February 17, 2006

REGIONAL ECONOMIC SUMMARY

The Caribbean region has been in a recovery phase since the destruction of Hurricane Ivan. The islands have performed well for 2005 boosted by tourism and construction. The upsurge in the latter sectors is likely to improve the state of OECS to a 5.8% growth. Jamaica has experienced a devaluation in its currency and an increase in food prices as well as imports. This has led to marginal growth which is below the target for the economy

The economy of Suriname is expecting growth of approximately 4.1% for 2005 due to disciplined macroeconomic policies and an increase in the demand for bauxite and other commodities by China. Foreign Direct Investment is expected to increase by 3% and continued growth in alumina and gold output will help exports increase by 16%. 2006 projections show a 3% increase in GDP. A sense of sustainability can be maintained with the re-election of Mr. Venetiaan as president and his respective government, thereby continuing plans that were put in place in 2004.

Guyana was hit by heavy flooding in the first half of 2005 which led to an increase in imports of all goods and a reduction in their own production. While the economy is expected to pick up in the second half of the year a negative growth of 2.0% is expected for the country in 2005. In December 2005, the IMF extended full debt relief to Guyana under the Multilateral Debt Relief Initiative (MDRI) due to satisfactory macroeconomic performance, strides made in poverty reduction and improvements in managing public spending as factors ensuring its inclusion in the initiative. The debt relief will free up valuable local resources for the pursuit of the Millennium Development Goals and other initiatives.

The economy of Trinidad and Tobago has experienced GDP growth of 7% in 2005 and is estimated to continue expanding at just over 10% for 2006, according to the Central Bank. This growth was fueled by the higher than expected increase in the price of oil for the year and the continued expansion of the energy sector. The expected expansion in 2006 is due to the start of production for Train IV at the LNG plant, expanding public sector construction activity and a full year of operations from the M5000 Methanol Plant. The non-energy sector has also experienced growth of 4% in 2005 led by construction and manufacturing, and is expected to continue expanding in 2006.

With the rapid growth of the economy, inflation has risen at a rate of 7.2% for the twelve month period to December 2005. This can reduce the competitiveness of the non-oil export sector, hence making the economy even more reliant on oil. The Central Bank has increased the ‘repo’ rate up during the year in an effort to curb spending and reduce inflation. The ‘repo’ rate was most recently increased by 50 basis points to 6.50% at the end of February 2006. However, there remains a great amount of liquidity in the economy, which is reducing the effects of the changes in the rate. The excess liquidity has resulted in increased consumer spending, which has put pressure on the exchange rate as the Central Bank has been forced to put more US currency into the system to stabilize the exchange rate. Unemployment has also decreased to historic lows for 2005 and rests at 8.5%.

While most of the Caribbean islands have signed onto the Petrocaribe initiative offered by Venezuela, the potential decrease in demand may not affect Trinidad significantly with an increasing demand for oil in the world markets in conjunction with diminishing reserves. The Governments of Venezuela and Trinidad and Tobago are also set to resume talks for a unitisation agreement between the two nations that would result in the sharing of oil reserves that straddle the maritime border of the two countries.

The crime rate continued to climb in 2005 and at the beginning of 2006, raising questions of the ability of the government to manage the situation. As a result of the crime there has been a high level of migration of skilled professionals along with a subsequent outflow of foreign exchange. The current crime situation can also negatively affect the ability of the country to attract additional foreign investment.

The Caribbean Single Market Economy (CSME) initiative officially started on January 1 2006 with Trinidad and Tobago, Jamaica, Barbados, Guyana, Belize and Suriname. Member countries of the OECS are expected to join 6 months later citing concerns over the effects the CSME will have on their smaller economies. All countries stand to benefit from the initiative as the economies become more integrated to create a stronger and larger economic entity in the global market. The CSME will start off with free movement of goods, services, capital and skilled labour eventually leading to a full Caribbean economy in the vein of the European Union.