376. Memorandum From the Executive Secretary of the Department of State (Tarnoff) to the President’s Assistant for National Security Affairs (Brzezinski)1

SUBJECT

  • The Third Annual Meeting of the Caribbean Group—June 23–27

Thirty-one countries and 15 financial institutions participated in the third meeting of the Caribbean Group for Cooperation in Economic Development. Participants regard this meeting as the most positive and well-focused to date. Caribbean countries have accepted the IBRD-led Group as the institution to analyze systematically their development needs and economic programs and to conceptualize and coordinate regional programs in agriculture, energy, transportation, export promotion, tourism, private sector encouragement and a U.S. proposal for regional cooperation on disaster preparedness.

Strong regional support for the Group is particularly encouraging because of the pessimistic outlook for the economy of the region caused by:

1. the deterioration of economic growth prospects;

2. the burgeoning payments gap stemming from oil price increases;

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3. economic mismanagement in several countries, especially Haiti and Jamaica; and

4. the apparent inability of most traditional donors to increase aid flows.

Despite these adverse circumstances, this year’s meeting marked a watershed in the institutionalization of the Group. Many recipients believe that substantial progress had been made in areas affecting their long-term development prospects. These include progress in regional cooperation and a consensus on the need to revitalize the private sector in the Caribbean.2 Attention was also given to two huge hydroelectric projects in Guyana and Suriname which, according to the IBRD, could radically improve long-term development prospects in those countries.3

The positive reception accorded the report of the Private Sector Task Force, and the decision to establish a work program to implement the Task Force recommendations may well be the most far-reaching undertaking of the Group. The overview report of the Task Force which was critical of many government policies, as well as its country-specific reports on improving the investment climate are to be discussed with Caribbean governments by representatives of the Task Force. The International Finance Corporation, working with other Task Force participants, is to recommend procedures for establishing a new facility for identification and development of small and medium-sized private sector projects.

The Eastern Caribbean developing countries were generally pleased with their sub-group meetings and exercised a leadership role in representing the recipients.4 Grenada received a clear message that several key donors were not rendering it added support and was left to “draw its own conclusions” in this regard.

The U.S. and others emphasized the need for recipient countries to take the necessary self-help measures to carry out sound economic programs. Recipients expressed much more awareness of the need for adjustments on their part in order to justify the full support of donors. The Jamaican sub-group meeting set a precedent. This was the first [Page 937] time that a country previously eligible for local-cost financing through the Caribbean Development Facility (CDF) was found to be ineligible because of the lack of a medium-term economic program. Jamaica asked for emergency financing, to which a few countries responded, but these pledges fell far short of its request.

The Dominican Republic has not reached agreement with the IBRD and IMF on medium-term economic programs. Consequently, its meeting did not constitute a CDF pledging session. Thus, the two largest recipients—Jamaica and the Dominican Republic—were not incorporated in pledge targets for the time being. Should they reach agreement on economic programs, special subgroups may be held later.

The informal Haiti meeting was restricted to a few donors because the IMF/IBRD wanted to be quite blunt with Haiti: (1) The GOH had undertaken several expensive low priority projects which were not included in its budget; (2) tax receipts had fallen because of poor management while expenditures had exceeded targets; and (3) various fiscal and management reforms were not carried out. GOH officials admitted that there were excesses, but attributed them to pressing social problems and promised to carry out a number of fiscal and administrative reforms. The U.S. delegation said Haiti would have to demonstrate an ability to use its aid effectively before we would proceed with additional assistance, such as a Title III Food Aid Program. The U.S. urged Haiti to reach agreement with the IMF.

The immediate needs of the area remain pressing. The World Bank estimates that foreign assistance of $1.3 billion is required this coming year—nearly twice as much as last year.

The oil-producing countries, i.e., Venezuela and Trinidad and Tobago, are becoming key donors through their proposed oil facilities. They were not far enough advanced in developing their assistance programs to outline the specifics and amounts to be provided to individual countries. Nevertheless, these oil-producing countries indicated that they were aware of the adverse impact caused by the oil price increases and would help their Caribbean neighbors.

Traditional donors, the UK, Canada and the US, agree on the usefulness of the Group and are prepared to support regular annual meetings. These donors feel that the recipients recognize the mutuality of their obligations in carrying forward the group process. The UK, however, substantially reduced its pledge. Canada was only able to maintain its lending level. Canada underlined that the Caribbean was being given priority because other areas of the world were being cut back. Similarly, the U.S. commitment was to maintain its CDF financing at about last year’s level. In short, U.S. contributions in real terms would be down, i.e. adjusted for price inflation. Recipients were disappointed in the pledges by traditional donors, noting that external financial flows would fall far short of their urgent developmental needs.

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The Group addressed the key problems facing the region: (1) economic prospects are grim in many islands because of a dependency on imported petroleum, high levels of unemployment, a shortage of skilled labor, and continued outmigration of skilled people; (2) despite the Group’s efforts, financial assistance will likely not cover the balance of payments gaps of most countries; (3) regional programs are helping to strengthen regional institutions but further attention is needed to develop a cooperative framework among the countries in the region; and (4) divisive forces such as ideological competition and the independent attitude of Trinidad and Tobago have strained cooperation in CARICOM.

The Department is currently reviewing its economic and security assistance programs for the region. We plan to hold an inter-agency meeting shortly to submit our proposals. Once this review process is completed, we plan to submit a series of recommendations to respond to the problems noted above.

Peter Tarnoff Executive Secretary
  1. Source: Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 46, Folder: Latin America, 6/80–1/81. Limited Official Use.
  2. Brzezinski underlined the phrase “progress in regional cooperation and a consensus on the need to revitalize the private sector in the Caribbean,” and wrote in the right margin, “v. signif.”
  3. For information about the Upper Mazaruni Hydroelectric Dam project in Guyana, see Document 296. In telegram 208499 to Paramaribo, August 10, 1979, the Department reported that the Surinamese Government was seeking funding for a hydroelectric dam in western Suriname. (National Archives, RG 59, Central Foreign Policy File, D790364–0332)
  4. Brzezinski wrote in the right margin, “altho want U.S. bilateral aid.”