Grenada

One Part of Something Bigger

It has been almost four years since I first became involved with the regional public-private dialogue initiative, the Caribbean Growth Forum (CGF). In June 2012, I walked into the conference room at University of the West Indies, Mona Campus for the Launch of the first phase of the initiative and there was something electric in the air. It was new and fresh, but old fears lingered; was this to become 'just another regional talk-shop?'

Wide-eyed and optimistic I was determined that for my small part it wouldn't turn out that way.

So what can be done to contain volatility and spur growth in these countries?

Understanding Macroeconomic Volatility: Part 5. Read parts 1-4 here

How does this affect the small island economies of the Caribbean?

Understanding Macroeconomic Volatility: Part 4. Click to read the rest of the series

What’s the connection between financial development, volatility, and growth?

Understanding macroeconomic volatility part 3
Read parts 1 & 2

There’s good evidence that a country’s level of financial development affects the impact of volatility on economic growth, particularly so in less developed countries, as the charts below demonstrate

Do rich and poor countries have different approaches to counter-cyclical spending?

Understanding Macroeconomic Volatility: Part 2

The fact is that a government can soften a recession by increasing spending (the counter-cyclical approach) to raise demand and output. If government reduces spending (the pro-cyclical approach), the likely result is a deeper recession.

Tame macroeconomic volatility to boost growth and reduce hardship in the Caribbean

Volatility in financial markets gets wide attention in the public eye. Less noticed is what we in the development world call macroeconomic volatility—faster-than-desired swings in the broad forces which shape an economy. Think investment, government spending, interest rates, foreign trade and the like.

There are three key questions to analyze: how do these forces interact, what is their effect on overall growth, and what policies are best to follow? All this is of more than academic interest: macroeconomic volatility can bring substantial hardships to millions of people

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A boat trip from Port Elizabeth to Kingstown, in the Caribbean country of Saint Vincent and the Grenadines, is a one-hour trip that locals take several times a day. It was during one of these journeys that the boat of Kamara Jerome, a young Vincentian fisherman, ran out of gas six miles from Bequia City in what is termed locally as the "Bequia Channel." While waiting for help with strong wind gusts and the sun on his head, the idea of developing a boat that would run with wind and solar energy was born. Soon after, the idea became a prototype; a boat using green technology was on the water making 20-year-old Jerome a winner of international innovation competitions and a role model to other Caribbean youth.

In Mexico, young engineer Daniel Gomez runs a multimillion bio-diesel company originally conceived as a research project for his high school chemistry class. Gomez and his partners - Guillermo Colunga, Antonio Lopez, and Mauricio Pareja - founded SOLBEN (Solutions in bio-energy in Spanish) in their early twenties.

Although Daniel and Kamara have different educational backgrounds, they do share one important skill, the ability to identify a problem, develop an innovative solution, and take it to the market. In other words, being an entrepreneur, an alternative to be economically active, that seems to work and not only for a few.

Disaster Risk: Using Capital Markets to Protect Against the Cost of Catastrophes

In addition to their often devastating human toll, natural disasters can have an extremely adverse economic impact on countries. Disasters can be particularly calamitous for developing countries because of the low level of insurance penetration in those countries. Only about 1% of natural disaster-related losses between 1980 and 2004 in developing countries were insured, compared to approximately 30% in developed countries. This means the financial burden of natural disasters in developing countries falls primarily on governments, which are often forced to reallocate budget resources to finance disaster response and recovery. At the same time, their revenues are typically falling because of decreased economic activity following a disaster. The result is less money for government priorities like education or health, thereby magnifying the negative developmental impact of a disaster.

To address this problem, the World Bank Treasury has been helping our clients protect their public finances in the event of a natural disaster. The most recent innovation is our new Capital-at-Risk Notes program, which allows our clients to access the capital markets through the World Bank to hedge their natural disaster risk. Under the program, the World Bank issues a bond supported by the strength of our own balance sheet, and hedges it through a swap or similar contract with our client. The program allows us to transfer risks from our clients to the capital markets, where interest in catastrophe bonds is growing.

Shaping the Debate on Promoting Jobs and Competitiveness in Small Island Developing States

The United Nations has declared 2014 as the International Year of Small Island Developing States (SIDS), in recognition of the contributions this group of countries has made to the world, and to raise awareness of the development challenges they confront – including those related to climate change and the need to create high-quality jobs for their citizens.

The Third International Conference on SIDS in September in Apia, Samoa will be the highlight event. The World Bank Group is helping shape the debate on both climate and jobs with a delegation led by Rachel Kyte, the Group Vice President and Special Envoy for Climate Change, and with senior-level participation in the conference’s Private Sector Forum.

Is the global jobs agenda relevant to small islands states?

Tackling the challenges related to the jobs agenda in large and middle-income countries could be seen as the most significant issue for the Bank Group’s new Trade and Competitiveness Global Practice, of which I’m a member. Yet the Minister of Finance of Seychelles recently challenged my thinking on this.

At the June 13 joint World Bank Group-United Nations' High-Level Dialogue on Advancing Sustainable Development in SIDS (which precedes the September conference on SIDS), the presentation by Pierre Laporte, the Minister of Finance, Trade and Investment of Seychelles – who is also the chair of the Small States Forum – led to a lively discussion on various job-creation and growth models that the SIDS countries may want to pursue.

The sentiment among SIDS leaders was that one-size-fits-all solutions will not do when it comes to jobs and growth. Yes, they do want to continue to address the tough fiscal challenges they face, but they want to tackle them while creating job opportunities for their citizens.

Decades of reforms have not helped SIDS grow at a rate similar to the rest of the world: On average, their pace of job creation is about half the global rate. The lack of opportunities felt by many generations resulted in a heavy “brain drain” that exceeds the level seen in other developing countries.

It is becoming very clear that business as usual in SIDS will not do. Creative solutions need to be found now.

Latin America and the Caribbean: Back to Normal?

The ritual publication by the leading multilateral organizations, think tanks and investment banks on the macroeconomic outlook for Latin America and the Caribbean which, without being too dramatic, puts an end to the era of growth rates above the region’s potential, has inevitably attracted the interest of policymakers, investors and the public in general.

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