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Christine Lagarde, the Managing Director of the International Monetary Fund (IMF), has told Caribbean states that they can make their territories more competitive by working together on tax policy and by making tax incentives more transparent.
Speaking at the University of the West Indies in Jamaica, Lagarde said: "The need for change is clear. The Caribbean has had a tendency to get stuck in the doldrums of stagnation – low growth, high debt, low competitiveness, high unemployment."
"Given this legacy, the Caribbean was vulnerable going into the global financial crisis, and was hit with its full force. Six years on, output has still not returned to pre-crisis levels, and public debt is still at record highs – almost 100 percent of GDP in tourism-dependent countries, and 140 percent of GDP here in Jamaica."
She said: "It is also critical to improve the business climate, which is less hospitable in the Caribbean than in other dynamic small economies. This includes reeling in much of the red tape, and making labor markets more effective in creating jobs."
In her speech, Lagarde called for full disclosure of fiscal measures offered to investors. "The public sector must play an enabling role – through greater predictability, transparency, and impartiality. For instance, fiscal incentives could be made simpler and less murky," she said.
"In all of this, the Caribbean would also gain from greater cooperation. A difficult task is always made easier when more people lend a hand – and a lot easier when they work together. For example, a regional approach to transportation infrastructure and the marketing of tourism might work better than each country pressing its own advantage. There would be more revenue for all if countries resisted the temptation to compete with each other on taxes to attract business. By definition, a race to the bottom leaves everybody at the bottom," she said.
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