The Caribbean in the 21st century.

By Pastor, Robert and Fletcher, Richard

Foreign Affairs; Summer91, Vol. 70 Issue 3, p98, 17p

Abstract: Questions whether the Caribbean can end its economic stagnation and backwardness and embark on a bold new course to fulfill the region's potential. Political and social aspirations; Strategy suggestions for economic growth and job creation; Relationship with the United States and importance of Caribbean self-reliance; Region's strength and vulnerability.

As the small nations of the Caribbean assess the rapid changes in the world, they have begun to ask whether they will be left irretrievably behind. To pose the question in a more positive way: Can the Caribbean end its economic stagnation and backwardness and embark on a bold new course to fulfill the region's potential?

Thirty years ago, there were only three independent countries m the Caribbean, and all three were trying to rid themselves of dictatorship. Only one--the Dominican Republic--succeeded. Haiti struggled through 30 years of oppressive dictatorship only to emerge on February 7, 1991, with its first freely elected president. Cuba is still under the control of an aging revolutionary and a single-party system. In the meantime, 12 English-speaking, parliamentary democracies have joined the group of independent governments. Of this group, only Grenada and Guyana departed from the democratic tradition. But the former returned after an American invasion, and the

latter is in the process of returning.

With the exception of Haiti, most of these countries have made substantial social progress: education and health standards are among the highest in the developing world. In terms of economics, however, the region has failed to find a path toward sustainable, equitable growth. Some have done better than others, and there are lessons to be learned in the differences. But generally, economic development has proven elusive.

The strength of the region has always been its people and their adaptability. The region's democratic leaders have modified their views from a philosophy based on state-directed economic management to one that relies more on the market's ability to allocate resources. The mood of the regional leadership has swung from a fear of foreign investment to anxiety about the lack of it. Some Caribbean leaders had previously viewed the Cuban model as the solution--and the United States as the problem. Now there is widespread recognition that Cuba's path is of limited, if any, relevance for the future, while the United States is viewed more pragmatically as a vital market, a source of support and a possible partner.

Driven primarily by security interests, the United States has often oscillated between intervention to prevent a foreign rival from gaining a foothold and neglect when the threat passed. But the region's increasingly democratic character, together with large-scale emigration to the United States during the last three decades, has changed the U.S. view of the region in ways that might permit a steadier long-term relationship.

We believe the time has come to consider a new stage in the region's development and its relationship with the United States. We recommend that the region shift toward a new economic strategy based primarily on self-reliance. Provided the region makes the appropriate macroeconomic decisions, the United States should offer a bold economic initiative, opening its markets wider to the region's exports, perhaps as part of a broader extension of a North American Free Trade Area (NAFTA). U.S. aid and financing should be a complement and supplement, not a substitute, for the region's new economic strategy.

II

Politically and socially, Caribbean aspirations have been commendable and essentially attainable. The nations have wanted democracy, independence and stability, and the region's citizens have sought justice and equality of opportunity. By and large the English-speaking Caribbean has attained these goals, a remarkable achievement in the developing world. Culturally, the region is justly proud of its distinct identity, and its reggae and calypso have enhanced the global cultural fabric.

The basic Caribbean problem is that its economic aspirations have been beyond the reach of the islands' small scale. Influenced by the demonstration effect of the United States, the Caribbean people have naturally wanted the same standards. Caribbean workers have been unwilling to accept living standards that are lower than those achieved by relatives who have migrated to North America. Democratic leaders have not wanted to tell their constituents that such aspirations are unreal. The region's businessmen have preferred to sell American and European goods to protected home markets rather than manufacture goods for export.

The region suffers chronic balance-of-payments deficits, over-dependence on a few agricultural or mineral commodities (sugar, bananas, bauxite, oil) and increasing dependence on tourism. Although tourism has proven a much needed source of foreign exchange, it also has increased the region's vulnerability. Tourist revenues are greatly affected by developments that are totally unrelated to the tourist industry. Tourism plummets as a result of scares, like AIDS in Haiti, or violence in a neighboring country or recession in the United States or Europe--all factors beyond the influence of hoteliers. Even the war in the Persian Gulf damaged the crucial winter tourist season.

The region suffers from other problems. Skilled labor and professionals emigrate at a high rate. Foreign investment has preferred Mexico and Costa Rica. While the region has largely maintained its democratic system, political and drug-related threats have increased. The attempted coup in one of the region's largest islands, Trinidad, in July 1990 underscored the vulnerability of all the islands.

The population of the entire 13-member Caribbean Community (CARICOM) is five million; fewer than the population of each of the three Latin nations--Haiti, Cuba and the Dominican Republic. Even if one adds these islands, the total population amounts to less than 30 million, and the gross domestic product is probably less than that of Dade County, Florida. Air traffic in Miami exceeds that of the entire region. The Caribbean simply does not have as large a margin for choice as it would like.

Most of the Caribbean has lost two decades of economic progress. This has led to high unemployment (20 percent on average, 50 percent among youth) and increasing frustration. The Caribbean is not in danger of revolution; rather the prospect is for continued deterioration, growing social delinquency (crime, drugs), emigration and sporadic attempted coups by radicals or drug-traffickers or both.

In 1952 Puerto Ricans asked themselves whether they should become independent, and the 3.2 million people on the island decided that their land was too small and underpopulated to consider independence as viable. Ten years later, Puerto Rico's much smaller and poorer English-speaking neighbors began to declare their independence, not bothering to ask the question that Puerto Ricans had agonized over. That question of economic viability remains unanswered.

We believe the Caribbean can attain economic growth, create more jobs and achieve a more equitable income distribution. After a decade of economic regression, where GDP per capita in Jamaica and Guyana fell to levels of the early 1960s, the immediate prospects are not good. The two lessons of the last 20 years that emerge from these experiences are: first, economic performance does not depend on how much aid and resources a nation receives, but how it uses them and which economic policies it chooses; and second, the most effective policies in the region were those that put greatest emphasis on the use of a country's own material and human resources. If it adopts policies based more on self-reliance, the region can begin a turnaround within five years.

Self-reliance has two components. First, economic policy reform should be driven by a process of local consultation-rather than directed by foreign officials--because that will ensure the requisite commitment for sustained action. Second, countries must avoid borrowing at levels that create an insupportable burden of debt service. For most countries, this means less than two percent of GNP. Imports should be paid mostly with export revenues; budgets should be financed by taxation, not by printing money.

In recent years a new consensus has emerged regarding those policies that are most likely to produce positive economic growth.[1] The package includes the following: trade liberalization with a bias toward export; fiscal self-reliance with an effective tax system; a policy favoring investment over consumption; and deregulation and privatization. A number of countries, notably the "Asian Tigers," have demonstrated that this policy mix can produce excellent results. For those who think Asian culture might be the explanation more than these economic policies, they need only consider that two of the smallest countries in the Caribbean with the least resources utilized the same mix with the same positive effect--Barbados in 1960-80 and the Bahamas from 1970-90.

An effective recipe for economic growth and job creation in the Caribbean would involve the following mix.

Trade Policies

Import substitution as an engine of growth has exhausted its possibilities for the Caribbean. To improve living standards and productive capacities, the region needs to import more. But given the limits to future capital flows, the only way to pay for these imports is to expand and diversify exports. The traditional exports--bauxite, sugar, bananas and tourism-cannot grow fast enough. To develop new lines of exports-for example, apparel, light manufacturing, assembly operations, data entry, agro-industry and services--will require a fundamental shift from an anti-export to a pro-export bias. Such a change requires unpopular polices, such as flexible exchange rates, tariff reduction and deregulation. That is the political dilemma and the reason why these policies have seldom been implemented or sustained.

Fiscal Policies

To be self-sustaining, the Caribbean must learn to live within its means, with perhaps a modest current account deficit. (The United States also has much to learn in this regard.) Fiscal policy must be oriented towards

increasing the level of domestic savings and ensuring that budgetary expenditures are financed without resort to excessive borrowing or printing of money. The tradition of dependence on external finance in the 1980s

unfortunately has been both cause and effect of extremely low savings rates, chronic budget deficits and periodic debt crises in most Caribbean countries. Adjustment m these areas will require reduction in public

employment, increased taxes, reformed tax codes, reduced subsidies, increased utility rates and other potentially onerous measures.

Investment Policies

Growth and job creation are not possible without capital accumulation. The tough questions are: Who will invest? In what areas should they invest? How should the government privatize most efficiently? What other steps

should the government take to encourage investment?

It is widely recognized that few Caribbean states have been efficient investors or manufacturers, particularly in the export sector. Export diversification programs, therefore, will depend mainly on local and foreign private

investors. Governments will need to provide improved infrastructure to establish an environment conducive to private investment. Governments have options for judging where they want to encourage investment, and the

experience in East Asia suggests that close collaboration between the government and the private sector works better than a laissez-faire or an adversarial system. Caribbean governments have not begun to develop

mechanisms for collaboration yet, but they need to get started.

If done properly, privatization can generate new investment and innovation in bloated inefficient industries. National governments can also compel these large companies to respond more to the market by measuring their

performance according to private standards. But privatization entails some risks if it is not handled correctly, or if the public monopoly is transferred to private hands with no public accountability or increase in

competitiveness.

Labor Policies

Caribbean trade unions traditionally have bargained for higher wages and benefits in capital-intensive industries (oil, bauxite, cement). These sectors could afford high wages but have generated little additional

employment. Trade union wage-push has contributed to the anti-export bias and to inefficiencies, which have made Caribbean workers uncompetitive with their Mexican and Dominican counterparts. Trade unions will

need to reexamine and broaden their role so that they participate in and take responsibility for tough macroeconomic decisions by governments, such as the trade-off between high wages and job creation.

Social Policies

The transformation of import-driven economies to exportorientedengines for growth will require a massive effort in education--not just in schools, but also on-the-job training. The universities will also have to be adapted to

the computer and technological needs of the 21st century since the labor force of the coming decades is already in school.

Health programs are essential, not just because of their inherent worth, but because they are related directly to productivity. And tourism is more attracted to a country that maintains high health standards. Indeed, Costa

Rica has shown that a small country with high levels of education and health can attract large numbers of Americans retirees. Expatriate retirement communities represent an important source of revenue and

development, especially for the smaller islands.

If the region becomes more export-oriented, it will soon see the emergence of a new class of entrepreneurs climbing up the economic ladder. Nevertheless, there will remain a large number of people who cannot find the

first rung. There will be increasing needs for programs aimed specifically at relieving the distress of society's poorest. The most effective remedies are education, job creation and price stability, but specific programs will

need to be targeted to those who are dislocated by the changes.

III

Self-reliance does not mean isolationism, an end to regionalism or the cessation of external assistance. Rather it prescribes a different set of priorities in the way nations have approached their economic problems, and it

raises some new and difficult questions.

Notwithstanding the frequent encomiums to regional unity, the decisions of government leaders reveal little interest in transferring sovereign powers to CARICOM. And the truth is that only a small portion of each nation's

trade is within the Caribbean; the major part is with the United States and to lesser degrees with Great Britain and Canada. Therefore CARICOM should not be viewed as an alternative to an economic relationship with a

wider group like the United States or Europe, but as a necessary complement. The trend toward regional blocs in world trade means that the Caribbean needs to decide its trading priorities. Some have recommended the

region turn to Europe. While we agree Europe is an important market, we believe the highest priority should be to strengthen and unify CARICOM as an essential stepping stone toward eventual entry to a wider North

American Free Trade Area. One preliminary issue in need of some hard analysis is the currency.

A stable economy is a precondition for a stable currency. But the reverse is also true. The region has three options. First, weak and volatile national currencies can coexist alongside trade in U.S. dollars. The irony is that

the region's most vociferously nationalistic regimes--like Sandinista Nicaragua, Guyana and Jamaica--were forced to rely increasingly on the dollar as their own currency lost its credibility or value. A second option is a

Caribbean-wide currency that is printed and distributed by a single central bank. If Europe can move in this direction, certainly the Caribbean can as well. A regional currency may be facilitated by establishing a single

CARICOM central bank. A third option is to formally adopt the dollar as the region's currency. From the perspective of the Caribbean, this option is not desirable politically, but it could be inevitable economically. If the first

option fails, or if the region cannot agree to a regional currency--the best path--then adopting the dollar might be reconsidered by default.

For the United States the Caribbean is economically insignificant. It accounts for a small fraction of U.S. trade. Nonetheless, for strategic reasons, Washington modified the global trade policy that it had pursued

consistently in the postwar period in favor of a regional trade policy aimed at fostering development--the Caribbean Basin Initiative. Passed by Congress in August 1983 and made permanent seven years later, the CBI

aimed to stimulate investment, create jobs and promote economic development through expanded trade opportunities. Congress, however, excluded many of the region's key exports from the program due to fear that

declining U.S. industries or agriculture could not compete.

The U.S. International Trade Commission evaluated the program's effectiveness from 1983-88 and concluded that "over all, levels of new investment in beneficiary countries in the region remain disappointingly low.''[2]

The CBI stimulated nontraditional exports and had a net positive impact on the economies of the region, but that impact was quite small. Two analysts estimated that the annual trade creation due to the CBI ranged from

$164 million to $267 million, less than the annual cost of the simultaneous reduction in the region's sugar exports.[3]

The effect of U.S. sugar policy on the region has been enormous. In the 1890s an increase in the U.S. tariff on Cuban sugar imports precipitated the Cuban war for independence. More recently the end of the U.S. sugar

quota system in 1975 led to a steep decline in the Caribbean sugar industry, a mainstay of the region's economy. A new quota system was approved by Congress in 1981. Imported sugar received a higher price, but the

reduction in quotas fox' the Caribbean region was severe--from an annual average of 1.7 million tons imported per year from 1975-81 to only 442,200 tons in 1989. From 1982-89 the countries in the region lost about $1.8

billion in potential revenue as a result of sugar quotas.

The CBI hardly made a dent in that loss. In the Dominican Republic alone five sugar mills have closed since 1982. Throughout the Caribbean Basin about 400,000jobs were lost because of the diminished sugar quotas,

and these were mostly jobs in poor rural areas with the worst unemployment. In contrast the CBI created about 136,000 jobs in manufacturing from 1983-88. During this same period the Caribbean Basin's labor force

increased by 2.3 million. The region, like sugar's value, has been declining.

Thus the decision by Congress to extend the life of the CBI without expanding its provisions or coverage is a mixed blessing. It is marginally useful for promoting development, but the region needs a more potent stimulus.

If the Caribbean is willing to consider some of the steps outlined above, then the United States ought to consider a similarly bold initiative. It should include the following: the expansion of the U.S.Canadian-Mexican free

trade talks to include the Caribbean either during or after the negotiations and an interim series of steps to open the U.S. market for sugar, textiles, apparel and steel. The two areas that could have the most rapid and most

positive difference are relaxed quotas on sugar and textiles. Of course, the two U.S. lobbies are very strong. The sugar lobby beat back any liberalization when CBI was extended, and the textile lobby came within a few

votes of imposing the first protectionist bill on a president in over half a century. Any change in trade policy will require strong presidential leadership.

On sugar policy--if the president is willing to bear the political consequences--there are a host of alternatives. He could directly subsidize domestic farmers in a free market; change quotas to outright tariffs and reduce

them; expand quotas for the Caribbean gradually; or guarantee a fixed quantity and price on a multiyear basis that would permit greater stability for the region. Whatever option is chosen, it should be done in a gradual and

predictable manner that would permit long-term planning.

On textiles and apparels Washington could expand access to the U.S. market. This is another case where asymmetry could be used to assist the region as the local effect would be substantial with little adverse effect on

the United States. From a practical political perspective, however, it might be easier for the United States to negotiate an expansion of the free trade agreement to include the Caribbean than it would be to modify the sugar

or textile policies.

The Caribbean has a two-sided problem regarding debt and further aid. It needs new capital to finance the modernization of its economy but cannot service the debt it contracted in the past. New aid or financing is

infeasible unless the region demonstrates that it can use the new money more effectively than it did the old. We believe new financing and debt relief should follow, not precede, reforms and self-reliance. But such

financing cannot be delayed for long without jeopardizing the reforms.

The Caribbean has been the recipient of some of the largest aid flows on a per-capita basis in the developing world. The Caribbean Group for Cooperation in Economic Development, established at the initiative of the

Carter Administration in 1977 and under the auspices of the World Bank, succeeded in coordinating external aid flows and increasing them quite substantially--sixfold from 1978-82. Since then aid has gradually declined,

though it still remains high by global standards for a middle-income region.

The World Bank estimates that total financing requirements in 1990-91 will amount to about $2.7 billion; of that, nearly half is already available, although this is principally in the form of medium-term adjustment loans for

Jamaica, Guyana and the Dominican Republic. We recommend that this aid be aimed for a clearer set of investment priorities. To induce more flows, donor concerns such as the environment should be taken into account.

The region's debt problem is different from that of Latin America's, which is primarily contracted with private banks. From 1980-88, Caribbean debt doubled, to nearly $10 billion. Most of that new debt stemmed from the

loans generated by the Caribbean Group. Jamaica had to use 40 percent of its $1.6 billion in export revenues in 1989 to service its debt. For the whole Caribbean, with the exception of Trinidad and Tobago, 36 percent of

total debt is owed to the international financial institutions, 27 percent to donor governments and 37 percent to commercial banks. For Jamaica, 46 percent of its debt is owed to governmentsand 40 percent to multilateral

agencies.

U.S. Treasury Secretary Nicholas Brady offered an important proposal on March 10, 1989, to reduce privately contracted debt, but his initiative has made little progress because no single entity was placed in charge of the

negotiations. Thus far there has been no effort to negotiate this proposal in the Caribbean.

We believe that the World Bank should take the lead in negotiating the Brady Initiative and begin doing so in the Caribbean immediately. Even if the Brady Initiative is applied vigorously to the Caribbean, its overall effect on

the economies will be small since most of the region's debt is official, not private. As regards the official debt, Jamaican Prime Minister Michael Manley made a proposal to Secretary Brady, and on June 27, 1990, in the

context of his Enterprise for the Americas Initiative, President Bush responded with a promise of relief. Congress has not completed its review of the proposal, and so it is difficult to estimate the magnitude of the relief. U.S.

bilateral loans represent about one-quarter of the total debt. Canada already announced in early 1990 that it intended to cancel all outstanding development-aid debt owed by 11 CARICOM countries. That amounts to $182

million. We recommend that other governments follow the spirit of the U.S. and Canadian initiatives and implement across-the-board official debt relief.

An additional problem is that the region has begun to have a negative transfer of resources to the international financial institutions. Write-offs of official debt owed to these institutions are infeasible, but it is possible to

consider several alternative approaches. The maturities of existing loans could be lengthened. This is already being done with new loans, but it should also be applied to older ones. The banks could also refinance loans

that are coming due and capitalize the interest and also provide new loans with mixed credits.

IV

Emigration remains a powerful factor affecting the region's development, but few have bothered to incorporate that variable into the development equation. Already about one-fourth of the population of the English-speaking

Caribbean has emigrated to the United States, the United Kingdom and Canada. The loss of skilled and entrepreneurial manpower remains a significant cost to the region's development, exceeding the positive effect of

remittances. The new U.S. immigration law, which makes it easier for people with skills to immigrate, will undoubtedly hurt the region even as it contributes to the economic development of the United States. Despite these

facts, emigration is such a central part of the region's psychology, particularly its elite, that its leaders seek more access to the U.S. labor market, not less.

It is time to create incentives for the region's talented population to return home. The first place to start is at the international organizations, and particularly the development banks where so many talented Caribbean

economists work. These organizations should adopt a rule that permits Caribbean technocrats to work there for a fixed term and then to return to their countries. Perhaps more than any single initiative this would create a

new psychology for the region and permit the accumulation of human capital needed to manage both private enterprises and public projects. More-over since so many of these individuals will have returned with great

experience in the international development banks, they would serve as effective interlocutors with these institutions.

Tourism has replaced sugar in many islands as the principal source of foreign exchange, but too much of that foreign exchange leaves the region because too few linkages have been developed with local economies.

Few hotels use local food or products. Private sector leaders in the region need to find ways to increase linkages of these hotels and to bring the costs down or risk losing the tourists. Other ideas for expanding tourism

include pre-clearance facilities in more countries. The Bahamas and Bermuda already have such facilities, whereby U.S. customs and immigration officials process tourists before they leave the island. Tourists prefer this

as it permits them to exit to their destination much more rapidly.

In the course of reviewing a range of policies, it is worth recalling that the islands rest in a very turbulent sea, and nature has had a much more potent effect on the islands than has man. Hurricanes strike periodically with

devastating force--Hurricane David in the fall of 1988 and Hugo the next year. Jamaica, Puerto Rico, the Virgin Islands, Montserrat, St. Kitts and Nevis--all have not fully recovered from the force of these winds.

The United States has established the Federal Emergency Management Administration to deal with natural disasters at home, and international agencies have helped the Caribbean to dig out from their disasters. The

U.S. Army Corps of Engineers has often played a useful role, but as yet, there is no central mechanism or fund to which all in the region could contribute. We recommend that CARICOM leaders use their next summit to

invite the United States and Canada to send representatives to develop a permanent region-wide plan to manage the relief assistance on an emergency basis.

V

The region's strength and vulnerability is its democracy. There is no better framework for peaceful change or for meeting the needs of the people. Part of the reason Caribbean nations have escaped the Latin American

malady of recurring coups d'etat is that they have kept their armed forces small and professional. Yet the attempted coup in Trinidad alerted the region to its vulnerability, and the CARICOM leaders agreed in July 1990 to

study the security issue. The question is what will be done?

The region faces four threats: pariah states that threaten their own people and their neighbors; coups by mercenaries or minorities (bandits or radicals); subversion or corruption by drug or criminal elements; and oil spills

and foreign fishing in territorial waters. To deal with the more conventional threats, several of the larger nations in the region have military forces. Six of the smaller nations have established a Regional Security System,

which is not a standing army but rather a mechanism of cooperation. Each has trained 60 police officers, who, in the event of an emergency, would create a force of 360. This is an improvement on the past but inadequate

to deal with these threats.

What more is needed? We recommend amending the C^RICOM treaty to spell out the steps that the region would take in the event of a coup, a threat of a takeover by drug traffickers or the emergence of a rogue state. The

first step should be an immediate regional summit meeting to discuss the timing and sequence for diplomatic, economic and ultimately military sanctions. Such a treaty provision would deter threats and substitute for a

large military. The treaty also ought to include a provision for requesting non-Caribbean nations or international organizations to reinforce CARICOM'S own security capabilities. The size of local forces is less important if

there is a credible deterrent, and that can only be provided by a major power.

The region should try to gain wide acceptance for stronger human rights provisions and groups, such as a CARICOM Commission of Human Rights and a CARICOM Court of Appeals. International election observers may

also play a key role, as they did in Haiti and are doing in Guy^ha and Suriname.

David Coore, Jamaica's minister of foreign affairs, told the United Nations in October 1989: "There is no doubt that the drug problem has today assumed proportions which are far beyond the capacity of individual states to

control."[4] A recognition of the transnational dimension of drug trafficking is the first step toward managing it better. We would urge more regional collection and sharing of intelligence; more cooperation on interdicting

traffickers and arresting moneylaunderers; a training facility for anti-narcotics agents in both investigative and interdiction activities; and more cooperation involving the U.S. Coast Guard (a better model for the region than

the U.S. Navy). Prime Minister Manley's idea for a multinational drug force was tabled by the United Nations; it merits reconsideration for the Caribbean alone.

A big problem of pursuing drug traffickers relates to the reliability of sensitive information. The small nations of the Caribbean were justifiably frightened when U.S. Drug Enforcement Administration agents arrested a

Caribbean premier in Miami. To ensure that such sensitive information is accurate rather than used for political purposes to destroy a person's career, we recommend that CARICOM and the United States establish a

high-level, trustworthy special court to judge the evidence. In addition the region needs stringent legislation providing heavy fines and long-term imprisonment for drug traffickers. Their property ought to be held when they

are arrested and confiscated if they are found guilty. Only four Caribbean nations have such stringent legislation. Consideration ought to be given to strengthening extradition treaties to cope with international drug

smugglers.

The United States is a growing source of the problem of arms trafficking, and Caribbean countries have a right to demand changes in U.S. laws on local arms sales if the United States is to demand changes in their

banking laws. Miami has replaced Havana as the principal source of subversion in the region. But it is a special kind of nongovernmental, transnational subversion that serves as a source of illicit arms sales, money

laundering and drugs. The United States has a responsibility for addressing this side of the problem if it wants the Caribbean to address its own problems.

Beyond these threats CARICOM has new opportunities to expand its membership by including the Dominican Republic and a democratic Haiti. For the last decade the group has lectured Haiti on democracy. Now with a

freely elected government Haiti is seeking admission, and CARICOM has the responsibility to set the political terms--a guarantee of democracy-that will secure both Haiti's new freedom and CARICOM'S at the same time.

The Caribbean and Puerto Rico have long had a mutually ambivalent relationship that stems from the ambiguity of Puerto Rico's status. If and when a plebiscite occurs, and if Puerto Ricans make a clear choice, then

special attention will be needed to develop more enduring relationships between the new Puerto Rico and the Caribbean.

Although Cuba is becoming less of a player in the region, it remains too big to ignore. Indeed the Caribbean is beginning to worry that a post-Castro capitalistic Cuba might become a more serious threat than a

communist Cuba. With a vibrant tourist industry and cheap, well-educated labor, a "new" Cuba would be a formidable competitor.

VI

If the Caribbean joins Mexico, Canada and the United States in a free-trade area, then political and social issues will become regional in scope. Greater economic integration will inevitably lead to questions about the freer

movement of population, and these, in turn, will lead to an inquiry into political association.

In the summer of 1990 CARIGOM decided to intensify its efforts to establish a single unified market by 1993, the twentieth anniversary of its establishment. The first step toward that goal was supposed to be

implementation of a common external tariff in January 1991. But the continued delay raises the old question: How realistic is the initiative? Are the leaders willing to reduce their sovereignty for a more effective regional

autonomy? If the trend toward integration is real, the region's leaders will soon face the same kinds of questions faced by the European Community as it prepares for 1992. Should there be a Caribbean-wide currency with

a single central bank, or should the region take a bolder leap and accept the dollar as the currency unit?

Should the region seek political association with the United States, or restrict its relations to a closer economic compact? Should the region be thinking of a North American Commonwealth, a grouping of sovereign states

that seeks to coordinate foreign and defense policies in addition to economic and welfare policies? Should there be free movement of people? What about citizenship?

It is time to begin regionwide discussions about these questions. As the walls of the old world tumble down, we must begin thinking of ways to rearrange the "new world." To begin the process we recommend the

establishment of an informal group of North Americans with interests in the Caribbean Basin. This includes Canada, the United States, Mexico, Venezuela, Colombia, the Caribbean and Central America. Such an informal

group, modeled on the Inter-American Dialogue or the Trilateral Commission (only with a more specific mandate), might eventually propose the establishment of a Caribbean Basin Parliament or Assembly that could

address salient issues in a more formal and authoritative way.

The Caribbean is small in size and population but of large importance to the United States. If the Caribbean is to fulfill its potential, the answers must come first from the region. We believe a compact between the United

States and the Caribbean is necessary, but that it should begin only after the region's leaders demonstrate a commitment to new economic policies aimed at promoting exports, expanding investment, minimizing fiscal

and current account deficits, and providing incentives for return migration by skilled labor.

Such a plan of self-reliance is not autarkic; it is not intended to shield the region from the competition of the world. Quite the contrary, the plan is designed to make the region more competitive. It does not rely solely on the

market; it is premised on the idea that governments have a crucial role to play in fomenting development, not in production, but in regulating and ensuring that those who are disadvantaged by the market system are

compensated by those who gain.

The United States should take a long view of the region and realize that a relatively small investment can yield a bountiful dividend in assuring a democratic and prosperous neighborhood. By opening its markets and

providing financing, the United States would be helping these countries provide jobs for restless youths who might otherwise consider illegal migration or drugs.

Haiti has now presented an opportunity to move toward a new horizon. CARIGOM and the United States ought to embrace this new democracy and devise a political framework that will prevent it from returning to

dictatorship while at the same time guaranteeing the democracies of the entire region. The steps to deter such an adverse swing of the pendulum need to be clear and uniformly accepted by all; they should run the gamut

from diplomatic to economic to military sanctions. Their goal is to ensure the vitality and permanence of democracy for the entire Caribbean Basin.

Notes

1 See John Williamson, The Progress of Policy Reform in Latin America, (Washington, D.C.: Institute for International Economics, 1990).

2 U.S. International Trade Commission, Annual Report on the Impact of the Caribbean Basin Economic Recovery Act on U.S. Industries and Consumers, Fourth Report, September 1989, p. 6.

3 Joseph Pelzman and Gregory K. Schoepfle, cited in "U.S. Sugar Quotas and the Caribbean Basin," by Stuart K. Tucker and Maiko Chambers, Overseas Development Council, Policy Focus no.6, December 1989, p. 4.

4 Statement by Senator the Honorable David Coore, Q.C., Minister of Foreign Affairs and Foreign Trade of Jamaica, at the Forty-fourth Regular Session of the United Nations General Assembly, New York, Oct. 4, 1989, p.

11.

~~~~~~~~

By Robert Pastor and Richard Fletcher

Robert Pastor, professor of political science at Emory University and a fellow at the Carter Center, was Director of Latin American Affairs on the National Security Council, 1977-81

Richard Fletcher, Deputy Manager for Programs at the Inter- American Development Bank, served as Jamaica's Minister of State for Finance and Planning, 1977-80. The opinions expressed are the authors' alone. This

article is adapted from a study commissioned by the World Peace Foundation. Copyright c 1991 by Robert Pastor and Richard Fletcher.

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Source: Foreign Affairs, Summer91, Vol. 70 Issue 3, p98, 17p

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