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Being Down and Out in the Caribbean: Ripples from the U.S. Recession

By Scott B. MacDonald

Many Caribbean countries have made a substantial effort to promote their countries as key points on the map for over-worked and vacation-needy, yet affluent North Americans, Europeans and Japanese. Ad campaigns emphasize lush tropical climates, smiling natives and ready service. Indeed, many in the United States, Canada, the UK, France and Japan are willing to board a jetliner and make the trek for a little tropical paradise, especially in winter. The harsh winter months in Montreal, New York City, and Chicago are enough to make many think about the advantages of sitting in the warmth of the Caribbean sun, having a rum drink and thinking only about what to do for dinner.

While this may appear to be a bit superficial in terms of hopes for national development, the hard reality is that the tourist industry is a central element in most Caribbean economies. It is estimated that tourism generates around $2 billion and employs one in four Caribbean citizens. Tourism is also the largest earner of foreign exchange in 16 out of 28 countries in the region. Consequently, when the U.S. economy heads into a recession, the impact on the Caribbean is significant.

Prior to the 9/11 attacks on the United States, the U.S. economy was already slowing and with it prospects for the Caribbean tourist sector were dimming. In many Caribbean countries, there is now real concern that the lights could be turned off. The tourist is now like an endangered species for many Caribbean countries — there are few left. As David Jessop, the Executive Director of the Caribbean Council of Europe notes: "But now as passengers fearful of traveling beyond their national borders cancel flights, air carriers reduce services, cruise ships operators abandon destinations, hotels retrench staff and investment in tourism contracts, the outlook for this key Caribbean industry is bleak."

Throughout the Caribbean, national airlines, hotels and service industries have been hurt badly. In the days following the 9/11 attacks Air Jamaica lost $11 million and only now is beginning to regain customers. All the same, 2001 is likely to go down as one of the worst years for regional airlines, many of them already struggling.

On the hotel side, the economic downturn also hurts. In Jamaica, 70% of all tourists come from the United States. No U.S. tourists means empty hotel rooms, which in turn translates into lay-offs. These are also spillover effects of a blow to tourism — suppliers in manufacturing, food processing, agriculture, ground transportation are all hit. Ralph Taylor, President of the Caribbean Hotel Association, stated in late September, 2001: "This is a very tough situation in which we find ourselves. It has already been a difficult year for us because of the global economic slowdown in general and the downturn in the U.S. in particular."

Jamaica is hardly alone. The Bahamas is also highly dependent on tourism. In 2000 it had 4.2 million visitors, with 92% of them staying overnight and the other 8% on cruises. Together they spent $1.8 billion. Tourist-related activities account for two-thirds of economic activity. The downturn in the industry presents a stiff challenge to the Bahamian economy.

The global economic slowdown is also likely to hurt worker's remittances, most importantly in the Dominican Republic, Haiti and Jamaica. Such remittances are often a critical lifeline for working people in the region. In Jamaica it is estimated that remittances bring in for many families $700 a year, an important supplement that keeps people just above the poverty line. However, the as the U.S. is in recession and millions of jobs are lost, Jamaicans living abroad will have less discretionary cash at their disposal. As one Jamaican editorial commented: "Less money will be sent home. The capacity of Jamaicans who live on remittances to consume will decline. Poverty will worsen." In addition, the lack of remittances runs the risk of translating into social unrest that can easily lead to riots.

These negative conditions will also hurt the ability of most countries to access international credit markets. Although Barbados, Trinidad & Tobago, and the Dominican Republic have been able to access international capital markets over the last 12 months, many other countries, like Guyana and Suriname, will not have that option. Caribbean countries can also be hurt in capital markets when Argentina defaults.

The impact of 9/11 will also hurt the flow of drugs, due to enhanced national security against terrorism in the U.S., Canada and Europe. While this is positive, it could complicate the flow of legal goods into the United States and Canada. Moreover, new and tougher anti-money laundering laws being introduced in the United States and in Europe should bring Caribbean offshore financial centers under greater scrutiny — rightfully or wrongfully.

Substantial challenges sit before Caribbean governments. The regional economy had already begun to slow. However, 9/11 accelerated the slowdown and has cast many governments into a painful reassessment of the economic landscape. Prospects for 2002 look better, but will remain dependent on larger geo-political factors, such as the success or failure of the War against Terrorism. Sadly, the blow against the trade towers and the Pentagon was also a blow against the Caribbean and its people.