Trouble in paradise

Palm trees line a boat dock in St. John's, Antigua. Bloomberg News

BASSETERRE, St. Kitts: The Caribbean's small island states ride out hurricanes year after year, but they are fighting to stay afloat in a global economic storm that is battering rich and poor nations alike.

Tiny nations like twin-island St. Kitts and Nevis, a short chain of lush green volcanic cones set in an azure sea, have felt the shocks of the downturn and credit crunch as keenly as the winds and seas that lash them every summer.

Their high dependence on tourism, remittances, investment flows, imports and commodity prices makes than all the more vulnerable to recent worldwide economic tremors that have shaken giants like the United States.

Shock has followed shock. First, soaring oil prices last year pushed up energy and food import bills and swelled inflation. Then, recession in the United States and Europe cut tourism and investment flows.

The International Monetary Fund forecasts that real 2009 GDP for the eight-member Eastern Caribbean Currency Union (ECCU), which includes St. Kitts and Nevis, will contract by 2.5 percent "reflecting a sharply-slowing global economy, declining tourist arrivals and foreign direct investment flows, and increased financial sector stresses".

"It's been difficult, it's not without pain, and we have gotten wet," said Richard Skerritt, St. Kitts and Nevis' tourism minister, citing a 12 percent January-April drop in visitors from the United States.

Since the local sugar industry closed in 2005, tourism has taken over from "King Sugar" as the economic mainstay on the twin-island state of 40,000 people and now contributes an estimated 40 percent of GDP.

Any dip in visitor activity is painful. The January-April visitor fall-off forced the country's biggest resort, the St. Kitts Marriott, to lay off 100 employees.

"That was a shock, because in a small country, lay-offs hurt everybody," Skerritt said.

Nature has also taken its toll on the former British territory. Hurricane Omar, which pummeled St. Kitts and Nevis last year, forced the closure in October of the Four Seasons, the biggest resort on Nevis, which has still not reopened.

'Weathering the storm'

To the east, Antigua and Barbuda's hotels suffered a 30 percent decrease in occupancy, and government revenue fell by 25 percent, Antigua Prime Minister Baldwin Spencer said.

St. Kitts' Skerritt said his government was fighting back.

It had removed some duties and taxes to shield consumers from price rises in basic food, introduced stimulus measures for small hotels and negotiated hard with airlines and big resort operators to try to keep visitors coming.

"We are weathering the storm better than most," Skerritt told Reuters.

St. Kitts was banking on the Christophe Harbour project, a big new hotel, marina and golf course development on its southeast peninsula, to attract new visitors.

Skerritt said the new resort was already affecting the local economy and had created some 100 new jobs.

Citing another encouraging sign, he said St. Kitts' cruise passenger arrivals had increased by 150 percent in the last three years, from 200,000 to 500,000, thanks to the Port Zante cruise terminal which now has more than 50 shops.

But spending by cruise visitors was sharply down across the Caribbean, retailers and tour operators said.

"It's the same story in Jamaica and the Cayman Islands. All the big retailers are down," said Avi Sippy of Diamond Island Jewelers in Port Zante.

In St. Lucia, whose 170,000 population is one of the largest in the eastern islands, the government is putting a brave face on the situation.

"Tourism arrivals remain fairly buoyant, although there is a fair degree of discounting (of prices)," Foreign Affairs and Trade Minister Rufus Bousquet told Reuters.

"I'm not suggesting it's a rose garden, but we're paying our bills," Bousquet said.

At a June summit in St. Kitts of the regional energy alliance PetroCaribe, Jamaican Prime Minister Bruce Golding warned that the recession could stoke social tensions and inequalities.

"Poverty that had been reduced, we are in danger of that poverty returning ... We fear a real danger that we will come out of this crisis with the gap between rich and poor countries widening," Golding said. He demanded "a seat at the table" for small developing countries at global groupings like the G20.

Compounding their troubles, recent high-publicity fraud scandals and financial collapses have pummeled the region's financial sector.

Analysts say the case of Texas billionaire Allen Stanford and his Antigua-based banking operation, charged in the United States with running a "massive Ponzi scheme", is another black eye for the Caribbean's offshore finance sector.

The charges have implicated Antigua's top financial regulator, in a region critics say lacks adequate financial control and oversight.

Similarly, the collapse earlier this year of the Trinidad-based Caribbean business conglomerate CL Financial has sent shock waves through the Eastern Caribbean's financial system, the International Monetary Fund says.

"High government exposures, credit risk and liquidity risk present major threats to ECCU banking system stability," the fund said in a report published in May.

ECCU members are Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia and St Vincent and the Grenadines.

Many regional governments view calls from the developed world for the Caribbean to clean up its tax havens as unfair.

But some are moving to sign multiple bilateral tax treaties to meet demands for more financial transparency and oversight.

"It's a good way to show transparency and to generate business," said St. Lucia Foreign Minister Bousquet.

Reuters

(China Daily 07/06/2009 page11)