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Contributor: James Ogunleye
St Lucia?s Deepening Recession

When he was campaigning for re-election in 1992, John Compton, St Lucia?s Prime Minister until February, likened himself to the Biblical Moses. He promised to lead his people to the promised land. Against the background of a strong economy the premier urged the electorate to ?keep St Lucia in good hands.? He won the election. But three years later the economy went bust, leaving a financial crisis in its wake.
Indeed, St Lucia?s journey to recession has been stealthy, taking ardent economic watchers by surprise. For years, the island prided itself as being one of the more durable economies in the Caribbean, with an average gross domestic product growth rate of 5 per cent in the five years to December 1993. Indeed in 1992 the GDP rose to 7.1 per cent, compared to 1.2 per cent for Jamaica and -5.3 per cent for Barbados during the same period. Its inflation was whittled down to 0.7 per cent as the government kept a tight rein on public spending. On the external front, the perennial balance of payments current account deficit was kept under such tight control that by year ending 1993 it had been reduced by 35 per cent from US$ 67.7 million in 1991. The government also tried to firm up the country?s external cash reserves position, up from US$44.6 million in 1990 to $60 million in 1993. It was against this background that Compton?s United Workers? Party cruised home to a second term victory in the 1992 general election. Now the party is over and late last year, in what looked like a rearguard battle to winch the economy from the precipice, John Compton initiated a series of top level crisis meetings with the country?s civil service chiefs. So, what went wrong?
The problems of the St Lucian economy are legendary - some as old as the 71 year old former premier. At the heart of the crisis is the shrivelling export revenue from bananas, the island?s leading foreign exchange earner. The reason for this is two-fold, one is due to a slump in banana production - down by 16.6 per cent in the first quarter of 1995 - the other is due to tough competition in the export market by producers in South America. The Windward Islands, it will be recalled, have been toughing it out with their South American competitors in a seemingly endless banana war (see Black Perspective, March/April 1995). In 1994 St Lucia lost a total of EC$21 million due to the aforementioned drop in banana export earnings.
The island?s second major problem is the crippling national debt, totalling EC$1 billion. Out of this amount the internal debt accounts for some EC$650 million while the external debt accounts for the rest. St Lucia?s debt rose from US$65 million in 1989 to US$82 million in 1991 and by year end 1994, it had ballooned to US$101.2 million. In 1992, an estimated 3.5 per cent (US$11.4 million) of export earnings were used to service external debt. What really compounds the debt problem, according to the government, has been the sharp drop in aid from the Western donors. For instance, grant and budgetary support to St Lucia in the fiscal year 1993/94 was EC$56 million but by year end 1995, that figure had dropped to EC$27 million, leaving a big hole in the government finances.
The reduction in Western aid to St Lucia may look punitive on the surface but, in reality, observers say it wasn?t unexpected. One justification for cutting the aid is St Lucia?s poor record of book keeping on the previous aid money. It was the same reason - for instance - that led the United Nations International Drug Control Programme to cancel its education project in the island in May 1995. The UN project was launched in 1991 with a total budget of EC$135 million.
That is not all. The country?s civil servants also played a part in wrecking the economy. Last year, after months of running battles with the government, the public workers twisted the knife with a six-week strike that succeeded, to some extent, in forcing the government to pep up their pay-packets and hence quicken the descent of the economy into recession. Reacting to the strike an enraged John Compton warned that St Lucia ? cannot continue to buy industrial policy peace by borrowing (itself) into bankruptcy.? Compton was right. At the moment a tidy 45.6 per cent of the island?s recurrent expenditure goes on the wage bill, leaving essential services to share the crumbs.
Another compounding factor is the island?s world-beating population growth rate. Although its population is only 142,000, its estimated 6 per cent annual growth rate is one of the highest in the world. For a country with an estimated current average GDP growth of 2.5 per cent and unemployment rate in the region of 20 per cent, feeding the new mouths will continue to be an uphill struggle for the government.
But then, the government?s attempts to firm up its foreign exchange earnings could help reverse its economic misfortunes. Last December, in a management buy out, St Lucia together with Dominica, Grenada, Vincent and Fyffles, the Dublin-based fruit and vegetable company paid US$222 million for Geest, a UK- based banana trader, which controls a third of the Island?s total sales. By buying Geest, the Windward islands now have greater control over a key aspect of banana industry - shipping and marketing of banana in Europe. Beyond this, however, the government is also pressing ahead with its expenditure-cutting exercise while a reform of the tax system might not be far away.
Laudable as these measures may seem, some observers argue that anything short of a commitment to the International Monetary Fund-supported structural adjustment programme would be too superficial to change the country?s fortunes. Even Compton was not oblivious to this possibility when he warned in his 1995/96 Budget presentation to the parliament last June of the need for St Lucia to live within its means, and added rather darkly that excessive wage demands ?may well be the last straw that breaks the camel?s back and send St Lucia limping into the arms of the IMF.?
Indeed, the prospect of a structural adjustment programme now looks real with Compton?s retirement after 30 years as a key figure in government. As Dr Vaughn Lewis - economist and former Director- General of the Organisation of Eastern Caribbean States - takes over the leadership mantle, the expectation is high that he might just be the man to halt St Lucia?s race into deeper recession.
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