Fortifying Our Economy to meet New Challenges - Statement by Prime Minister to House of Assembly - September 25, 2001
Mr. Speaker, prior to the preparation of this statement to Honourable Members, I engaged in wide ranging discussions with our Social Partners on the challenges facing our economy. I have met with managers of our commercial banks, a representative cross-section of the Saint Lucia Chamber of Commerce, and the leadership of Trade Unions operating in the public and private sectors. I have also benefited immeasurably from discussions with numerous individuals in the public and private sectors. In these discussions, I shared with all, the Government’s assessment of the performance of the economy, the impact of the global recession, the likely aftershocks to our economy, of the terrorist attacks on the United States, and the plans of the Government to stimulate the economy and manage our affairs during these turbulent times. The Minister of Tourism also engaged stakeholders within the vital tourism industry to fashion a response to the complicated challenges facing the industry at this time.
Throughout these discussions, I have been impressed by the commitment to work together in partnership to ensure a unified response to manage the contraction in the economy. We must sustain this momentum.
ESTABLISHMENT OF NATIONAL ECONOMIC COUNCIL
Consistent with the new spirit of partnership and co-operation, Government agrees that the time is right to implement the decision of the Monetary Council of the Eastern Caribbean Currency Union that all Member States establish National Economic Councils (N.E.C.) to involve the Social Partners in guiding and shaping economic policy. The Council will draw its membership from the Public and Private Sectors and will be representative of our Social Partners.
The Government has also warmly accepted a proposal from the Chamber of Commerce to establish a Public Sector/Private Sector Council to comprise members of the private sector, government, trade unions, the banking sector and other social partners.
The Chamber’s proposals are constructive and totally consistent with the long-standing proposal of the Government to establish a Council of Social Partners. The mandate of this body will be wide ranging. It will focus on labour, economic, social, and judicial issues, indeed, on any matter of priority touching on the development of Saint Lucia.
Mr. Speaker, in the course of presenting the 2000/2001 Budgetary Statement, I indicated that the economy of St. Lucia faced a worsening international economic environment, weakening economic performance in OECS States, and serious dislocation in the major productive sectors. Since that statement in March, Saint Lucians have watched the deepening of the world recession and the barbaric attacks by terrorists against innocent citizens in New York. Unfortunately, the negative effects will be greatest on our prime sector - the hospitality industry. Despite these events, Saint Lucians cannot stand by helplessly. We must meet the challenges to our economic survival and march forward together. The solutions to the very serious problems which confront the world economy and our own economy do not rest with any single segment of our society, although each one has a role to play. It rests with each and everyone working together patriotically and harmoniously.
REVIEW OF PERFORMANCE
It is helpful if we review the performance of our economy over time in order to place the present situation in context. During the period 1993-1997, the average growth rate experienced was 1.3% with rates ranging from a high of 1.8 per cent in 1994 to a low of 0.6 per cent in 1997.
In recognition of this unsatisfactory historical performance, the government instituted since 1997, various measures aimed at stimulating our growth rate. A level of growth of 5.0 per cent per annum is viewed as necessary to ensure poverty reduction and the generation of employment opportunities. The measures instituted included commencement of works on a number of capital projects including the free zone in Vieux Fort, Fisheries Complex in Vieux Fort, road rehabilitation works and the construction of two new secondary schools. In addition, the government intensified efforts at attracting long-term foreign investment. Bouyed by increased construction activity associated with the government investment program, and private and commercial activity, along with continued improvements in expansion in the tourism industry, the economy rebounded and registered growth of 3.1 per cent and 3.5 per cent in 1998 and 1999 respectively. These rates of growth were not sustained in 2000 and the growth rate fell back to 0.7% in that year.
It should be noted that despite these healthy performances in 1998 and 1999, it was equally recognized that certain segments of the economy remained under severe pressure. In particular, the global dictates of competition adversely affected the under-prepared manufacturing sector and the banana industry, still in the throes of readjustment.
However, having achieved the minimum targeted growth rate of 3 per cent in 1998 and 1999, it was recognised that the toughest challenge would be sustaining and accelerating the growth rate to the desired level of 5.0 per cent. Attainment of this objective was heavily dependent on the existence of a favourable external environment. With the recent shockwave since September 11, our worst fears have now come to pass.
DECELERATION OF US ECONOMY
As indicated in the Budget Address, the major engine of world growth, the United States, decelerated at a drastic pace during the fourth quarter of 2000. The American economy being so large - accounting for more than 25 per cent of total World GDP – the effects of a slow down are bound to be far- reaching. This deceleration has persisted in 2001 despite the rate cutting efforts of Federal Reserve Chairman Mr Allan Greenspan. In the course of this month, the Federal Reserve reduced interest rates for the eighth time, the most aggressive anti-recessionary policy implemented since 1993.
The United States economy grew by 4.1 per cent in 1999, while growth for the first quarter of 2000 was 2.3 per cent, slowing to 1.9 per cent by the fourth quarter. America’s GDP in the second quarter of 2001, grew at an anemic rate of 0.2%, the weakest in eight years, and although there are signs that the economy may be nearing the bottom of the trough, there is little indication of an early or quick recovery.
The unprecedented ten year period of sustained growth recorded in the USA was occasioned by high levels of investment in the technology sector, along with consumption and investment spending associated with the wealth effect. In other words, Americans got exceedingly rich during that period due to the amount of money earned by investing in stocks and bonds, which appreciated at a rapid rate. With high levels of excess funds, consumers were very willing to engage in high expenditure and their willingness and ability to travel also expanded.
This remarkable expansion has been brought to a sudden halt, resulting in significant job losses. In the month of July for example, 206,600 individuals were laid off, the highest one-month decline in employment since 1995. The manufacturing sector reported layoffs of 49,000 in July, whilst in the telecommunications sector, the retrenchment rate is increasing. Latest unemployment data indicate a 1.0 per centage point rise in United States unemployment during the last 10 months. Additionally, 100,000 persons have lost their jobs in the airline industry in the USA, in the aftermath of the terrorist attack.
OUTLOOK IN EUROPE
It was anticipated in some circles that the severity of the global meltdown would have been moderated by strong growth in the European countries. However, the outlook for Europe has deteriorated and the initial growth projection of 3% has been revised downwards. In the second quarter, Germany, the largest European economy, stagnated, while growth in the Euro area as a whole hovers around zero. Meanwhile, Japan remains in deep recession, along with a severe liquidity trap which has restricted the effectiveness of its monetary policy.
RECESSION IN EMERGING ECONOMIES
The East Asian economic giant, Singapore, went into recession in the second quarter of 2001, when GDP growth fell by an annualized rate of 10% after an 11.3 per cent contraction in the first quarter January-March 2001. It is widely expected that Singapore will record its first year of negative growth since 1985. Present data emanating from Taiwan indicate that the economy is heading for recession. In the second quarter, GDP shrank by 2.35%, the first decline in Taiwan for 26 years.
America’s immediate neighbours, especially Mexico, have been quick to catch the cold. Mexico’s buoyant performance in recent years has been reversed and that country is now in the third quarter of recession. Argentina’s economy is on the verge of a major financial and economic crisis. The country is in the process of implementing a severe IMF adjustment program to avert defaulting on debt payments. The program will be supported by a US$8 billion IMF package.
Unlike the threats posed to the world economy by various emerging economy crises – as occurred in 1994 and 1998 - the impact of this contraction in the world’s engine of growth is more severe. In fact, it was the robust performance of the American economy which had previously staved off the contagious effects of emerging market turbulence. Consequently, it is estimated that total world output probably fell in the second quarter of 2001, for the first time in two decades.
Like the Latin American economies, the small fragile economies of the Caribbean are heavily dependant on the United States economy. The importance of the United States market to the OECS and Barbados is reflected in the fact that their currencies are pegged to the United States dollar, which emphasises the fact that the United States is our major trading partner. The United States is a heavy consumer of goods and services produced in the region, like tourism and financial services. In addition, the United States is a major exporter of capital to the region in the form of investments in our tourism plant.
During prosperous periods, the US demand for goods and services increases. It is generally the case that during expansionary periods, there would be a natural growth in the demand for St. Lucia’s exports and in particular tourism services. Furthermore, as wealth generated in the United States expands, individuals with excess liquidity will seek to diversify their investment portfolio by undertaking long-term foreign investments. Thus, demand is generated for our exports and our investment requirements simultaneously. This process creates greater demand for our workers. During a period of declining income, the reverse occurs. Exports create the domestic demand for labour services. Thus, when there is a reduction in the foreign consumption of bananas and tourism, local employment suffers.
ECONOMIC SLOWDOWN IN THE OECS
Concern about the future is shared by the Eastern Caribbean Central Bank. In his report to the Monetary Council in August this year, the Governor, Sir Dwight Venner, noted the following features of the economies of member states:
In light of this situation, the Governor advised Member Countries as follows:
The Government of Saint Lucia, together with other Governments favourably considered these proposals. I have indicated that Government will establish a National Economic Council, in accordance with the decision of the Monetary Council.
The contagion which I referred to earlier, has also spread to Barbados. The Prime Minister and Minister of Finance of Barbados, The Rt. Hon. Owen Arthur, advised Barbadians on August 08, 2001, that the Barbados economy is expected to grow between 1 and 1½%, the lowest since expansion started in 1993. That was before the terrorist attacks on the United States. Recently, the Barbados Advocate reported that Prime Minister Arthur warned that " the events that took place in the United States have led to certain developments that the Caribbean must address by emergency measures, or face an economic catastrophe of a kind that the region has never before had to experience". (See BARBADOS ADVOCATE, September 20, 2001, Page 32). I concur with this view.
The situation is sufficiently worrisome that OECS Prime Ministers will meet in St. Lucia on Friday to jointly consider policies and strategies to stabilize the regional economy.
FISCAL AND DEBT PERFORMANCE
In recent times, there has been considerable discussion on Saint Lucia’s public debt. Some of it has clearly been mischievous. Perhaps we could all be better informed by a party other than the Government of Saint Lucia. This is what the Governor of the Central Bank had to say about Saint Lucia’s fiscal and debt performance in the context of the economies of the OECS:
As such, St. Lucia’s fiscal and external debt ratios compare favourably with those sister economies within the group, showing a very manageable situation for the time being. Nevertheless, as I have said, the present solution does not lie in accumulating any significant additional debt at this time, except for a special facility to revitalize the banana industry which I will address later.
PERFORMANCE OF DOMESTIC ECONOMY
The St. Lucian economy is estimated to have experienced a severe contraction during the first half of this year. Based on the current trend, it is projected that the economy is likely to experience further contractions unless certain policy measures are speedily implemented. The contraction was most obvious in the two leading sectors, bananas and tourism.
The banana industry weakened further, because of the effects of the worst drought in 40 years, the drastic reduction in prices last October, and the effects of Leaf Spot disease earlier this year. This occurrence has exacerbated the other adjustment difficulties faced by the industry. The continued slide of the pound sterling vis-a-viz the Eastern Caribbean dollar, has resulted in a lowering of revenue from banana exports. Banana exports contracted by 42.6 per cent during the first half of the year, whilst banana export revenue is estimated to have declined by similar proportions.
The demand for our major export, tourism, has recorded a sharp down-turn due to the contraction in the United States and European economies and more intense competition from cheaper destinations. As if this was not enough, we now have to contend with the consequences of that wicked and diabolical attack on the United States by terrorists. Understandably, Americans are afraid to leave their country, whether by air or sea. The looming retaliatory action by the United States will deepen uncertainty, and intensify the fear of traveling. We must expect worse for tourism, but we must not panic.
The tourism industry is also severely affected by the strength of the United States dollar. The appreciation in the value of the dollar relative to other European currencies has resulted in a decline in European arrivals and more competitive pricing from Europe and Asia. The US hotels are also more aggressive in trying to attract domestic business to buffer the shortfall from Europe.
Based on the current trend, stayover tourism arrivals are projected to decline even more than the initially projected figure of 18 per cent in 2001. A contraction of that magnitude is estimated to result in a reduction of approximately EC$96m in visitor expenditure. Revenue collected by the Central Government is likely to record a substantial decline, due to lower receipts from hotel accommodation tax. The situation may deteriorate and could possibly lead to further closures and job losses in the tourism industry. The Government will work strenuously towards averting this possibility.
The downturn in the industrialized countries and in particular the USA, has impacted on all the economies of the Caribbean that are heavily dependent on the export of services. Available data from Caribbean destinations provide further credence to the importance of the US and European economies for growth prospects in the OECS. In Antigua, Jamaica and the Turks and Caicos, United Kingdom arrivals declined by 18.5%, 14.5% and 25.2% respectively during the period (January-March) this year. European arrivals to Cancun (Jan-April) and St. Maarteen (January only) contracted by 10.5 per cent and 20.2 per cent. US arrivals to Barbados and Bermuda contracted by 2.2 per cent and 15.5 per cent respectively during the period (Jan-March).
Overall visitor arrivals (Jan-April) declined by 14.3 per cent in Antigua and Barbuda, 12.4 per cent in Barbados and 4.0 per cent in Monsterrat. Meanwhile, total visitor arrivals contracted in Bermuda (Jan-April) by 16.5 per cent, Cayman Islands 8.0 per cent, Grenada (Jan-May) 11.7 per cent and St. Kitts and Nevis (Jan-April) by 12.2 per cent.
Available evidence indicates that the main engine of world economic growth the U.S economy, is unlikely to rebound to higher growth over the short run. Despite the utterances of many optimists, a turning point is yet to be identified. The latest Federal Reserve survey of economic activity indicated that the downturn in the United States was spreading from the manufacturing sector to the rest of the economy. The eight rate cuts by the Federal Reserve clearly suggest that there remains great uncertainty about the possible rejuvenation of the economy.
The Federal Reserve is exceedingly worried about the continued weakening of business profits and capital spending and the slowdown in the world economy. Therefore, the message is clear. The present external conditions are unlikely to change in the immediate future. St. Lucia must, therefore, prepare for a period of adjustment which could prove extremely challenging. The amount of revenue collected by government is closely related to the level of economic activity. A reduction in income invariably leads to a decline in government revenue in the first instance.
From fiscal year 1999/2000, the government undertook to implement selected expenditure controls in response to the decline in revenues, associated with the sharp rise in the price of fuel. The success of these measures is highlighted by the fact that, despite a $20m shortfall in revenue, government still managed to attain a recurrent account surplus of $79.1m to finance its capital program, a shortfall of only $650,000.
In such conditions, it is tempting to heed those who canvass for protectionist policies or those who are of the view that Government should solve every problem without consideration of the financial implications. In attempting to respond to such demands, there can be a powerful temptation to borrow our way out of difficulties, to satisfy the demand to maintain consumption at unsustainable levels. However, such a strategy is nothing but a recipe for disaster and this course of action will not be contemplated. However an exception to the policy of limited debt accumulation will be made in the case of the banana industry fund, due to the urgency and quantity of resources required. This will ensure that St. Lucia remains within the accepted prudential debt guidelines. It is an in-built feature of the OECS Monetary System that whenever there is a contraction in income, consumption must be curtailed to ensure equilibrium is maintained.
The responses which the government will implement, will be aimed at redirecting resources from consumption towards investment in the productive sectors, (principally tourism and bananas). The initiatives to be undertaken will entail a combination of expenditure reduction and expenditure switching policies, aimed at consolidating the fiscal position and allocating as many resources as possible towards investment.
The main ingredients of a successful fiscal consolidation program are (i) the ability to broaden the revenue base and capture all revenues generated,
(ii) reduction in current expenditure (consumption) and (iii) increase resources made available for investment purposes (capital expenditure). The
attainment of (i) and (ii) will imply a higher level of government savings, thus allowing for (iii) to be satisfied without unsustainable debt accumulation, whilst facilitating growth and development.
Overall, the fiscal programme will be directed at ensuring that investment, productive and the social sectors are targeted for special stimulation. Let me now expand on these measures.
TIGHTER CONTROL ON CONCESSIONS
The Government has utilized the granting of concessions as a deliberate strategy to stimulate private sector development. Between January-June 1999 it was estimated that $39.6m was foregone from taxes and duties. This figure increased to $52.7m in 2000 and $56.1m in 2001.
The government intends to significantly tighten up on the granting of ad hoc concessions to ensure that generated revenue is collected. Nevertheless, concessions granted through existing agreements and statutory obligations such as the Fiscal Incentive Act, the Tourism Incentives Act etc., will be maintained. Exemptions will only be made where the imports are for productive purposes in strategic areas which are not provided for under other statutory obligations.
REDUCTION IN TRAVELLING
In order to contain expenditure, the government will reduce travelling of senior officials and government ministers to the minimum level feasible. It will reduce overseas representation at meetings to a minimum.
FREEZE ON NEW EMPLOYMENT IN THE PUBLIC SERVICE
It must be reiterated that viable adjustment measures must target consumption and protect investment in the productive sectors, along with health and education. Wages and salaries are by far the largest component of government consumption. Growth in this category is associated with increasing employment, the increments policy and general wage increases, and reduces the amount of resources available for developmental purposes.
The proportion of current expenditure accounted for by wages and salaries is approximately 54 percent. The avenues available to implement expenditure control in other categories of consumption are limited. Consequently, government will have to contain the growth in wages and salaries. This notwithstanding, relative to the OECS, St. Lucia’s Public Service accounts for the lowest percentage of the population and the labour force.
For example in St. Vincent, Antigua and Barbuda, St. Kitts and Nevis, Anguilla and Grenada, the civil service accounts for 4.8%, 15.7%. 9.0%, 6.4%, and 5.1% of the total population and 9.2%, 28.8%, 15.2%, 10.8% and 8.3% of the labour force respectively. In the case of St. Lucia, the Civil Servants represent 4.8% of the total population and 7.4% of the labour force. It is interesting to note that personal emoluments represent 54% of current expenditure in St. Lucia, second only to Antigua and Barbuda where this component of spending accounts for 56.2%.
In light of the economic difficulties currently being experienced and consistent with the policy of ensuring that adequate resources are made available for investment, the government will place an immediate freeze on new employment in the service. Existing vacancies for which provision was made in the budget will not be activated, except in essential services and exceptional cases. These resources will be channeled into the productive sectors. Furthermore, the government will also place a freeze on all proposals for new traveling posts. In addition, the current policy regarding the granting of increments will be suspended until further notice. This will be done after the Government has consulted Public Sector Unions.
These measures are absolutely necessary to contain consumption. Between fiscal years 1995/96-2000/01 the wage bill (including salaries) has grown by $56.5m from $154.3m to $210.8m. However, as a percentage of current expenditure, wage and salaries accounted for 55.9 per cent in 1995/96 and 51.1 percent in 1997/98. Following the granting of the last general wages increase, this ratio increased to 55.9 per cent in 1999/2000 and declined to 54 per cent in 2000/2001.
It must be noted that the percentage of expenditure accounted for by wages and salaries would have been much higher in 2000/2001 if it had not been for the following arrangements.
The implication of facilitating these payments during this financial year, is a marked increase in expenditure on wages and salaries, and a deterioration of the savings position, with significant implications for the Capital program. Consequently, the proposed control measures are aimed at partially offsetting these unacceptable developments.
The events which I have referred to will have the most damaging impact on the leading sector of our economy, tourism. Our objective is to mitigate the impact of these developments on the all important tourism sector.
The Government applauds the decision of the stakeholders to form a National Tourism Task Force consisting of representatives of SLASPA, SLHTA, SLTB, the Cruise Sector, Yachting Sector, Travel Agents, Airlines, Taxi Operators, Vendors Association and Tour Operators and Representatives. I understand that the first meeting of the Task Force was held at the St. Lucia Tourist Board on Wednesday, September 19, 2001 under the chairmanship of the Minister of Tourism, Hon. Menissa Rambally.
Each and every sector has a part to play in ensuring the viability of our tourism plant. Sacrifices must be made by all.
In that spirit I shall, on the recommendation of the stakeholders, convene a meeting of utility companies to determine how best they could be of assistance to the sector.
Government applauds the decision of taxi drivers to enter into discussions on a reduction of taxi transfer rates for a specified period of time. It shows that they too understand the need for sacrifices to ensure survival and to bring about the greater national good.
To cushion the long-run impact of the decline in the tourism industry and reverse the current trend, an additional $3.7m will be made available by Government to supplement the budgetary allocation of $15m. These additional funds represent resources which would be diverted from other Heads of Expenditure.
These supplementary funds will go towards sponsoring a promotional campaign developed by the St. Lucia Tourist Board in conjunction with relevant social partners.
Honourable Members may also wish to note that Government recently reviewed its policy on the Yachting Sector and Cabinet has now agreed as follows:
NEW INVESTMENT IN THE BANANA INDUSTRY
The economic difficulties experienced during the decade of the 90’s have, to a large extent, been related to adjustment dynamics in the banana industry. Much has been said about the industry and this is not the time to rehash the various arguments. Of greater significance is the fact that the banana industry has been provided with at least five years breathing space. Thus, the semi-protected arrangements allow farmers a ready market for the next five years. During this period, full advantage must be taken of the breathing space. Additionally, this period must be utilized for consolidation to ensure that a competitive core of efficient farmers emerges.
The government allocated approximately $3.5m in the budget from local revenue to establish a revolving credit scheme, to allow qualified farmers access to credit for the purchase of vital inputs. To date $2.4m has already being disbursed and the remainder will be provided. In addition to the monies available from STABEX, the government intends to continue supporting the banana industry in ways which will ensure that productivity gains are realized and revenue generated is maximized. Government will inject on a phased basis over a period of twenty months, a further sum of $16.0 million dollars into the industry, to finance operating costs including inputs, packing sheds, and a team to manage the recovery programme. In addition, $12M under the Special Framework of Assistance Programme (SFA) is now available and will be utilized to implement the Banana Commercialization and Agro Diversification Programme.
NEGATIVE EFFECTS ON MANUFACTURING
The competitive forces which have impacted negatively on the manufacturing sector are magnified by the current economic slowdown. The liberal concessions regime including the retooling allowance, exemptions on the payment of import duty and consumption taxes on all raw materials for productive purposes was aimed at stimulating activity in that sector. Some manufacturers are clamouring for a return to protectionism in violation of regional and international agreements. This is certainly not an option and the focus must remain on increasing competitiveness. The Public can help our manufacturers by purchasing their goods and services.
REDUCTION IN INTEREST RATES
The government will continue to examine, evaluate and initiate measures to encourage banks to reduce the cost of borrowing. The government fully recognizes the discouraging impact of high interest rates on business profitability and viability. We also recognize that this reflects existing market conditions. However, despite the decision of the ECCB not to alter interest rates at this juncture, due to the uncertainty of its impact on the market rate at commercial banks, the government is actively pursuing a policy of encouraging local banks to reduce interest rates to help stimulate and sustain business activity.
The banks must realize that within the scope of prudent management, it is in their best interest to facilitate business growth as this will in turn ensure higher levels of profitability. Maintaining excessively high real effective rates during recessionary periods, will only result in an increase in bankruptcy and increase bad debt provisioning.
The Government notes that the Bank of St. Lucia has reduced interest rates for new development loans from 10% to 9%. The Royal Bank of Canada has reduced its mortgage lending rates from 12.5% to 11.5% and then to 10.5%. So too has CIBC, from a high of 12.5% to 9.75%. The Government is encouraged by the fact that at a recent meeting, the Banks agreed to consider the request of the Minister of Finance to further reduce interest rates.
The Government also intends to encourage the Central Bank to make low cost funds available to the commercial banks which will, in turn, be in a position to finance feasible productive sector projects at lower cost.
NEW MEASURES TO STIMULATE INVESTMENT
The Government will move quickly to introduce two (2) new measures to stimulate investment and production.
Firstly, Government will seek to establish jointly with the Bank of Saint Lucia, an Equity Fund with an initial capitalization of E.C. $10 million dollars to take equity positions up to the lesser of 40% of equity or $500,000.00 in start up and expansion projects that are feasible, have good management, are well capitalized and have good marketing prospects. The Bank of St. Lucia will be asked to manage this fund.
Secondly, Government will cause bonds issued by the private sector for the financing of start-up or expansion projects, to be treated in the same way as Government paper i.e. to be exempt from taxes for the first five years. This should reduce interest costs on borrowings to about 70% - 80% of normal borrowing costs or a reduction in financing costs of up to about 3% per annum for five years.
INJECTION OF FUNDS FOR INFRASTRUCTURAL INVESTMENT
To boost employment in the short-run, especially amongst unskilled workers, the government will advance its infrastructural development program and is expected to pump in at least $6m of additional funds within the next few months. Specially targeted will be infrastructural development, which would induce productivity gains in the real sector. In addition to providing employment, this injection of resources should generate increased activity in the all important retail sector, which has suffered due to the decline in effective demand.
NEW INVESTMENTS IN TOURISM
Mr. Speaker, despite the turbulence, there is good reason to be optimistic about the future, particularly in respect of Tourism. The continued interest shown by foreign investors in the tourism industry, in particular with the construction of Crown Plaza Hotel and the new properties next to the Hyatt, are clear indications that future growth prospects remain strong. Only last week the Government signed an agreement with a consortium to construct in Soufriere, a marina, a hotel of 150 rooms, and a condominium complex. The Government has also cleared the way for the construction of a three hundred room hotel complex in Belvedere, Soufriere.
The government will continue to aggressively pursue foreign investment in the tourism sector. The possibilities provide for both short-term employment via construction activity and long-term competitive gains through improvements in product quality.
IMPACT OF ROAD DEVELOPMENT PROGRAMME
The economy will also receive substantial injections from the Road Development Program which should commence in a few months. This project will also inject significant short-term liquidity into the system. The unfortunate delay of phase 1 , implies that phases I and II will be undertaken simultaneously, thus the immediate impact on the economy will be greater. These road works may possibly coincide with the construction of a few major hotels. The combined effect of which should have a substantial positive impact on the domestic economy in the new year.
In addition, the banana industry has been given additional breathing space. Consolidation of that sector aided by greater credit availability, should induce a recovery in the medium term for the entire economy, as well as improvements in long-term competitiveness with positive spinoffs.
Mr. Speaker, the measures which the Government proposes to introduce may be summarized as follows:
TREMENDOUS CHALLENGES AHEAD
The St. Lucia economy faces tremendous challenges at this juncture. The economic difficulties faced by affected individuals is severe, especially the laid off workers in the tourism industry and the displaced agricultural workers. However, the economies of the Caribbean and St. Lucia have proven to be very resilient in the past. These islands have withstood the oil shocks of the 1970s and the crushing debt crises of the early eighties. Withstanding the challenges posed by liberalisation and the associated dismantling of protective barriers have proven to be a far greater challenge, simply because it is the very external mechanism which assisted in the weathering of these earlier shocks, which has been eliminated.
The greatest advantage which St. Lucia enjoys is its relatively sound fiscal position, which is imperative for the attraction of long-term capital. The government, as can be inferred from this presentation, is committed to maintaining a strong fiscal stance conducive to the encouragement of domestic and foreign investment. Recurrent spending and in particular wage costs must be contained, with the long-term objective of containing the growth of this component of expenditure. This process of accelerated fiscal consolidation is aimed at greater strategic deployment of available government resources.
The government is confident that these steps will ensure that the economy will withstand this bout of economic turbulence. Crucial to the revitalization effort is the pace at which economic recovery occurs in the United States and the world economy. Meanwhile, the necessary measures which could be instituted will be pursued with vigor.
Fellow St. Lucians, our watch-words over the next twelve months must then be expenditure containment and strategic investment. Let us concentrate not so much on the things that we want, but the things that we need. This applies as much to government as to the difficult and necessary corporate and individual decisions that must be made at this time, to harness all our resources in one collective effort of economic survival. We must be resolute and resolved as we enter this period, for further challenges may yet arise to test our determination.
Fellow St. Lucian’s, this is the time for determined leadership and coherent action. If fortune has handed us this unwelcome bundle of adverse circumstances, perhaps fortune is also offering us a useful test of our collective mettle. Let us seize this time and this opportunity to rediscover the strength and determination that makes us a proud and productive people.
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