Latin Finance - May 2008 - 47

caribbean outlook to have the platform in place before the end of the third quarter, Yarde says. Observers are not holding their breath. “Wheels turn very slowly in the Caribbean,” Wendell Mottley, senior advisor at Credit Suisse who was finance minister of Trinidad and Tobago from 1991-1995, tells LatinFinance. “I don’t see it happening in the next three years,” he adds. Beyond the technical problems that unification brings, low dynamism in the markets involved adds difficulty. “All the insularities continue,” says Mottley. “But the real problem is that the markets continue to be thin, illiquid, therefore there has been no real drive,” he states. A lack of new issues is a significant block. “That takes away the dynamism that would then have pushed the markets into integration. Lethargy is one of the contributing factors why this has not happened sooner,” says Mottley. Jamaica Debt Mountain, Bajan Breeze A successful markets marriage could help spur the economies of all nations involved. The IMF forecasts GDP growth of 4.4% for the whole of the Caribbean this year, down from a 2007 estimate of 5.7%. The region has a projected inflation rate of 7.4% for 2008, lower than the 2007 estimate of 9.0% according to the multilateral. Jamaica, for one is still dogged by a debt mountain amassed during the bailout of its financial system in the 1990s. Investment in tourism has not been enough to stabilize the country’s economy, which still has a debt-to-GDP ratio close to 120%. Being an importer of oil dogged by rising inflation and a dwindling flow of tourists because of the US slowdown does not help in the current global scenario. Nevertheless, the government has a reputation for creating primary surpluses and paying debt on time, notes Jane Eddy, managing director of S&P LatAm corporate and government ratings. Jamaica has other structural advantages that could help steer it to safer waters. “It is a country that has strong institutions for Latin America,” Eddy adds, “relatively low levels of perceived corruption, a transfer of power that has been quietly achieved and with the same commitment to debt service.” The country is expected to have GDP growth of 2.4% in 2008, up from 1.4% in 2007, according to the IMF. Inflation, although receding, remains among the highest in the region with a projected 14.4% for 2008, down from 16.8% in 2007, the multilateral reports. Political stability and strong governance in both public and private sectors distinguishes Barbados from other countries in the region. It has diversified from manufacturing and agriculture toward services. It seems to be better positioned to weather a US tourism slump. “Their tourism base is more geared toward the UK,” says Olga Kalinina, analyst at S&P. “That may positively differentiate Barbados compared to other Caribbean destinations,” she adds. The new government is expected to continue to be strict on the fiscal side, Kalinina says. It is also expected to bring more transparency to governance of fiscal accounts. The Barbadian economy is projected to expand 2.7% in 2008, down from an estimated 4.2% in 2007, according to the IMF, which also places inflation for the year at 2.3%, significantly lower than an estimated 5.7% last year. stabilization fund, a $2 billion mechanism to further this project. “In 10 years, I see Trinidad and Tobago very close to being a developed country,” Dhanpaul adds. “Everything is basically in our favor. Hydro carbon prices continue to rise and we have diversified the economy,” he adds. He concedes, however, that there are some inflation problems. Another of challenge is finding a labor force for the multiple construction projects happening in the islands. “We have been importing labor from China,” Dhanpaul says. He adds that this has been going so well that Shanghai Construction Group has moved its LatAm head office to Trinidad. The Trinidad economy is expected to grow 5.9% this year according to the IMF, up from an estimated 5.5% in 2007. Inflation is projected at 7.0% for 2008, down from 7.6% last year, according to the multilateral. New Investments, New Partners Other areas of the Caribbean continue to take advantage of the commodities boom. Guyana has benefited from high prices for bauxite and alumina. Still, tourism remains the mainstay of the island nations. “We have seen a lot of European investment in [the tourism industry of] Jamaica, the Bahamas and other Caribbean islands,” Mottley says. “There has also been a lot of second home construction for wealthy Americans, Canadians and Europeans that have been driving the construction sector in Jamaica, the Dominican Republic, the Bahamas and Barbados,” he adds. As clouds darken in the US and Europe, new partners are coming to the rescue. Venezuela, long an absent player in the region even though its entire coastline faces the Caribbean, has leveraged PetroCaribe, an energy cooperation agreement aimed at small island nations. The South American country also has investments in Jamaica’s oil company, Petrojam, and in oil-related operations in Curaçao, Dominica and other islands. LF Reserved T&T Engine The dynamo of the region is Trinidad and Tobago, an oil and gas rich country fueled by the global energy markets boom. “I see no letup in the short or medium term of that energy dynamism coming out of Trinidad and Tobago,” says Mottley. “There’s continuous large inward foreign investment in projects in Trinidad’s gas derivatives industry, metals and chemicals industry.” However, the government is keeping its feet on the ground amid all the success. “We don’t like the word boom because it suggests that something is going to bust,” Vishnu Dhanpaul, deputy permanent secretary of the country’s ministry of finance, tells LatinFinance. Continuing challenges for the country include boosting tourism prospects and diversifying into new service sectors in order to generate solid economic growth. The Trinidadian government is also trying to establish the country as a regional financial center, Dhanpaul says. Last year, parliament approved the heritage and UPDATE For more on the Caribbean see www.latinfinance.com > May 2008 LATINFINANCE 47

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Latin Finance - May 2008

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