EASTERN CARIBBEAN MOVES TOWARD ECONOMIC UNION

UNCLAS SECTION 01 OF 03 BRIDGETOWN 000553

SIPDIS

SENSITIVE
SIPDIS

SOUTHCOM ALSO FOR POLAD

E.O. 12958: N/A
TAGS: ECIN EFIN PGOV PREL UK XL
SUBJECT: EASTERN CARIBBEAN MOVES TOWARD ECONOMIC UNION

REF: A. BRIDGETOWN 206

B. PORT OF SPAIN 34

C. 04 BRIDGETOWN 2833


1. (SBU) Summary: The Eastern Caribbean's small island-states
are creating an economic union that could lead to political
integration. Under a draft plan, the heads of government of
the Organization of Eastern Caribbean States (OECS) would sit
on a supranational body that has the authority to make
binding economic decisions for all member states. This
arrangement could help promote development by harmonizing
economic policies while providing leaders with the political
cover necessary to lower public expenditures and reduce debt
in an attempt to impose fiscal discipline upon their
governments. An economic union could also better position
the OECS to compete in the wider CARICOM Single Market and
Economy (CSME). The willingness of the countries in the
Eastern Caribbean to cede sovereignty to a supranational body
suggests that they could also countenance political
integration in the future. End summary.

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Eastern Caribbean Proposes Common Economic Policies
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2. (U) OECS members are considering the establishment of a
new legal mechanism that would allow their national leaders
to establish common economic policies for the small-island
states in the Eastern Caribbean. Under the plan, the
existing OECS Authority, comprised of the heads of government
of all nine OECS members, would be given the power to pass
binding legislation in specific economic areas, including
fiscal policy. Such a development would result in the closer
integration of a region that already relies upon the OECS to
coordinate its activities in a variety of areas such as
aviation and legal affairs. This would be the first time,
however, that the OECS Authority would have the power to make
decisions binding on all member states.


3. (U) Note: The OECS Authority consists of the Prime
Ministers of the six independent nations that are members of
the organization, Antigua and Barbuda, Dominica, Grenada, St.
Kitts and Nevis, St. Lucia, and St. Vincent and the
Grenadines, and the Chief Ministers of the three
self-governing British overseas territories in the OECS,
Anguilla, Montserrat, and the British Virgin Islands. End
note.

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OECS Authority to Become a Supranational Body
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4. (U) The OECS member states are presently reviewing a draft
treaty that would make the OECS Authority a supranational
decision-making body. If adopted, the new treaty would
replace the 1981 Treaty of Basseterre that established the
OECS. The draft treaty would also remake the current OECS
Secretariat, the organization's St. Lucia-based bureaucracy,

SIPDIS
into the Eastern Caribbean Commission. Drawing on the
European Union's model, the Commission would draft proposed
legislation that would then be considered by the heads of
government. It is not clear at this time if the new treaty
will require the passage of legislation by consensus or a
simple majority vote by the OECS Authority. The OECS
Secretariat hopes to have the draft treaty and other

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documents related to the economic union available for public
comment later this year.

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Parliaments Would Give Up Power
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5. (SBU) Granting the OECS Authority legislative power would
require the parliaments of the six independent nations in the
OECS to cede a significant aspect of their authority to
determine the laws and policies of their individual nations.
The governments of the British territories would take similar
action after first obtaining approval from the U.K. to
participate in the enhanced OECS Authority. According to
OECS Secretariat staff, the independent nations in the OECS
are leading this move toward granting the organization's
governing body greater power with the British territories
reluctantly going along. St. Vincent Prime Minister Ralph
Gonsalves and St. Lucia Prime Minister Kenny Anthony are

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credited with being the driving force behind this effort.

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Focus on Fiscal Policy
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6. (U) Adopting a common fiscal policy would be at the heart
of the move toward closer economic integration, with the OECS
Authority potentially setting ceilings on both public debt
and fiscal deficits. This would force the highly indebted
member states to rein in their borrowing and spending. Such
an IMF economic stabilization plan has required the
Government of Dominica to adopt some tough measures in
pursuit of this goal, which has aroused considerable domestic
political opposition. If the OECS Authority gains the power
to create a common fiscal policy, it could, in effect, direct
that all member states follow Dominica's lead. (Note: In
2004, debt as a percentage of GDP for the six independent
OECS states ranged from a low of 69 percent for St. Lucia to
a staggering high of 162 percent for St. Kitts and Nevis.
End note.)

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Political Cover for Government Leaders
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7. (SBU) Having the OECS centrally legislate fiscal policy
would provide political cover for the region's leaders,
according to Allister Mounsey, an OECS economist who is
drawing up plans for the economic union. The OECS member
states desperately need to reduce their borrowing and public
expenditures, which will require a fair amount of
belt-tightening. Necessary reforms include reducing the size
of government payrolls and spending on public works and other
employment-generating projects. A prime minister will have
an easier time politically if an OECS-wide decision can be
blamed for any hardship caused to his citizens. Mounsey
explained to Poloff that the impetus behind this move to give
the OECS Authority the power to set fiscal policy came, in
part, from the inability of governments to make these
politically difficult decisions themselves.

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A Step Closer to Full Economic Union
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8. (U) The adoption of a common fiscal policy would take the
OECS significantly closer to full economic union. The
members (with the exception of the British Virgin Islands)
already use the Eastern Caribbean dollar and share a common
monetary policy set by the Eastern Caribbean Central Bank
(ECCB). Although the bank is technically independent of the
OECS, the membership of the ECCB's governing body is almost
identical to that of the OECS Authority, thereby providing a
precedent for the manner of decision-making planned for an
enhanced OECS. After tackling fiscal policy, the OECS would
likely move to harmonize trade and other policies, eventually
making the Eastern Caribbean a full economic union.

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CARICOM and the CSME
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9. (U) The Eastern Caribbean's move toward closer economic
integration is occurring parallel to the larger Caribbean
region's evolution toward a single market, the CARICOM Single
Market and Economy (CSME). The CSME, with its focus on the
movement of goods, services, and people, could have a great
impact on the countries in the OECS sub-region, but would not
affect their sovereignty to the same degree as the proposed
economic union. The small nations that make up the OECS have
been wary of the single market forcing them to compete with
larger economies such as those of Jamaica and Trinidad and
Tobago, leading them to delay their entry into the CSME (ref
A). Closer economic integration and the imposition of fiscal
discipline could offer the OECS members a better position
from which to participate in and benefit from the CSME.

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Political Union?
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10. (SBU) Comment: The willingness of the nations in the
Eastern Caribbean to cede increasing amounts of their

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sovereignty to a regional economic union suggests that they
could take the logical next step and begin moving toward a
political union. OECS-wide political integration would
appear to be a more logical development than the periodically
discussed integration of a select number of OECS member
states with non-OECS member Trinidad and Tobago (refs B and
C). Should the proposed economic union prove effective, the
small countries in the OECS are more likely to join
politically with one another than to be subsumed by their
larger and more powerful neighbor. The senior politicians of
these small-island states understand that their independent
positions are becoming increasingly difficult to sustain in
an era of globalization. If these leaders are to share
economic or even political control over the affairs of their
nations, it should be easier to do so first among the OECS
microstates, to prepare for the greater challenges of
participating in the Caribbean-wide CSME and a potential
hemispheric free trade area. End comment.
KRAMER