THE CARIBBEAN: AUSTERITY AND REGIONAL STABILITY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90T01298R000100060001-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 28
• Document Creation Date: December 27, 2016
• Document Release Date: February 15, 2012
• Sequence Number: 1
• Publication Date: April 1, 1985
• Content Type: REPORT

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Directorate of t
The Caribbean: Austerity
Secret-
ALA 85-10043
April 1985
and Regional Stability
MICROFILMED
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Directorate of Secret
s Intelligence
The Caribbean: Austerity
and Regional Stability
This paper was prepared by
Office of African and Latin
American Analysis. It was coordinated with the
Directorate of Operations. Comments and queries are
welcome and may be addressed to the Chief,
Middle America-Caribbean Division, ALA, on
M K)
Secret
ALA 85-10043
April 1985
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The Caribbean: Austerity
and Regional Stability[___-] 25X1
Key Judgments The economy of the Caribbean area has worsened in the past two years de-
Information available spite generous US aid and more rational economic policies. The region's
as of 1 April 1985 main exports-bauxite, alumina, and agricultural goods-have been hit
was used in this report.
hard by low world prices and growing competition from alternate suppliers.
Oil refineries and transshipment terminals have lost business largely
because of excess US refining capacity. The strong US dollar and
aggressive advertising by European and other countries have begun to cap
the growth of the area's tourist earnings.
Moreover, future trends do not appear promising:
? World demand for Caribbean bauxite and its derivatives is likely to
continue to deteriorate in the face of low-cost, readily available substi-
tutes such as ceramics and plastics.
? Demand for Caribbean sugar, coffee, and bananas also will be weak
because of a world oversupply, and, in the case of coffee, better quality
available from producers elsewhere.
? The depressed world oil market is likely to encourage US firms to close
unprofitable Caribbean oil-related operations.
? Tourism may still grow somewhat, but the increase is unlikely to match
the boom levels of the early 1970s as long as the US dollar remains
strong and bolsters competition from outside the region.
In contrast to earlier periods of economic stress, the region's wealthier
economies are no longer able to buoy the poorer ones by serving as local
markets, aid donors, and magnets for jobseekers; the pervasive stagnation
almost certainly will further undermine the cooperation needed for area-
wide economic solutions.
Taken together, all of these pressures are beginning to affect not only the
political scene but also the willingness of governments to maintain austere
economic policies. The three Caribbean governments relying on IMF-
supported programs to rescue their economies-the Dominican Republic,
Haiti, and Jamaica, together representing the majority of the area's
population-so far show no signs of abandoning Fund programs. Even so,
we believe protracted austerity is likely to weaken the resolve of national
decisionmakers to implement the additional belt tightening required to
gain support from international banks for debt restructuring and new
loans. Maintaining the allegiance of already hard-hit groups, particularly
organized labor, clearly will be the toughest challenge for many of the
region's political leaders, especially in Jamaica. Growing differences
among ruling elites over economic policy, as evidenced in rising public
iii Secret
ALA 85-10043
April 1985
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debate in such countries as the Dominican Republic and Jamaica, also will
limit the maneuvering room of decisionmakers to accommodate IMF
prescriptions.
With or without IMF-supported programs, deepening economic hardships
will give opposition groups new opportunities to broaden their popular
appeal. In our view, moderate opposition parties, particularly in the
English-speaking islands, currently seem best positioned to score electoral
gains. In the short run, most radical leftist groups are too weak and divided
to cause much trouble, although, in our judgment, a new leftist-dominated
front group in Dominica will be capable of mounting a strong challenge in
the mid-1985 elections.
While homegrown radical movements appear ineffectual for now, Moscow
and its allies are attempting to broaden their influence in the region,
In addition to trying to improve
ties with pro-Western governments through trade and cultural contacts,
Cuba and the USSR are working to unify and strengthen leftists in such
countries as Grenada and the Dominican Republic. They apparently view
Guyana as their best hope to rebuild their position in the Caribbean.
Moscow and Havana are not the only radical left players from outside the
region. There are numerous reports that Libya is working hard to broaden
its contacts among Caribbean leftists. In addition to providing funding to
regional leftists, Libya since 1983 has offered military training to radicals
from the Dominican Republic, St. Lucia, and elsewhere. Tripoli's efforts to
prod leftists into adopting more confrontational tactics-so far, unsuccess-
fully-contrast with Havana's and Moscow's emphasis on an electoral
strategy.
Given the area's gloomy economic outlook and the ability of the range of
opposition groups to pressure governments on economic issues, we expect
pleas for US assistance to take on many forms and be marked by an
increasingly urgent tone. Indeed, the Caribbean Basin Initiative appears to
have raised expectations of significant US economic backing throughout
the region, and many government leaders-especially Jamaican Prime
Minister Seaga-have identified themselves closely with the initiative. In
addition to calls for increased US economic aid, bauxite purchases, and
security support, Caribbean countries are likely to ask Washington to grant
even more preferential terms on trade and to take a larger hand in
prodding other donors, commercial lenders, and private investors to
maintain their financial stakes in the region.
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Even if most Caribbean governments remain pro-US, as we expect, the
magnitude of the region's economic problems and rising expectations for
US help are likely to cause bilateral economic relations to become more
contentious from time to time. For example, Washington's efforts to stem
the illegal drug trade and reclaim money from Caribbean tax havens are
likely to encounter declining cooperation. Moreover, regional economic
stagnation, together with the flow of funds from the large numbers of
Caribbean migrants already in the United States, is likely to prompt an up-
surge in illegal migration to this country.
Over time, there is always the chance that ineptly handled economic
problems, coupled with the emergence of more effective leftist organiza-
tions, could spark widespread political unrest. This in turn would increase
the chances for the emergence of pro-Cuban leftist regimes in the region.
Although events in one Caribbean nation can directly affect its neighbors,
we believe that the absence of a shared revolutionary ideology would
preclude Washington from facing a series of simultaneous threats. As it is,
we expect the sort of sporadic protests that occurred in the Dominican
Republic, Haiti, and Jamaica during the past year to recur in these
countries and possibly to emerge in Suriname, the Netherlands Antilles,
Trinidad and Tobago, and Guyana. Although security forces throughout
the region so far have been able to control outbursts, widespread distur-
bances could quickly overwhelm military capabilities, even in the larger
countries. Because regional efforts to build a standing military force in the
Caribbean have faltered, Washington might be called on to take action
similar to the Grenada intervention to forestall any leftist takeover.
(REVERSE LA <
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Casting for Solutions 5
Prospects for Foreign Exchange Earners 7
Economic Restructuring: Challenges and Prospects 8
Ruling Party Divisions 11
Pressures From Key Interest Groups 11
Coping With Threats 15
Prospects for Foreign Meddling 16
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Figure 1
The Caribbean: A Global Perspective
not nteesarily authoritative.
bNetherlands and Nevis 'Antigua and
)Antilles Moats, rari a
INthu d Barbuda
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The Caribbean: Austerity
and Regional Stability
The economic deterioration in the Caribbean area
since the late 1970s has not been as precipitous as that
in Central America, according to published data, but
it has been longer and deeper.' Even though a number
of Caribbean governments have evinced in recent
years a more rational approach to economic decision
making than previously, prolonged economic re-
trenchment and the accompanying popular resistance
to austerity are narrowing the maneuvering room of
policymakers. Moreover, the record shows that inter-
national bankers, anxious to prune their Latin Ameri-
can portfolios, are wary of extending new credits to
Caribbean countries even when stabilization programs
are in place. Worsening conditions, in turn, have
frayed what political cohesion exists among Caribbe-
an countries and stymied regional economic solutions.
Trade protectionism has become commonplace and
intraregional aid flows have all but dried up as even
oil-based economies such as Trinidad and Tobago-
once the region's primary local benefactor-have
stumbled onto hard times.
and economic development are clearly vital to US
efforts to control narcotics traffic and illegal immigra-
tion. Finally, a resurgence of highly nationalistic,
leftist regimes also would provide Moscow and its
surrogates with new bases for regional adventurism.
The Caribbean region showed no economic growth in
1983 and 1984, and the area's foreign financial bind
worsened dramatically, according to data from Em-
bassy reporting and open sources. Sluggish demand
for area exports-bauxite and its derivatives, sugar,
coffee, bananas, and petroleum products-was largely
responsible. The slight pickup in regional tourist
earnings, the only foreign exchange earner to show
any improvement, was not nearly enough to offset the
losses in export receipts. Unfortunately, the only real
upswings that did occur were in the wrong areas.
Press and US Embassy reports indicate that drug-
related activities and illegal migration have increased
in response to the region's deepening economic
The correctives required to restore economic growth
and financial equilibrium are challenging, in our view,
the political stability of several Caribbean countries
as national decisionmakers try to juggle competing
demands of influential interest groups. At the same
time, we believe the cost to Washington of regional
instability would be high. The United States is the
region's largest trading partner and foreign investor.
Moreover, one-third of US oil imports and one-half of
US imports of strategic minerals transit Caribbean
shipping lanes.' In addition, regional political stability
' The Caribbean area for purposes of this assessment includes
Anguilla, Antigua and Barbuda, The Bahamas, Barbados, Bermu-
da, British Virgin Islands, Cayman Islands, Dominica, Dominican
Republic, French Antilles, Grenada, Guyana, Haiti, Jamaica,
Montserrat, Netherlands Antilles, St. Christopher (St. Kitts) and
Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname,
Trinidad and Tobago, and Turks and Caicos Islands. 0
problems.
From a policy perspective, the reaction to these trends
has been mixed. Jamaica, the Dominican Republic,
and Haiti-where 80 percent of the region's popula-
tion lives-turned to the IMF for help. The other
countries in the region are still casting about for
different solutions, probably hoping to avoid imple-
menting harsh new austerity measures.
Dismal Economic Performance
The most important and visible problems facing Ca-
ribbean states are on the international front. Foreign
currency reserves are low, debt servicing is increasing-
ly difficult, and balance-of-payments deficits contin-
ue. On the trade side, the pace of Western recovery
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Prolonged Economic Difficulties
and Their Impact, 1974-82
The oil price hikes of the 1970s were particularly
disastrous to most Caribbean countries because they
came at a time of sluggish world demand for the
region's primary exports. The world recession that
began in the late 1970s further curtailed demand for
tropical and mineral products and battered tourist
earnings already hurt by rising foreign competition.
Most of those hit hardest resorted initially to borrow-
ing on commercial markets, obtaining economic aid,
accumulating payments arrearages, and drawing
down international reserves to make ends meet. A
few-Trinidad and Tobago, the Netherlands Antil-
les, and The Bahamas-had oil-based economic
booms that began to spread to other sectors. Still,
weighted average growth in the Caribbean region's
output-roughly comparable in size to that of Co-
lombia-slowed to little more than 2 percent annual-
ly, or less than half the Latin American average,
during 1974-79.
Subsequent belt-tightening reduced real growth of
GDP to barely 1 percent annually during 1980-82. To
qual4fyfor IMFfunding, Haiti, Barbados, and Domi-
nica imposed strict import controls and public spend-
ing cuts. For its part, Jamaica, struggling to over-
come seven consecutive years of economic decline,
has not been robust enough to boost demand for
Caribbean exports. For example, export earnings in
1983-the latest year for which complete data are
available-were below peak 1981 levels by 25 percent
in the Dominican Republic, 30 percent in Jamaica,
and more than 50 percent in Trinidad and Tobago.
Even though almost all countries took deep import
cuts, sluggish exports, coupled with high service pay-
ments, kept the region's 1983 current account $1.5
billion in the red.
Hit hardest by sluggish exports is the region's bauxite
industry, which usually provides 25 to 35 percent of
the total export earnings of Jamaica, Guyana, and
Suriname. Statistics from industry sources show that
many Western purchasers of bauxite and its deriva-
tives during the past two years have increasingly
experienced a spurt in growth largely owing to mas-
sive, but short-lived, injections of foreign aid follow-
ing Prime Minister Edward Seaga's election in Octo-
ber 1980. Despite a surge in investor interest, few
projects got off the drawing boards because of bu-
reaucratic redtape and a shortage of skilled labor.
Squeezed by the 1982 drop in oil prices-and in the
case of Trinidad, falling production-even the oil-
dependent economies slowed, and governments drew
down reserves and borrowed heavily abroad to make
ends meet. The smallest islands continued to face
intractable development problems. A series of hurri-
canes slashed banana production, which normally
contributed 40 percent of their export earnings, caus-
ing banana output to fall well below the 1979 level.
Only steady emigration kept unemployment within
the 20- to 40 percent range in most countries. In the
process, the continuing exodus of managerial and
professional talent further drained the manpower
needed to manage economic turnarounds. At least
one out of every three Surinamers, for example, lived
in the Netherlands during the early 1980s.
moved away from traditional Caribbean sources to
suppliers in Guinea, Sierra Leone, Brazil, Australia,
and elsewhere. The United States now imports less
than half of its bauxite and 16 percent of its alumina
supplies from the Caribbean, compared with nearly
three-fourths and 20 percent, respectively, as recently
as 1980. Data from industry publications indicate that
this shift is due in part to falling demand for alumi-
num-many cheaper substitutes now exist such as
ceramics and plastics-which is forcing refiners to
economize by using higher grade bauxite than that
mined in the Caribbean.
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region, such as the African producers, generally have
had weaker labor unions, lower wages and business
taxes, and have been more receptive to foreign inves-
tors than their Caribbean counterparts.
According to US Government experts and Embassy
reporting, low world prices, inadequate investment in
domestic production, and increased competition also
have hurt earnings of the region's major agricultural
products-sugar, coffee, and bananas-during the
past two years. In addition, cheaper substitute sweet-
eners have crimped sugar profits, quality shortfalls
have slowed coffee sales, and inclement weather has
hurt banana receipts. At the same time that low prices
are reducing the value of the region's agricultural
exports on world markets, growers are having difficul-
ty boosting the volume of output. In particular,
financial strains on agricultural investment have lim-
ited the ability of most of the English-speaking Carib-
bean countries and Haiti to meet their production
targets and take full advantage of US and European
Community (EC) quotas and price supports for their
exports, according to US Government experts.'
Several Caribbean islands have also seen their exports
fall off because of the currently depressed oil market.
Energy conservation and excess oil refining capacity
in the United States have reduced usage of Caribbean
refineries and transshipment terminals. US imports of
refined petroleum from the Caribbean-predominant-
ly residual fuel oil-have fallen from a peak of
1 million barrels per day (b/d) in 1973 to less than
400,000 b/d at present,
? In the Netherlands Antilles, output at refineries on
Aruba and Curacao was reduced to 200,000 b/d
each-about 50 and 60 percent of capacity,
respectively.
? In The Bahamas, the 500,000-b/d Borco refinery
was processing only 110,000 b/d by 1984.
' The English-speaking Caribbean countries include Anguilla, Anti-
gua, The Bahamas, Barbados, Bermuda, British Virgin Islands,
Cayman Islands, Dominica, Grenada, Guyana, Jamaica, St. Kitts,
St. Lucia, St. Vincent, Trinidad and Tobago, and Turks and
Figure 2
The Caribbean: Real Prices of Major
Exports, 1974-84
Dollars per barrel
Cents per pound
0 0 1974-9 80 81 82 83 84
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? In Trinidad and Tobago, the Pointe a Pierre refin-
ery in 1984 processed only 65,000 b/d, barely 25
percent of its capacity, while the Trintoc facility
processed less than 10,000 b/d or 10 percent of its
capacity.
Sluggish demand also caused a drop in the region's 25X1
transshipment of Middle Eastern and African crudes 2bAl
from an estimated peak of 4.4 million b/d in 1979 to
about 1 million b/d in 1984,
Besides the overriding impact of the region's de-
pressed mineral, agricultural, and oil exports, we
believe a number of other factors have contributed to
the area's economic difficulties since 1982:
? Debt. Although the region's $7 billion external debt
is miniscule by Latin American standards, debt
servicing has become even more burdensome for
Aluminum
Bananas
Sugar
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The Unraveling of CARICOM
The 13-member CARICOM was formed in 1973 to
promote economic integration through a common
market. In recent years, however, individual attempts
to solve common economic problems have heightened
intra-CARICOM trade squabbles and brought the
organization near collapse. For example:
? Jamaica in 1983 irked member states by imposing a
two-tiered exchange rate system. Barbados floated
its currency in retaliation, while Trinidad and
Tobago slapped a licensing requirement on all
Jamaican goods. Kingston's trading partners have
balked at its recent devaluations, which are reduc-
ing the competitiveness of their exports to Jamaica.
? Other community members are angered by Trini-
dad and Tobago's recent cuts in imports-especial-
ly since Trinidad is CARICOM's wealthiest mem-
ber-and its decision to require import licenses for
all products, including those from its regional
trading partners.
Disagreements over the CARICOM Multilateral
Clearing Facility-a clearinghouse for settling trade
accounts and financing transactions through short-
term credits-have been most debilitating. The fail-
ure of Guyana, which holds the lion's share of this
debt, to repay Barbados, which underwrote the $100
million facility, led Barbados to withdraw from the
facility last year, in effect dismantling it. Intra-
CARICOM trade now is conducted on only a bilater-
Political infighting has exacerbated trade problems.
The organization has often split along ideological
lines, especially when Maurice Bishop still represent-
ed Grenada, but the schism became even more dra-
matic following the US-led intervention in Grenada.
Indeed, the armed action was not supported by
Trinidad and Tobago, Guyana, Belize, or The
Bahamas.
Members were able to put aside political and eco-
nomic differences temporarily at their summit meet-
ing last July in Nassau. The participants tentatively
agreed to eliminate some intra-CARICOM trade
barriers and to increase tariffs on goods produced
outside the region. They also agreed to grant observer
status to the Dominican Republic, Haiti, and Suri-
name. Nevertheless, no substantial progress was
made in dealing with the region's basic economic
troubles.
Indeed, since the meeting, regional trade difficulties
have worsened. Protectionism has increased, especial-
ly by such larger traders as Trinidad. In addition,
according to Dominica's Prime Minister Charles,
little progress has been made to resuscitate the trade
clearing facility, despite an offer by Barbados of a
loan to Guyana out of blocked community funds to
allow Guyana to take part in a new facility.
al payments basis.
many Caribbean countries. Jamaica's per capita
debt, for example, is higher than that of Brazil. On
the whole, debt service now absorbs about 20 per-
cent of the region's export earnings, compared with
11 percent in 1980.
? Intraregional trade. Numerous press reports indi-
cate that squabbles within the Caribbean Commu-
nity and Common Market (CARICOM) have se-
verely limited regional trade and economic
cooperation. According to a press report, Domini-
ca's Prime Minister Eugenia Charles has indicated
that intra-CARICOM trade fell 13 percent in 1983
alone.
? Tourism. Data from the Caribbean Development
Bank show that tourist earnings, moreover, have
picked up only slightly because of increased compe-
tition from Western Europe and other markets that
have become more affordable as a result of the
strong US dollar.
Taken together, all of these difficulties have done
more than simply translate into a string of dismal
economic statistics. They also have had some practical
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impact, ranging from internal migration flows to
narcotics trafficking. As far as emigration is con-
cerned, economic difficulties have encouraged job-
seekers in the region's poorest countries to migrate to
what they perceive to be better opportunities on other
islands. US Embassy reporting for example indicates
that as many as 50,000 illegals-mainly Haitians-
are residing in The Bahamas. Concerns about rising
unemployment have prompted the Bahamian Govern-
ment to try to expel these immigrants. For its part,
Suriname recently expelled some 2,000 Guyanese
who, according to press and US Embassy reports, had
fled Guyana because of economic deprivation over the
past few years.
On the narcotics front, numerous reports indicate that
growing economic difficulties have contributed to an
increasing number of Caribbean countries becoming
more heavily involved as growers, money laundering
centers, or transshipment points. To date, Jamaica
and The Bahamas appear to be the only countries to
benefit much from drug income. We believe, for
example, that Jamaica nets about $100-225 million
annually from marijuana smuggling. On the basis of
information from narcotics experts in the US Govern-
ment, most of the money goes to brokers, who assem-
ble bulk loads for shipment and provide security,
while Jamaican growers, who provide jobs for many of
the rural poor, are paid only a small share. According
to US Embassy officials, recent US Government
efforts to constrict more direct drug trafficking
routes-particularly through The Bahamas and Ja-
maica-also are beginning to push drug-related activ-
ities toward such secondary areas as Haiti and
Trinidad.
Casting for Solutions
It is against this environment that the individual
countries of the region have been searching for solu-
tions. In general, most regional leaders, especially
those in the larger Caribbean states, have opted to
follow a path that involves establishing performance
targets with the IMF. Since 1979, Barbados, Domini-
ca, the Dominican Republic, Grenada, Guyana, Haiti,
and Jamaica at various times have had IMF-support-
ed programs. During 1983-84, however, only three
were under IMF-supported programs:
exchange market in laying the groundwork to obtain
a three-year, $408 million Extended Fund Facility
in early 1983.
? Haiti, in late 1983, negotiated a two-year, $63
million standby program with the IMF immediately
after successful completion of a 13-month standby
accord that emphasized making the country's fi-
nances less opaque by instituting formal government
accounting procedures and a national budget.
? Jamaica instituted hefty devaluations and other 25X1
cost-cutting measures to win a one-year, $140 mil-
lion standby program in June 1984.
In our judgment, belt-tightening under IMF auspices
has yielded some benefits but has yet to lay the
foundation for economic recovery. US Embassy re-
porting shows that those countries with IMF relief
packages now in place have improved tax collection,
trimmed and redirected the bloated public sector
away from make-work projects toward more produc-
tive investments, raised interest rates to encourage
domestic savings, and stimulated the search for for-
eign investment. Nevertheless, the failure of potential
international commercial lenders to respond ade-
quately to the IMF lead has undermined economic
revitalization, according to US Embassy reporting.
Moreover, popular protests against deepening auster-
ity-particularly against currency devaluations and
subsidy cuts that trigger immediate hardships-have
further complicated economic management in these
countries.
Although austerity, with or without IMF-supported 25X1
programs, already has cost several Caribbean govern-
ments a good deal of domestic political capital, most
remain committed-or ultimately resigned-to work-
ing with the IMF. Indeed, President Jorge Blanco of
the Dominican Republic has campaigned hard to win
popular support for IMF programs. Even for those
few countries that have backed away from the IMF
path, such as Suriname and Guyana, we have no
credible evidence that their leaders believe they have
found any alternative solutions for their economic
difficulties. Suriname's unsuccessful pleas for aid, for
example, have prompted some senior government
? The Dominican Republic increased income taxes,
slashed government spending, banned luxury im-
ports, and transferred others to the costlier parallel
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Austerity and Political Unrest:
A Review of the Literature
Many observers believe there is a strong link between
adverse economic conditions and political unrest.
Given the importance to US interests of stability
throughout the Third World, the Central Intelligence
Agency has explored this topic, looking for systemat-
ic linkages between periods of political instability and
periods of poor economic performance. Contrary to
conventional wisdom
were not a dominant cause of political unrest.
Although the Agency's study concluded that general
economic conditions can worsen dramatically without
sparking unrest, it also documented that government
measures designed to address economic problems can
provide a rallying point for public discontent. The
timing and presentation of sudden policy changes can
help to determine the intensity of public reaction. The
paper found that subsidy cuts on key consumer
goods-rice, bread, and petroleum products, for ex-
ample-and government-mandated wage controls
seem to be key catalysts for strong political reactions.
After reviewing subsidy cuts anti their political im-
pact in more than 30 Third World countries, an
academic study, Consumer Subsidy Cuts, Violence,
and Political Instability, similarly concluded that
protests to austerity have not been especially conse-
quential for political stability. The academic
officials to again urge negotiating for an IMF pro-
gram, according to a generally reliable source. Even
nearly bankrupt Guyana is attempting to pay off its
debts to the Fund in order to restore its eligibility.
Moreover, other newly troubled economies, such as
Trinidad and Tobago, are considering-albeit as a
last resort-asking the Fund for help
researchers further discovered that the vast majority
of violent reactions to subsidy cuts involved basic
foodstuffs, transportation, or petroleum products-
akin to the Agency's findings-and were overwhelm-
ingly spontaneous and thus hard to sustain. This
study also documented that, in those countries where
subsidy cuts did not trigger a violent reaction, the
government prepared public opinion and shifted the
debate from questions of equity to the need to lay the
groundwork for long-term economic growth and pros-
perity
In the Caribbean context, the Dominican Republic
probably is the best example of the behavior docu-
mented by the CIA and outside contractors. In April
1984, President Jorge Blanco, without advance no-
tice, sharply reduced food subsidies to comply with
the country's IMF program. The resultant riots left
nearly 60 people dead and 200 to 300 injured. In
January 1985, after nearly a year of building public
support for an adjustment program, the govern-
ment-having dispatched troops to key locations-
boosted food and petroleum prices to try to gain a
new IMF-supported program. The ensuing protests
generally were peaceful; no deaths and few injuries
were reported. A nationwide work stoppage in Febru-
ary also was peaceful, although a presidential deci-
sion to roll back prices on a few items helped to keep
order.
We see little possibility of any improvement in the
region's economic conditions over the next several
years. We believe growth rates are likely to average
less than 1 percent annually, at best, because of slack
export demand, the resulting foreign exchange limits
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Figure 3
The Caribbean: Weighted Average Real GDP
Growth and Inflation, 1974-84a
A Excludes smallest islands for which data are incomplete.
b GDP growth in 1983 and 1984 was zero.
on importing critical goods, and the impact of finan-
cial austerity on government spending. Indeed, given
the kinds of fiscal and monetary measures needed to
lay the foundation for sustainable, noninflationary
growth over the longer term, and the typical lag in
implementing them, policy considerations alone will
hold down GDP growth for some time to come.
If economic conditions are anywhere near what we
expect, the unemployment picture will become worse
as the flagging regional economy further reduces the
affordability of government make-work projects. The
steady exodus of jobseekers to destinations inside and
outside of the region will aggravate unemployment
concerns in the host countries and further drain the
pool of skilled labor and managerial talent, particular-
ly of the poorer states. As a result, we expect addition-
al campaigns to expel illegal entrants, which will
further erode regional cooperation.
Prospects for Foreign Exchange Earners
Given the open nature of the region's economies, the
role of exports in determining growth prospects will
Figure 4
The Caribbean: GDP by Major
Contributor, 1981
Trinidad and
Tobago
remain pivotal. Unfortunately, the outlook for tradi-
tional Caribbean products is as bleak for the future as
it has been in the past few years. This is because of
growing foreign competition and relatively slow
growth, by historical standards in the industrial
world. Looking at the key export sectors:
? Bauxite and alumina sales are likely to remain
depressed. With their US smelting facilities already
operating well below capacity, large US aluminum
companies almost certainly will not hesitate to close
marginally profitable operations in the Caribbean;
Reynolds and Alcoa already have done so in
Jamaica.
? Sugar sales should fare no better. Industry experts
expect world sugar prices to stay weak over the near
term unless global production is cut sharply through
acreage reductions or a series of poor growing
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seasons. On the demand side, the increasing number
of low-cost sugar substitutes already have caused
the United States to reduce its 1985 import quotas.
Indeed, according to US Government experts, the
Caribbean share of the US quota will be cut by
nearly 25,000 metric tons this year; the EC is
considering similar action, according to press
reports.
? Coffee prospects parallel those of sugar.
world coffee prices should
remain low over the next few years, assuming no
major weather disruptions. With a large surplus
stock of coffee worldwide, Caribbean exporters can
expect virtually no improvement in their coffee
receipts unless the quality of their production can be
raised substantially.
? The outlook for bananas is also dim. US Govern-
ment experts expect that, despite falling demand,
world production will rise, causing further reduc-
tions in prices.
? As far as petroleum products are concerned, current
industry plans offer little promise. In Trinidad and
Tobago, the planned shutdown of one of the coun-
try's two refineries could idle between 2,600 and
3,400 workers and push the unemployment rate to
about 25 percent. Moreover, Exxon already has
closed its refinery in the Netherlands Antilles, and
Royal Dutch Shell has announced that it will pull
out soon unless costs can be cut. Oil product sales
generate 97 percent of the Netherlands Antilles'
export earnings. Closure of both refineries would
push the unemployment rate there to nearly 30
percent
We believe that, among traditional foreign exchange
earners, only tourism will continue to post any real
growth. Even then the gains will be mixed, depending
on the country in question. The Dominican Republic,
for example, probably will benefit from sizable invest-
ment in this sector since the mid-1970s and a recently
stepped-up advertising campaign. We expect Grena-
da's tourist industry to benefit some from the opening
in October 1984 of the international airport at Point
Salines and increased cruise ship arrivals. Several
cruise ship lines already have decided to make Grena-
da a regular port of call for the 1984-85 season,
according to the US Commerce Department. In Ja-
maica, however, the January protests over fuel price
hikes have sharply cut tourist receipts, according to
Embassy reporting. Moreover, even with the expected
increase, Caribbean tourism is likely to fall short of
the boom levels experienced during the first half of
the 1970s. As long as competitors maintain energetic
advertising campaigns and the US dollar remains
strong, Western Europe and other vacation spots
usually not affordable for the average traveler will
continue to cap the Caribbean's tourist potential.
Economic Restructuring:
Challenges and Prospects
It is against this economic backdrop that Caribbean
leaders will have to decide what policy path to follow.
The next steps will not be easy. Attempts to restruc-
ture through long-term adjustments-such as broad-
ening the export base, raising domestic interest rates,
cutting consumer subsidies, and streamlining bureau-
cracies-will compound domestic hardships over the
short run. Moreover, there are no guarantees that the
resulting austerity programs would be enough to
revitalize the region's economies. Certainly the adop-
tion of long-term growth-generating policies would in
time help attract financing and technical expertise,
especially under the Caribbean Basin Initiative (CBI).
Even with a comprehensive restructuring program in
place, however, recovery is not possible, in our view,
unless Caribbean countries can sell their products
abroad.
Considering these difficulties, we see some possibility
that the immediate costs of adjustments will lead
countries to back away from the kinds of policies
needed to lay the foundation for longer term growth.
Popular resistance to tougher austerity measures in a
number of Caribbean countries only underscores this
concern. At best, we believe governments already
under various stages of IMF adjustment programs
will try to maintain reform efforts wherever possible;
nonetheless, they, and those countries without IMF
programs, are unlikely to institute strong new policy
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measures.' In practice, some policy backsliding is
more likely. As far as the individual countries in the
region are concerned:
? In Jamaica, continued IMF support could be jeop-
ardized soon if, as we expect, Prime Minister Seaga
falters in his commitment to make even deeper cuts
in government spending to offset the unexpected loss
in revenues from Alcoa's recent closure of its opera-
tions and the downturn in tourism. With local
elections to be called by June, Seaga might be
tempted to delay further public payroll cuts and to
launch make-work projects to provide jobs for Ja-
maica's unemployed, now nearly 30 percent of the
labor force. Such action could cause negotiations for
a new Fund program-the current one ends in mid-
1985-to drag on even longer than in the past and
leave the country some months without IMF help.
? In the Dominican Republic, the Jorge Blanco gov-
ernment agreed to the IMF's repeated calls for
unification of the country's exchange rate in Janu-
ary, causing sharp increases in prices for many basic
commodities. The popular backlash so far has been
less violent than last April, when similar price hikes
sparked riots that left over 60 dead. A successful
one-day work stoppage in February, however,
prompted the President to cut prices of some basic
commodities. Further backsliding almost certainly
would delay agreement on a Fund program.
? Growing problems in maintaining austerity in Haiti,
in particular curbing government spending, may
well cause the abrogation of its standby accord,
despite recent negotiations to get the Fund program
back on track. We believe Haitian President-for-
Life Duvalier will resist spending cuts and other
reforms that might limit his ability to provide key
supporters with access to government largess.
Even if there are temporary problems, we doubt that
these three key Caribbean governments-especially
the Dominican Republic and Jamaica-will abandon
IMF-supported programs altogether. In our opinion,
their leaders understand that no single Caribbean
economy is large or diversified enough to spur eco-
nomic recovery alone and that, without a workable
IMF program, other international lenders would be
unlikely to offer more than token help. Moreover,
even if they press more energetically for softer finan-
cial terms, we also believe they realize that their
countries, unlike the large Latin American debtors,
lack clout with the major commercial lenders.
It is not only the countries under IMF-supported
programs that face difficult policy choices over the
next few years. Unaccustomed to hard times, the oil-
dependent economies of The Bahamas, Trinidad and
Tobago, and the Netherlands Antilles have delayed
slashing imports and government spending because,
we believe, they are unwilling to risk the political
backlash from harsh adjustments at the same time
that the oil industry slump has cut their export
earnings and employment. If oil sales pick up, this
strategy could work. The odds, however, are against
such an outcome. Barring an unexpected improve-
ment in world energy markets, these countries as a
group will in time face even more onerous adjust-
ments to bring their external imbalances into line.
Other countries face similar intractable problems. We
believe the leaders of Suriname and Guyana will
continue to resist efforts to revamp their economies to
avoid jeopardizing the perquisites of the military and
other key interest groups, thereby precluding IMF
accords. In Guyana, the progressive deterioration of
capital stock, emigration of skilled labor, and erosion
of farmland fertility is likely to prevent any recovery
over the near term at least. In Grenada, the new
Blaize administration will have to deal quickly with
the island's 30-percent unemployment rate and deteri-
orated power, transport, and other facilities that are
discouraging the foreign investment needed to sustain
Grenada's recovery over the longer haul. In our
judgment, such small economies as St. Kitts, Mont-
serrat, and St. Vincent, even with successful policy
reforms, are not viable without indefinite infusions of
aid.
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The Caribbean Basin Initiative, in place since Janu-
ary 1984, is a US program of trade and tax measures
designed to help 27 Caribbean and Central American
countries expand regional employment and raise liv-
ing standards. The program's centerpiece consists of
12 year, duty-free access to US markets for a wide
range of agricultural and manufactured goods. To
foster tourism, the CBI also allows US tax deduc-
tions for the cost of attending business conventions in
the Caribbean Basin.
So far, the combination of tariff and tax advantages,
relatively low wages, and proximity to the US market
are attracting the attention of many investors. The
most interest has come from businessmen in East
Asia-Taiwan, Hong Kong, South Korea, and Singa-
pore-where wage rates are rapidly rising and trans-
port costs to the United States are high. Hong Kong's
scheduled absorption into China in 1997 has also
sparked considerable hope for the Caribbean. as an
alternative business base
It is too early to tell how much the Caribbean
economies will benefit from the CBI. US trade offi-
cials estimate that the initiative will eventually boost
exports to $9.5 billion annually-still below the
$10.3 billion peak of 1980. About 80 percent of
Caribbean produced goods already enter the United
States duty free under the Generalized System of
Preferences (GSP). In addition, many products-
textiles, apparel, footwear, leather goods, canned
tuna, and petroleum products-that the Caribbean
could produce most easily because of underutilized
capacity are exempt from the CBI in order to protect
US industries)
Infrastructural development is so weak in the mini-
states that the biggest economies will continue to
attract most new investments. In some cases, trans-
port costs to the US market from the smallest islands
appear to exceed shipping charges from East Asia.
This is largely because most Caribbean ports cannot
accommodate larger, cost-efficient container ships. In
Grenada, for example, only one ship can dock at a
time. On some islands, goods have to be barged out to
ships anchored offshore. Additionally, strong unions
in many of the ministates keep the wages of dock-
workers high
Specific complaints about the CBI also have emerged.
Many CBI-eligible countries have complained about
the rigorous process they must endure and the confi-
dential information they must turn over to the US
Government to win certification. In addition, some
countries have balked at CBI regulations that do not
provide exemptions to a range of US trade laws that
were on the books long before the initiative was put in
place. Trinidad has become especially disgruntled,
complaining about US quotas, countervailing duties,
and quality controls.
Despite the recent encouraging interest of potential
foreign investors in the initiative, recent adjustments
to US trade laws and regulations for which the CBI
provides no exclusions-could slow progress under
the program. We believe the renewal and revision in
October 1984 of the Generalized System of Prefer-
ences will deter some investors, particularly from
East Asia, at least initially. The extension of GSP
duty-free benefits until mid-1993 has dampened the
enthusiasm of some potential investors attracted to
the CBI by the anticipated lapse of the GSP in 1984.
GSP legislation reduced imports eligible from any
country from 50 to 25 percent of total US purchases
of a particular product, thereby helping smaller LDC
suppliers to the US market, but this does not become
effective until January 1987. Caribbean beneficiaries
additionally were hurt by the law's formal exclusion
from coverage of many of those goods excluded by
the CBI.
We also believe the recent tightening in "Origin of
Product" regulations governing textiles-currently
not afforded CBI coverage-could further hurt Ca-
ribbean exporters. Under the international Multifiber
Arrangement, textiles and apparel imports are regu-
lated by providing bilateral quota agreements. Until
late 1984, some large exporters circumvented their
quotas by shipping partially finished goods to other
countries-many in the Caribbean for completion
and reexport to the United States. These goods either
entered quota-free or were counted against the second
country's quota, if applicable. Under new US regula-
tions, however, US imports must be counted under
the first exporter's quota unless it can demonstrate
that the value added in the second country was
enough to cause "substantial transzformation. " This
regulation, if strictly enforced, could discourage
Asian exporters from using the Caribbean as a
finishing center.
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Caribbean governments already have paid high politi-
cal costs in adhering to austerity. In the Dominican
Republic and Jamaica, for example, recent public
opinion polls indicate that the popularity of President
Jorge Blanco and Prime Minister Seaga are at record
lows. With elections looming in both countries, these
leaders will be reluctant to push hard for increased
belt-tightening measures. Elsewhere, we believe, lead-
ers will be hard pressed to balance demands for an
end to falling standards of living with the need to
introduce tough economic reforms aimed at setting
the stage for longer run growth. Strong democratic
institutions, stepped-up aid from Washington, and
intangibles such as generally good human rights
records have helped to reduce tensions so far. Still, the
political climate for policy changes will be made more
difficult in the months to come by the internal
dynamics at play in many countries. In this regard,
internecine bickering among ruling party leaders,
alienation of key interest groups, and the growing
influence of opposition parties have the potential to set
back needed economic adjustments and touch off
disruptive incidents in several countries.
Ruling Party Divisions
Differences among governing elites over economic
policy, in our view, could damage prospects for addi-
tional corrective measures and, in the extreme, turn
economic crises into political ones. To date, argu-
ments within ruling parties over economic policy have
been particularly disruptive in the Dominican Repub-
lic and Jamaica. The unwillingness of influential
members of the Dominican Revolutionary Party to
support key aspects of Jorge Blanco's economic pro-
gram have hurt the President's efforts to implement
adjustment measures and stalled moves to raise reve-
nues, according to US Embassy officials. Recent
reports from the US Embassy in Kingston 0
indicate that Prime Minis-
ter Seaga 's key lieutenants are increasingly uneasy
with his economic policies and autocratic leadership.'
Over time, we believe the odds favor increased prob-
lems within ruling elites. This is largely because the
highly personalistic nature of Caribbean politics has
resulted in fragile intraparty cohesion. Party leaders,
according to academic sources, rely largely on person-
al attributes, familial ties, and patronage rather than
ideological considerations to maintain loyalty:
senior leaders of the ruling People's National Move-
ment in Trinidad are disenchanted with Prime
Minister Chamber's leadership.
? The US Embassy in Grenada reports that Prime
Minister Blaize's domineering style is alienating
some members of his coalition.
Consequently, we expect most governing elites, in
charting economic strategy, to take directly into
account the need to preserve party harmony even if it
means undercutting sound economic policies
Pressures From Key Interest Groups
While the ruling parties debate how to come to grips
with their countries' economic difficulties, continued
economic woes are likely to cause important interest
groups to step up pressure on Caribbean governments
to backtrack on belt-tightening. We believe that
alienation of labor poses the greatest threat. Labor's
clout is strongest in the English-speaking Caribbean
where, according to some academic observers, almost
half of the work force and nearly all public-sector
workers are unionized. Because most political parties
there emerged from labor organizations, unionists
exercise considerable behind-the-scenes influence, ac-
cording to academics.
Recent sporadic strikes and demonstrations in the
major Caribbean countries underscore, in our view,
organized labor's determination to deflect policies
perceived as detrimental to its interests:
? In the Dominican Republic, labor-backed work
stoppages last April were particularly disruptive
and, according to press and US Embassy reports,
contributed to the President's decision to temporar-
ily abandon talks with the IMF for a new standby
agreement.
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Anguilla National Alliance (ANA), moderate; Anguillan
People's Party (APP), moderate.
Antigua Labor Party (ALP), moderate; United People's
Movement (UPM), moderate; Antigua Caribbean Libera-
tion Movement (ACLM), leftist-nationalist.
Prime Minister Lynden O. Pindling
(1982)
Progressive Liberal Party (PLP), moderate; Free National
Movement (FNM), moderate.
Prime Minister Bernard St. John b
(1982)
Barbados Labor Party (BLP), moderate; Democratic Labor
Party (DLP), moderate; Movement for National Liberation
(MONALI), leftist.
Virgin Islands Party (VIP), moderate; United Party (UP),
moderate.
Cayman Islands e
No organized political parties.
Dominica
Prime Minister Eugenia Charles
(1980)
Dominica Freedom Party (DFP), moderate; United Labor
Party (ULP), leftist-dominated front group.
President Jorge Blanco (1982)
Dominican Revolutionary Party (PRD), centrist; Social
Christian Reformist Party (PRSC), conservative; Dominican
Liberation Party (PLD), leftist.
French Antilles d (Guadeloupe,
Martinique, and French
Guiana)
Parties correspond with those in France.
New National Party (NNP), moderate; Grenada Democratic
Labor Party (GDLP), moderate; Maurice Bishop Patriotic
Movement (MBPM), leftist.
President Linden Forbes Burnham
(1980)
People's National Congrss (PNC), leftist-personalistic;
People's Progressive Party (PPP), leftist.
President-for-Life Jean-Claude
Duvalier e
Government preparing to allow political parties to begin
operating.
Jamaica Labor Party (JLP), moderate; People's National
Party (PNP), leftist; Worker's Party of Jamaica (WPJ),
Marxist.
Montserrat
People's Liberation Movement (PLM), moderate; Progres-
sive Democratic Party (PDP), moderate.
Netherlands Antilles
Prime Minister Maria Liberia-Peters
(1982)
No national political parties exist. Each of the six islands in
the federation has its own local government.
St. Christopher and Nevis
Prime Minister Kennedy Simmonds
(1984)
People's Action Movement (PAM), moderate; Nevis Refor-
mation Party (NRP), moderate.
St. Lucia
Prime Minister John Compton (1982)
United Workers' Party (UWP), moderate; Progressive Labor
Party (PLP), nationalist-leftist; St. Lucia Labor Party (SLP),
moderate.
St. Vincent and the Grenadines
Prime Minister James Mitchell (1984)
New Democratic Party (NDP), moderate; St. Vincent Labor
Party (SVLP), moderate.
Suriname
Lt. Col. Desire Bouterse f (1978)
Proscribed.
Trinidad and Tobago
Prime Minister George Chambers
(1981)
People's National Movement (PNM), moderate; National
Alliance for Reconstruction (ANR), moderate.
Chief Minister Nathaniel Francis
Progressive National Party (PNP), moderate; People's Dem-
ocratic Movement (PMD), moderate.
a Ruling parties are in italics.
b St. John became Prime Minister in March 1985 when the
incumbent Tom Adams died unexpectedly.
e British Crown Colonies with limited autonomy.
d Overseas departments of France. Local elections held in 1985.
e Jean-Claude Duvalier took power in 1971.
f Bouterse is de facto ruler. Frederick Randat-Misier holds ceremo-
nial office of President.
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- > Secret
Figure 5
Political Orientation of Governments in the Caribbean, 1985
United
States
Gulf of
Mexico
Nicaragua
Costa
`,Rica
"x-~anarrra
North
Pacific
Ocean
Cayman
Islands
(U. K.)
1989
Caicos Islands
(U. K.)
1989
'San
1986
British Virgin
Puerto Islands
Rico (U.K.)
(U.S.) 1988Anguilla (U.K.)
1989
St. Christopher 'Antigua and Barbuda
and Mavis 1989
1989
Montserrat (U.K.)' ;Guadeloupe
Netherlands Antilles
(NeOUdendsl
~..r' .. A1987
Damaica
1988
Bermuda
(U.K.)
1988
North Atlantic
Ocean
4he Qa iarrlas
1987
Turks and
O Open to Communist influence
O Generally pro-Western
1989 Next constitutionally mandated
national election
1985 Martinique
\\ 19867
St. Lucia
St. Vincent and 1987
the GrenadinesO O Barbados
1989 1986
Grenada
1989
Boundary representation is
not necessarily authoritative.
and
1Trinidad
Tobago
1987
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necrer
? Unionists in Trinidad-among the most powerful in
the Caribbean, according to US Embassy reports-
are punctuating demands for pay hikes with work
slowdowns.
? Civil servants and taxi drivers in Martinique recent-
ly held a 24-hour work stoppage.
? Strike threats last year by workers in Suriname's
vital bauxite industry forced the government to
backtrack on plans to raise taxes
Labor's influence can also be felt directly on the
political front. While we believe many unionists are
reluctant to change their political allegiances dramat-
ically-in large part because opposition groups did no
better in managing their countries' economies when
they were in power and since then have offered few
realistic alternatives-union disenchantment is still
likely to lead to some increased support for opposition
groups. For example, we believe eroding labor support
for Trinidad's ruling party contributed greatly to the
party's trouncing in last year's elections to the Tobago
House of Assembly and could undermine Chambers's
chance of reelection later this year.
Because labor backing is essential for social peace in
most countries, the ruling elites will have to weigh
union demands seriously when reviewing policy op-
tions. Possible exceptions include the Dominican Re-
public, where President Jorge Blanco's demonstrated
willingness to use force, together with strong support
from the military and influential businessmen, may,
over the longer haul, give him enough leverage to
handle labor. Likewise, the reputation of Haiti's
autocratic leaders is that they will not brook trouble
from unions.
Labor is not the only key interest group with a stake
in the evolving policy debate. To date, middle-class
groups and the business community have generally
supported conservative economic policies. There are
signs, however, that this support may be flagging.
According to US Embassy and press reports, both
groups are increasingly frustrated with the fall in
living standards. There are also signs of stirring in the
small business community. Embassy reports indicate
that small businessmen in the Dominican Republic,
for example, have protested by closing their shops
temporarily. We believe that, over the short run,
businessmen throughout the region will be increasing-
ly likely to vent their frustration through a greater
exodus of capital and manpower. If sizable enough,
such developments will probably trigger strong gov-
ernmental responses;
the Netherlands Antilles recent-
ly instituted strict foreign currency controls to stem
capital flight. Regardless of how the groups react, we
believe that, in the longer run, many members of the
middle class could become more susceptible to mobili-
zation by opposition political parties
The Political Opposition
Opposition parties, although tarred in a number of
countries by their past unresponsiveness to their coun-
tries' economic plight when they were in power, are
likely to gain support as dissatisfaction over austerity
grows. US Embassy officials in Santo Domingo, for
example, say that the conservative Reformista Party
and the leftist-leaning Dominican Liberation Party
are gaining support because of dissatisfaction with
ruling party infighting and economic hard times. In
Jamaica, a recent public opinion poll indicates that
the left-leaning People's National Party-which is
attempting to project a moderate image-could un-
seat Seaga, although the poll also revealed no voter
groundswell in support of early national elections.
Given Embassy reporting and past performance, we
judge that centrist parties elsewhere in the English-
speaking islands have the greatest potential to capital-
ize on popular disenchantment. Because most of these
parties are politically moderate, their rise to power
would help reinforce the strength of the region's
democratic traditions.
Radical leftist parties are trying to take advantage of
economic hardships to broaden their mass appeal.
Many leftists are thus downplaying Communist rheto-
ric and trying to form alliances with political moder-
ates, according to US Embassy reporting. US Embas-
sy reports from throughout the region indicate that
leftist parties, hoping to reverse the membership losses
suffered in the wake of the Grenada episode, are
actively courting youths and others hurt by falling
standards of living.
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Leftist elements in Dominica probably have the best
chance to gain new ground. According to Embassy
reporting, they have succeeded in forming a unified
front group and are trying to build support among the
general population. If the alliance holds together, it
could pose a serious threat to the reelection of Prime
Minister Charles, whose popularity has suffered be-
cause of the sluggish economy. Opposition vote split-
ting was largely responsible for her landslide victory
in 1980, according to the election tally.
Although the circumstances that brought Bishop to
power in Grenada-a repressive, autocratic regime
and an opportunistic, popular opposition-do not exist
in any Caribbean nation today, we cannot rule out the
possibility of a rise to power of a leftist government
similar to that in pre-1983 Grenada. Many observers
believe that electoral gains made by moderate politi-
cal elements in recent years will lack permanency
unless underwritten by economic stability
Some Other Factors
Considering the cultural, social, and economic diversi-
ty of the Caribbean, a variety of island-specific issues
also could increase sectarian infighting and further
heighten political tensions regardless of economic
prospects. For example, we foresee that renewed
allegations of official corruption against Bahamian
Prime Minister Pindling might further reduce public
confidence and prompt dissident ruling party mem-
bers to call again for his ouster. Heightened racial
tensions between blacks and East Indians, particularly
in Guyana and Trinidad might spark serious political
violence. Resolving the succession issue in Antigua
could be difficult; ruling party notables publicly op-
pose the plans of longtime Prime Minister Bird to pass
the mantle of leadership to his son. Likewise, the
death of former Barbadian Prime Minister Adams
could touch off disruptive squabbles within the ruling
Barbados Labor Party. Aruba's determination to
separate from the Netherlands Antilles Federation,
despite rising economic problems, could exacerbate
tensions among the Federation's hierarchy, we be-
lieve.
only political pressures with which Caribbean leaders
will have to contend, in our view. We agree with US
Embassy officials stationed in the area that mounting
economic problems will increase the chances for social
violence, especially if decisionmakers inadequately
prepare public support for austerity measures. Spo-
radic protests similar to those that broke out in
Jamaica, Haiti, and the Dominican Republic during
the past year are likely to recur in these countries, and
possibly to emerge in Suriname, the Netherlands 25X1
Antilles, Trinidad, and Guyana, largely because the
populace in these countries has not yet accepted the
need for additional belt-tightening. Moreover, the
recent bombing incident in Guadaloupe 6 underscores
US Embassy reports from throughout the region that
suggest that a number of extremist groups are willing
to take violent steps to achieve their goals. Because
most leftists reject armed action, largely because they 25X1
fear provoking harsh government retaliation and 25X1
alienating the public, according to US Embassy
sources, we judge that the chances for widespread
organized violence in most countries are low.
On the basis of a review of US defense attache and
Embassy reporting, we believe that the ability of
Caribbean security forces to handle the type of do-
mestic unrest we envision-sporadic riots and demon-
strations-varies widely. Military establishments in
larger countries-especially the Dominican Repub-
lic-can reasonably be expected to cope with most
civilian disturbances. The willingness of officials in
the Dominican Republic to take preemptive steps,
including detention of leftist labor and political lead-
ers, also will help to keep potential troublemakers in
that country in line. Security forces in Haiti, supple-
mented by a large unofficial militia, probably will
continue to prove effective in identifying and neutral-
izing dissidents. We believe, however, that constabu-
laries in the Caribbean ministates, despite the training
they have received through the newly created Region-
al Security System, can deal with only minor and
The openings that economic conditions give for
strengthening the legitimate opposition are not the
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sporadic incidents.' Moreover, disagreements over fi-
nancing have caused Caribbean leaders to abandon
plans for a mutual defense force, according to US
Embassy and press reports.
Widespread and prolonged internal unrest would
strain the capabilities of most Caribbean military
forces, even in the larger countries, to the breaking
point. In our view, longstanding problems, including
lack of training, poor logistics, command and control
deficiencies, shortages of spare parts, and outdated
equipment, would hinder efficient responses to serious
challenges in Jamaica, the Dominican Republic, and
Haiti. According to US defense attache reports, re-
cent budget cuts also have played havoc with morale,
recruitment, and equipment maintenance
The region's combination of worsening economic con-
ditions and political tensions presents some potential
for exploitation by Moscow and its allies. Cuba and
the USSR, however, have been hampered by the
strong rightward swing that the area has experienced
since 1983. Prime Minister Seaga's hostility to the
Castro regime, in particular, has been unremitting.
Nonetheless, other players are now in the wings.
Libya and, to a lesser extent, North Korea and China
also have sought to turn the region's economic woes to
their advantage. Tripoli has sought particularly to
expand links with radical groups in the French Antil-
les.
Cuba and the Soviet Union
In the wake of the Grenada debacle, Havana and
Moscow are using a building-block approach to try to
regain their influence in the Caribbean. In addition to
providing funds, training, and political guidance to a
' The Regional Security System was created as a result of the
memorandum of understanding signed in October 1982 by Antigua,
Barbados, Dominica, St. Lucia, and St. Vincent. It was designed to
fill the security gap left by the United Kingdom's departure after
these states gained independence. The agreement provides for the
development of a self-defense capability by its members and
enables any state to call upon the others to help put down a threat
from a foreign or extralegal group. Since its creation, Grenada and
wide variety of leftist groups, Cuba and the USSR are
encouraging cooperation among regional leftists. Ha-
vana has sponsored several unity meetings-attended
by most leftist and Marxist parties from the region-
to help heal the ideological rifts within the left
widened by the Grenada events
Reflecting the USSR's and Cuba's narrowed political
options, and their realization of labor's strong clout in
the region, they are stepping up efforts to improve
their ties with trade unionists. Cuba sponsored a
publicly reported conference for Caribbean labor
leaders in mid-1984 and dispatched labor officials to
A Soviet labor delegation recently
visited Suriname and, according to US Embassy
reports, invited key labor leaders to visit the Soviet
Union.
Havana and Moscow also are trying to strengthen ties
with the two leftist-leaning regimes in the Caribbean,
Guyana and Suriname. Viewing Guyana as the best
available hope for rebuilding their position in the
area, the Cubans and Soviets over the past year have
renewed their push for Burnham to invite Cheddi
Jagan and his pro-Moscow party to form a coalition
government,
Prospects for this occurring are poor, in our view.
Aside from the obstacle of Burnham's demonstrated
desire for absolute power, any plans for true power
sharing with Jagan and his Indo-Guyanese followers
would threaten Burnham's traditional support base
among Afro-Guyanese. We believe, therefore, that
the political risks involved militate against Burnham
agreeing to a meaningful coalition, even in the unlike-
ly event that substantial Cuban or Soviet economic
aid were offered. Havana and Moscow probably hope
that continued limited trade and aid inducements will
be enough to persuade the Guyanese leader to allow
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Jagan's party to gain a few cabinet posts. They
probably calculate this would put them in a better
position to take advantage of the political vacuum
likely to occur with the eventual departure of
Burnham from power.
In Suriname, the Soviets are likely to help Bouterse
build grassroots political support by providing assist-
ance to the 25 February Movement, an embryonic
radical political party
Cuba, however, apparently is not pressing to reopen
its Embassy in Paramaribo, which Havana closed in
late 1983 after Bouterse expelled the Cuban Ambas-
sador because of concerns about increasing Cuban
influence in Suriname.
In addition to developing better ties with leftist
government and political groups, the Soviets and
Cubans are trying to improve relations with some pro-
Western countries through trade and cultural con-
tacts.
Cuba has won a large public works
contract in Trinidad and possibly a partnership in its
state-owned steel company. A public works team in
Trinidad would be Havana's first major gain in the
region since the fall of the Bishop regime.
Because of the prevailing conservative political cli-
mate in the Caribbean and Moscow's and Havana's
present focus on Central America, we doubt that they
will deviate sharply from their traditional low-key
approach over the near term. They also probably
realize that regional leftists at present are neither
sufficiently strong nor broadly based to seize and
maintain power.
both countries, however, maintain contacts
with violence-prone groups-such as the Worker's
Party of Jamaica-probably in hopes of benefiting
from any leftist resurgence that could occur if the
region's economic problems worsen. US Embassy
reports also indicate that Havana has links with a
small radical group in the Dominican Republic. F
Libya
As part of Libyan leader Qadhafi's efforts to under-
mine US influence wherever possible, Tripoli is pursu-
fear of government retaliation.
age over most Caribbean leftists appears limited,
however, in large part because of their traditional
rejection of violence. We believe most leftists also will
continue to resist adopting radical tactics because of
their concern over public rejection and, in some cases,
North Korea and China
Although we believe North Korea and China see
potential for gain from the region's economic prob-
lems, they are, in our view, secondary actors on the
Caribbean stage. To expand its influence at the
expense of South Korea, P'yongyang is courting Suri-
name heavily
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Continuing military aid, 25X1
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O
US Economic Relations
With the Caribbean
Over the years, the United States, the principal
economic actor in the Caribbean region, has assumed
an ever larger role as former European colonial
powers have attempted to reduce the region's econom-
ic dependence on them:
? The United States is the Caribbean's largest trad-
ing partner. In 1983, the United States bought more
than 80 percent of total Caribbean exports to the
West, purchasing the lion's share offoodsttdfs
(including coffee, cocoa, and sugar), manufactures
(including chemicals, light machinery, and consum-
er goods), raw materials (especially metals), and
petroleum products. The United States also provid-
ed more than 50 percent of Caribbean imports from
the West, primarily raw materials and fuel.
? Gross US direct investment totaled more than $18
billion in 1983. On a net basis, however, this
investment totaled only $2 billion, due largely to
the nearly $16 billion negative US investment posi-
tion in the Netherlands Antilles because of US
assets held by Netherlands Antillean firms. Most
US equity is centered in the petroleum and bauxite
and alumina industries and is dominated by sever-
al large US corporations-Texaco, Exxon, Reyn-
olds Metals, and Alcoa, among others.
? US commercial bank exposure stood at $3.5 billion
at the end of 1983, including US balances at
offshore banking centers in The Bahamas, Bermu-
da, British Virgin Islands, and the Netherlands
Antilles. Even excluding these balances, the United
States still accounted for more than 35 percent of
commercial bank loan balances in the region.
? Of the $485 million in OECD commitments of
official development aid to the region in 1982, the
latest year for which complete data are available,
the United States accounted for 55 percent of the
total. Washington contributed more than 80 percent
of aid committed to the Dominican Republic, 72
percent to Jamaica, and 48 percent to Haiti. More-
over, the United States, as a major contributor to
the IMF, the World Bank, and the Inter-American
Development Bank, also has been a significant
source of multilateral support
mainly training, to Guyana underscores North
Korea's interest in improving relations with the Burn-
ham regime.
According to
US Embassy reports, Beijing's Caribbean policy
seems motivated by its desire to undercut Taiwan's
influence. Its few links with leftist groups appear to us
exploratory and limited to the English-speaking is-
lands
On balance, the Caribbean area's grim economic
prospects and the pressures such conditions are put-
ting on governments throughout the region almost
certainly portend increased petitioning of Washington
for help in revitalizing the region's economies. The
CBI has raised popular expectations of significant US
economic backing for the region. We believe many
area leaders who back the initiative-particularly
Prime Minister Seaga-will be watching its progress
as a bellwether of the US commitment to the area.
In addition to increasingly urgent requests for conces-
sional economic aid, additional bauxite purchases,
and increased security assistance, we judge that Ca-
ribbean governments will seek indirect support from
Washington for their economic policies. For example,
US Embassy reports indicate that leaders in the
Netherlands Antilles and Jamaica believe that the US
Government can effectively dissuade investors from
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curtailing their operations or pulling up stakes alto-
gether, even if ventures are not profitable. Thus, we
foresee increased pressure from these countries and
others for Washington to deter or compensate for any
substantial disinvestment. Caribbean countries also
are likely to ask the US Government to take a larger
hand in prodding the IMF, aid donors, and commer-
cial banks to make new funding available. In these
circumstances, we believe grating episodes between
Washington and most Caribbean nations will in-
crease, even though their governments generally will
remain pro-US.
In addition to the likelihood of more contentious
economic relations, we believe the current environ-
ment in the region could add new pressures to already
existing stress points in US-Caribbean ties. For
example:
? Resistance by the regime in Haiti to perceived
pressure from Washington to institute political re-
forms could result in a repetition of last year's
threats to expel several US diplomats.
? The apparent unwillingness of the military regime
in Suriname to relinquish power and Guyana's
warming relations with Havana and Moscow proba-
bly will further strain relations between these coun-
tries and Washington.
? The traditional push-pull factors contributing to
illegal migration to the United States probably will
intensify. The US Embassy in Haiti, for example,
reports that US Coast Guard detentions of Haitians
jumped fivefold last year. Given academic studies
and US Embassy reports, we believe that monetary
repercussions from earlier emigrants are allowing
larger numbers of unskilled, poorly educated indi-
viduals to move northward.
? US efforts to stem the illegal drug trade and reclaim
money from Caribbean tax havens are likely to be
hurt by stiffer resistance to cooperation from those
countries that stand to lose the most funds and by
the rise of new trafficking and laundering centers.
Moreover, the region's deepening economic slide
may diminish the willingness of government leaders
to pursue crop eradication vigorously.
? The failure of US help, particularly the CBI, to
meet expectations also would provide grist for Soviet
and Cuban propaganda.
In the unlikely event that the region's economic
difficulties become unmanageable and lead to wide-
spread political instability over the near term, Wash-
ington's problems could be magnified. In such circum-
stances, the chances for the emergence of leftist
regimes opposed to Washington and its policies would
grow. US and other foreign-owned firms might be-
come targets for nationalization, and the Soviets and
their surrogates would have new bases for regional
adventurism. The failure of the small English-speak-
ing islands to form a quick-reaction security force
raises the chances that Washington might be called
on to take unilateral action to prevent another leftist
takeover. Although events in one Caribbean nation
can directly affect its neighbors, we believe that the
absence of a shared revolutionary ideology would
preclude Washington from facing a series of simulta-
neous threats
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