

• The United States has a $10.3 billion trade SURPLUS with itsl4 FfA partners. ETA5 work. • The U.S. manufactured2 goocs trade balance improved 158 percent with our 14 FA partners, but only 7 percent with non-FTA partners in the first eight months of 2008. • About 59 percent of the U.S. trade deficit is due to petroleum imports. 3

http://trade.gov/press/press releases/2008/fta-factsheet 102708.asp 11/ 1/2010 The Trade Stimulus Fact Sheet - October 27, 2008 Page 2 of 2

1 Exports of non-petroleum goods 2 For manufactured goods only Trade deficit of goods and services

httix/Itrade.gov/press/press releases/2008/fta-factsheet 102708.asp 11/1/2010 Free Trade Agreements Page 1 of3

Advanced Search Search trade.gov

Helping U.S. businesses by Free Trade Agreements Promoting Trade and Free trade agreements (FTAs) have proved to be one of the best Investment ways to open up foreign markets to U.S. exporters. Today, the Strengthening United States has FTA5 with 14 countries. In 2006, six new ETA5 Industry were implemented: with Bahrain, El Salvador, Guatemala, Competitiveness Honduras, Morocco, and Nicaragua. Last year, trade with countries Ensuring Fair Trade that the United States has FTAs was significantly greater than their Browse by organization relative share of the global economy. Although comprising 7.5 percent of global GDP (not including the United States), those ETA U.S. Commercial Service countries accounted for over 42 percent of U.S. exports. Manufacturing and Services Market Access and Compliance U.S. Free Trade Agreement Partners in the Global Economy Import Administration Percent of World GDt 2006 Percent of U.S. Exports 2006 1 To ErA FTA Countries: Countries: 7.5% 42.6%

Non-FT — Countries:2S%

EtA = free trade agreement GDP = gross domestic product Note: World GDP excludes the United States. GDP percentage shares are based on GDP figures on a purchasing power parity basis. Export figures are for total U.S. Exports. Free trade agreement countries include all countries with free trade agreements with the United States (Australia, Bahrain, canada, chile, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Mexico, Morocco, Nicaragua, and Singapore). Sources: International Monetary Fund, World Economic Outlook Database (April 2007); U.S. Department of Commerce, International Trade Administrations, and Bureau of the Census

Pending Free Trade Agreements Colombia NEW! U.S-Colombia TPA Fact Sheet A Partnership to Prosperity Why a Colombia Trade Promotion Agreement? case for Colombia: Giving American Products a Fair Shake State by State Impact Reports Industry Sectoral Reports United States Trade Representative (USTR) Information Korea Why a Korea Trade Promotion Agreement? State by State Impact Reports Industry Sectoral Reports USTR Information Panama Why a Panama Trade Promotion Agreement? State by State Impact Reports USTR Information

http://trade .gov/ftalindex.asp 11/1/2010 Free

httix//trade.gov/ftalindex.asp

Trade

Agreements

Existing

0

Australia SL

S12 Bahrain

CAFTA-DR

Chile

Israel Jordan vakie

Textiles

Industry Opportunity State Additional Textiles

USTR Industry State Sewte Additional Additional Textiles

State USTR Additional Additional Textiles Opportunity Textiles USTR Additional Additional USTR Additional

Additional USTR —- —-

of

trade

by

US. Information

by

Information by -

Information -

Information

Information

and

Free

Free Information -

Information —

Information

Information

Information

State Sectoral

State

Sectoral State

n -

Australia

Bahrain CAFTA-DR

Reports

Chile Reports Israel EtA Reports

Reports

bionsofdollars -

irtmimtofCurne*tce. Report

Report

the

Contnes -

Trade

Trade

Impact

Impact

Impact

Imports

Es’part5

ETA

ETA

Reports

Reports -

US.Trade

ETA

and

and

and

and

ETA --

Information

Information

ETA -

Reports

Report

Reports

Agreement

Information

Statistics

Agreements Statistics

Statistics

Statistics

Information -

Information -. - -

Balance,2006

for -

for

for -

for

Exporters Non-flA

Exporters -

for

Exporters

Partners -

Exporters

Exporters

Countries -I

Page

11/1/2010

2

of

3 _

zoUJZ

UJWLUWcJZ zwuJ’n-J w -J U