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TOWARD AN OUTWARD-ORIENTED DEVELOPMENT STRATEGY FOR SMALL STATES: ISSUES, OPPORTUNITIES, AND RESILIENCE BUILDING

A REVIEW OF THE SMALL STATES AGENDA SET OUT IN THE COMMONWEALTH/

WORLD BANK JOINT TASK FORCE REPORT OF APRIL 2000

Prepared by

Lino Briguglio,Bishnodat Persaud, and Richard Stern

2005 Small States ForumSeptember 24, 2005

Washington, DC

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Review requested by the 2004 Small States Forum and the 2004 Commonwealth Finance Ministers meeting

• To determine whether the analysis contained in the 2000 Task Force report remains relevant

• Identify new issues and opportunities that have emerged

The views expressed are those of the Authors

GENESIS AND PURPOSE OF THE REPORT

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The 2000 Report highlighted the following key characteristics of the small states:

• Remoteness and insularity• Susceptibility to natural disasters• Limited institutional capacity• Limited diversification• Openness• Key role of external capital• Poverty

KEY CHARACTERISTICS OF SMALL STATES

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What has happened to small states since 2000?• Average GDP growth has declined relative to comparators• Income and export volatility remain high• Service sector increasing in importance• Share agriculture and merchandise exports declining• Remittances and FDI remain critical• Debt burden has increased

DEVELOPMENTS SINCE 2000

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• Preference erosion is faster that anticipated• Need to diversify into new activities• Increasing environmental vulnerability• Youth unemployment• Security and crime• HIV/AIDS

Not all small states face the same challenges

EMERGING CHALLENGES

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Some have:• Embarked on economic reform programs• Improved the investment climate• Upgraded governance• Expanded regional cooperation• Implementing comprehensive responses to HIV/AIDSHowever in others:• Adjustment and fiscal reforms are largely

absent• Governance remains weak

THE RESPONSE OF THE SMALL STATES

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There is the need to shift emphasis away from:

• Prolonging preferences and special concessions

towards:• Designing and implementing outward-looking

export based development strategies

particularly in higher-end servicesand• Building economic resilience to better

withstand external shocks

CONCLUSIONS AND RECOMMENDATIONS

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Creating and exploiting competitive advantage, particularly in the service sectors, will require:

• Improving the investment climate• Empowering and investing in the education, health and safety of human resources• Increased regional cooperation• Offsetting vulnerabilities by strengthening environment and other resilience mechanisms• Increasing aid flows to support repositioning and a radical harmonization of donor efforts

CONCLUSIONS AND RECOMMENDATIONS

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Improving the investment climate requires:

• Securing property rights • Simplifying tax regimes and administration• Moving from import duties to less

distortionary tax systems• Provision of adequate infrastructure• Assuring good governance, including increased

outsourcing of government services• Systematically leveraging the considerable

stock of small state “best-practices” • Mobilizing the diaspora

CONCLUSIONS AND RECOMMENDATIONS

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Empowering and investing in human resource requires:

• Investing in and upgrading the quality of education systems

• Maintaining the priority of the anti-crime agenda

• Aggressively combating HIV/AIDS Donor support will be critical-particularly from

those benefiting from migration

CONCLUSIONS AND RECOMMENDATIONS

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Intensify Regional Cooperation in such areas as:

• Regulation (infrastructure and finance)• Education• Health• Environmental and fisheries protection• Airline and shipping procurement• Crime prevention

CONCLUSIONS AND RECOMMENDATIONS

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Offsetting Vulnerabilities:

• Strengthen environmental institutions• Intensify efforts to develop disaster insurance mechanisms • Assign greater priority to disaster mitigation• Assign lower priority for commodity insurance

CONCLUSIONS AND RECOMMENDATIONS

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Role of the International Community:• Reverse decline in aid for small states that are implementing repositioning programs• Implement radical steps to enhance aid coordination and to develop new aid products• Simplify WTO accession procedures and strengthen representation for small states • Increase engagement of regional organizations in small states forum• Support the development of mechanisms to

share knowledge/best practice among small states

CONCLUSIONS AND RECOMMENDATIONS

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POINTS FOR DISCUSSION

• Is the analysis in the report correct?

• Which recommendations deserve more emphasis, and which ones are less important?

• Should there be further discussions of the review, for example at the country and regional levels?

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THANK YOU FOR YOUR ATTENTION