The Caribbean Basin Initiative

The Reagan Administration's Caribbean Basin economic initiative is now two years in the making. Touted by the President in his 1983 State of the Union address as "a partnership for peace, prosperity and democracy," the initiative may in the long run create more problems than it solves. This holds true for both the U.S. and the "beneficiary" countries.

The plan's most glaring error is its failure to prescribe effective remedies for the basic economic, political and social problems of the area. Among the most serious of these are: widespread poverty, rising unemployment, subsistence wages, high energy costs, archaic land tenure systems, expanding populations, unmanageable foreign debt and the escalating civil warfare in Central America.

Into this disastrous mix the administration proposes to inject a modest increase in dollar loans which will be used largely to meet payments on existing debt, "free trade" treatment for 12 years for a limited list of Caribbean exports, and new five-year tax breaks designed to attract U.S. corporate investors.

The potential beneficiaries of this dubious largesse are some two dozen small, developing nations in Central America, the Caribbean, and northern South America (see map). Most of the smaller political entities are islands recently emerged from colonial status; the majority are former British colonies. The larger, mainland countries (with the exception of Belize, Guyana and Suriname) are former Spanish dependencies, independent since the early 19th century but grown increasingly reliant since then on U.S. capital and markets. Three countries-Cuba, Nicaragua, and the tiny island of Grenada-have been written out of the Reagan proposal because their governments are considered to be under Soviet or Cuban influence.

The population of the potential beneficiary countries is almost 40 million. Unemployment averages 25 percent but runs as high as 40 percent in some nations. Annual per capita income is only about $700.

Agricultural wages in the area range from about $1.20 to-at best-a little over $3.00 per day (in comparison, U.S. farm workers make about $2.50 per hour). Most of the people are heavily dependent on plantation work, subsistence farming or a combination of both. Coffee, sugar, cotton, tobacco and tropical fruits are among the principal agricultural products.

With the exception of corn and beans grown for local consumption, most of these crops are produced for export. The Dominican Republic, for instance, supplies about one-third of U.S. sugar imports, with the U.S.-based Gulf and Western Corporation being the principal grower.

A few countries-Jamaica and Guyana in particular-have important bauxite resources, and some-Venezuela, TrinidadTobago, and recently Guatemala-produce or refine petroleum products. (Oil producing Venezuela has agreed to be a donor country, rather than a beneficiary, in the CBI.) Light industry is heavily focused on handicrafts, textiles and leather products.

U.S. tourism, once a mainstay of the area, has declined in the Caribbean Islands as a result of the recession, and in Central America due to civil war and political unrest. The climate for foreign investment is deteriorating for the same reasons. (According to the Agency for International Development, foreign capital was fleeing the area at the rate of $500 million a year in 1979 and 1980.)

Critics of the initiative-including many humanitarian and religious groups-are concerned that the "Basin" area is a largely artificial political-strategic construct of the U.S., and fear the CBI is likely to increase political tensions and violence by delaying urgently needed political and economic reforms. Some U.S. domestic business interests (such as textile and leather goods firms) fear competition from duty-free Caribbean imports resulting from the initiative. AFL-CIO President Lane Kirkland has said the plan will cost domestic jobs.

However, many U.S.-based multinational corporations already operating in the area-and some hoping to take advantage of the basin's cheap labor-favor the scheme. Among the most ardent lobbyists for CBI have been Alcoa, Coca-Cola, Eastern Airlines, Exxon, Reynolds and Martin Marietta (see MM, January 1983). But as these companies push for the initiative, other U.S. firms have been leaving the area in recent months, intimidated by Central America's political instability and warfare. Castle and Cooke recently pulled out of Nicaragua, while Sears has closed two stores in Honduras, two in Guatemala and one in Nicaragua.

Such differences in assessment led Congress to delay action last year on all but one of the initiative's three major provisions. Congress approved only a modest $350 million supplemental appropriation, largely for balance-of-payments support. About two-thirds of this was programmed for four countries: the Dominican Republic, El Salvador, Honduras and Jamaica.

Legislators are now considering a $664.5 million increase in the CBI (less than half earmarked for "development" projects) plus $106.2 million in military aid. At least some of this money will be granted, but the fate of the initiative's other two prongs-investment incentives and tariff concessions-are in doubt.

The package as a whole contains very little that will be of help in raising popular living standards in the Caribbean-a necessity if the administration wishes to contain the spreading political radicalism it is so concerned about.

The modest sums allocated to rural development, education and public health are largely symbolic. The U.S. has conducted such programs with varying degrees of commitment and project quality since shortly after World War II, but according to Assistant Secretary of State for Inter-American Affairs Thomas Enders per capita income in the region has not increased.

As for the "free trade" segment of the plan, 87 percent of the region's exports already enter the U.S. duty-free, and the remaining 13 percent consist mostly of sugar-which would be returned to the national quota system of previous years-and textiles, which lobbyists for domestic interests probably will succeed in keeping off the list.

In any case, production for local consumption is needed more urgently than exports. Congressman Thomas J. Downey (D-N.Y.) has introduced a "Land for Food" amendment which would withhold trade concessions on sugar, syrup, beef, veal and some other products until the basin countries agree first to produce sufficient food for home consumption. Voluntary organizations concerned about hunger fear that without such safeguards, poor farmers could be displaced, and land now used to grow beans and corn for indigent families would feed beef cattle destined for U.S. dinner tables.

Another provision in the legislation would give duty-free treatment to Caribbean products with a local content of only 25% of total value, including labor. This could worsen the Caribbean's already bad reputation as a low wage, low skill assembly point for components of products of U.S. and other foreign corporations. Electronics are high on this list, and other products, particularly those of the high technology agribusiness variety, are not expected to provide much employment.

Finally, the proposed new incentives to investors could be costly both for the U.S. and beneficiary nations. The five-year tax break could be a windfall for American corporations expanding existing operations in the area, but in view of the recession and the current unstable basin political climate, little new capital is expected to flow there. Even such traditional sources of subsidies and guarantees for American business as the Overseas Private Investment Corporation and the Export-Import Bank have been reluctant to accept new exposures in the war-torn Central American "rim" countries. As a result, the multilateral financial institutions, such as the World Bank, the International Monetary Fund and the Inter-American Development Bank, probably will be asked to pick up a larger share of the credit burden. But these agencies are also out of favor with Congress, which must provide the largest share of their resources.

In short, the initiative in the form sent to Congress by the White House apparently is going to be costly to the U.S. in terms of lost jobs and revenues; will help American business and a handful of local elites to avoid the risks private enterprise is supposed to accept; will reduce rather than improve the living standards of the poor it purports to help; and will complicate rather than protect the western hemisphere's true security interests. "Peace, prosperity and democracy" for the Caribbean Basin, as the President eulogized the plan, is far from being just around the corner.

Vincent Wilber is a former foreign service officer and journalist who has served in several Latin American and Caribbean countries.

U.S. AID TO SELECTED COUNTRIES INVOLVED IN THE CARIBBEAN BASIN INITIATIVE 1978 - 1983 (Thousands of US Dollars Under the Reagan Administration, military aid to Latin America and the Caribbean has drastically increased as a percentage of total aid, from 10% to 67%. Economic and food aid levels have dropped. SECURITY ASSISTANCE2 Country 1978 1982 Total, 1978 - 82 Costa Rica 0 90,050 150,235 Domincian Republic 700 45,450 64,330 El Salvador 0 284,000 546,000 Haiti 700 5,550 8,888 Honduras 3,200 62,651 121,287 Jamaica 11,000 92,115 121,287 ECONOMIC AID3 Country 1978 1982 Total, 1978 - 82 Costa Rica 6,900 30,955 104,291 Domincian Republic 1,300 41,700 210,333 El Salvador 8,000 57,370 223,925 Haiti 19,400 21,015 120,975 Honduras 13,000 33,770 184,054 Jamaica 10,600 47,071 170,925 1. 1982 figures are for Caribbean Basin Initiative funds and money requested by the President and approved by Congress. Figures for fiscal year 1983 are from the President's proposed budget, and do not reflect any changes made by Congress 2. Security assistance consists of Foreign Military Sales, International Military and Training Program, Military Assistance Program funds and Economic Support Funds (ESF). Although they are not directly allocated for military purposes, ESF funds are deposited in the recipient country's national treasury or used to pay its deficits, thus freeing up other monies for military spending. 3. Economic aid includes funds distributed by the U.S. Agency for International Development (AID) and food aid distributed under the Food-for-Peace program. Source: Washington Office on Latin America. Chart Prepared by Jeff Bentoff