Caribbean

DOMINICAN REPUBLIC: The difficult task of reforming the penal code

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After years of failed attempts at reforming the Dominican Republic (DR)’s penal code (CPP), the government led by President Danilo Medina now has in its hands a congressionally-approved initiative to overhaul the CPP, aimed at better combating the high levels of criminality and violence currently afflicting the country. While reducing crime and violence is one of the government’s main goals, Medina has hesitated to promulgate the initiative amid concerns expressed by civil society groups and even government officials regarding some of the proposed changes.

Plans to reform the CPP have been in the pipeline since 2004 when the Partido de la Liberación Dominicana (PLD) administration, led by former president Leonel Fernández (1996-2000; 2004-2012), first presented plans to overhaul it. While the PLD enjoyed a comfortable majority in congress under Fernández, introducing changes to the CPP was such a complex and politically sensitive task that PLD legislators could not fully agree on a single set of proposals and the issue was left on the backburner.

Last year however PLD legislators revived the initiative as part of the government’s efforts to tackle the rising levels of insecurity, in line with promises made by Medina made during his electoral campaign. After months of debate, a draft bill amending 75 CPP articles was approved by the (PLD-dominated) chamber of deputies in June 2013. It took the (also PLD-dominated) senate ten months to get round to discussing the bill which then sent a revised version back down to the lower chamber. While the deputies rejected the senate’s modifications and it looked like the initiative would remain in congressional limbo, in an unexpected move, on 27 March, the senate approved the version drafted by the lower chamber.

Senator José Rafael Vargas (PLD), a member of the senate’s justice committee, said that senators felt compelled to approve the lower chamber’s version of the bill fearing that failure to do so would result in the “death of the initiative”. However, Vargas said that this did not mean that the senate liked the bill. In fact Vargas said that in coming months he and his colleagues would seek to introduce amendments to the reformed CPP in order to reconcile it with some of the rejected recommendations made by the senate.

Given the circumstances surrounding the approval of the CPP reform bill, it came under intense scrutiny and before long, criticisms began to emerge. On 31 March a group of local criminal law experts publicly called on President Medina to veto the bill, arguing that some of the proposed changes go counter to the constitution and international treaties undersigned by the DR. The group cited as an example a proposal to re-establish mandatory preventative detention for all crimes which it claims would violate the presumption of innocence principle as established by the DR’s 2010 constitution and the 1969 American Convention on Human Rights (also known as the Pact of San José) to which the DR signed up.

Meanwhile National District Prosecutor Yeni Berenice Reynoso has singled out proposed amendments to CPP article 85 which would prevent citizens from personally suing sitting government officials for acts of administrative misconduct, reserving such actions for the public ministry. Reynoso argues that this represents a setback to efforts to have a more transparent and accountable government. Reynoso’s point was quickly picked up by the civil society group Asociación Dominicana Contra la Corrupción (Adocco) and Guillermo Moreno, the leader of the opposition Alianza País, who argue that this change would only provide protection for corruption (see sidebar). Tackling official corruption was another of Medina’s electoral promises, making such arguments difficult to ignore. This may explain why Medina has failed to sanction the bill even though the president of senate, Reinaldo Pared Pérez, confirmed on 4 April that it had already been submitted to the presidential palace.

Adocco and Moreno’s objections

CUBA: Cuba approves new foreign investment law

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An extraordinary session of Cuba’s National Assembly on 29 March approved a new law designed to entice new foreign investors into the state-owned and sanctions-constrained economy.

Terms for investors are improved

The new law is the outcome of a long process of review and debate, in which reformers managed to convince doubters of the need for more foreign investment to strengthen Cuban economic growth and development. The terms for foreign investors are improved by the law and, perhaps more significantly, the government led by President Raúl Castro has made a commitment to adopt a more open approach in its dealings with potential partners. The extent of change will become apparent in the coming months, as regulatory details are published and new procedures are introduced within the government institutions that negotiate agreements.

The following changes, contained in the law, are designed to attract new foreign business partners:

Reduced taxes: The most obvious improvement for foreign businesses is an overhaul of the tax treatment of their investments. All joint ventures will be exempt from profits taxes for a standard eight years, where previously any exemptions had to be negotiated. A further period remains possible in special cases. After that, the rate of profits tax is reduced from 30% to 15%, with no tax payable on reinvested profits. Employment taxes, which previously amounted to 24% of salaries, are eliminated, in an effort to provide improved incentives for job creation. Profits from mining, oil and other raw material ventures, are halved to maximum of 22.5%. Projects are exempt from customs duties while they are being established, and any joint ventures set up within the Mariel Special Development Zone will retain their more favourable tax laws.

Streamlined approvals process. Although large projects continue to require approval from the Ministry of Foreign Trade, Investment and Economic Cooperation (known as Mincex) and the Council of State or Council of Ministers, the government has made a commitment to accelerate the process and improve its transparency. For smaller projects, a fast-track procedure will remove some of the stages of the approvals process, with the relevant ministry empowered to give the go-ahead within 45 days of the submission of the joint venture proposal.

New types of Cuban partners. So far, joint ventures have only been possible with Cuban state enterprises. In the case of new small private business sector, remittances from abroad have been an important source of financing, but the foreign partner does not have any ownership rights recognised in law. The new legislation opens up the possibility of joint ventures in the non-state sector, although it is limited to Cuban cooperatives. Until 2013, cooperatives were limited to the agricultural sector, but in the past year their number, and the range of activities, has been growing rapidly. This form of enterprise already enjoys tax preferences, and by opening it up to foreign investment, it appears that the government is hoping inject additional dynamism.

But the framework remains intact

Despite these changes, the overall framework for foreign participation, in terms of the process of government vetting and control, remains intact. In the Cuban economic system, the state retains the right and obligation to direct economic development. Although it has created new space for non-state enterprises, it continues to dominate the economy and own most enterprise. Foreign investors will still have to secure the approval of the government by demonstrating the contribution of their proposed participation to Cuban development. The requirements are clearly set out: the investment must bring new financing, technology, management skills or markets. Other aspects of policy also remain unchanged:

Priority sectors: Economic planners will continue to maintain a list of investment priorities, so that the chances of approval will depend on the extent to which the proposal accords with the economic plan. At present, Cuba’s list of main interests includes agricultural output, food processing, export expansion and diversification (by product or destination), import substitution, infrastructure development, biotechnology and information technology.

Closed sectors: The list of sectors that remain closed to foreign investment also remains unchanged: health, education, defence and the media will remain completely in state hands, although investment in ‘health tourism’ facilities is encouraged.

Employment system: One of the peculiarities of joint ventures in Cuba is that Cuban staff have to be contracted from a state employment agency. However, there seems to be some change here, in terms of the setting of wages. Although the company still has to agree wages with the agency, there are no statutory pay scales. Instead, there is only a minimum wage. The new law continues to require that all staff should be Cuban, apart from the foreign partner’s appointees to the most senior management positions.

Disputes resolution: The joint venture agreement can include special clauses to provide for international arbitration, but unless these are agreed, Cuba-based arbitration will be used to settle disputes.

Freedom to trade: The Ministry of Foreign Trade, Investment and International Collaboration allows joint ventures to export and import directly with foreign customers and suppliers. This gives them an advantage compared with most Cuban state enterprises, which have to trade through the ministry. As economic reforms progress and once the exchange rate has been unified, Cuban state enterprises will operate more like joint ventures in this respect.

Uncertainties

The new law strengthens guarantees for investors in areas of concern. It provides further reassurance to those fearing nationalisation, specifying the conditions under which it can be allowed and the compensation to which the investor would be entitled. It also specifies legal protection against previous owners of Cuban assets who might make claims under the 1996 Cuban Liberty and Democratic Solidarity (Libertad) Act (known as the Helms-Burton Act).

The greatest uncertainty for investors is the future of US sanctions against Cuba, which not only close the US market for Cuban exports but also make it difficult to obtain inputs, secure access to international finance and conduct foreign exchange transactions.

The combination of US restrictions on Cuban trade and financing and the Cuban government’s controls on the scope of foreign investment will continue to constrain foreign investor participation in the Cuban economy. Nonetheless, the new law and regulations, combined with the Cuban authorities’ new interest in attracting new partners, will open the way for a new batch of joint venture projects.

ST KITTS & NEVIS: Douglas toughs it out

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Sixteen months ago, on 11 December 2012, opposition members of St Kitts & Nevis parliament filed a motion of no confidence which, if debated, they would win on the basis of two defections from the ruling St Kitts & Nevis Labour Party (SKNLP). The only trouble is that Prime Minister Denzil Douglas has managed to block the debate, and continue to govern, because he still has a majority in parliament through support from appointed senators. It’s a controversial tactic given that only elected members would be allowed to vote on the motion if it were to be debated. But whatever happens in the courts, where the issue now lies, time is running out for Douglas as a general election is due by January 2015.

Douglas is continuing to stick to his guns, arguing that because the SKNLP won 60% of the vote in the last election, it can’t have its mandate overturned just because two members elected on the SKNLP ticket have crossed the floor. What he has said, however, is that if the two offending members, Timothy Harris and Sam Condor, resign their seats and win re-election in by-elections, under the opposition banner, then he will resign.

Speaking on 1 April, Douglas said: “The Hon Timothy Harris and the Hon Sam Condor need to understand what they must do. Go back to the people and if they win their seats in by-elections and they are then on the PAM [People’s Action Movement] ticket, then I think there might be some consideration for action because I may then resign.”

Whenever the general election is eventually held, the SKNLP will face a more united opposition, and thus a sterner test, than in 2010. In the last election, the People’s Action Movement (PAM) won two seats, as did the Concerned Citizens’ Movement (CCM), with the Nevis Reformation Party (NRP), which has supported the government, winning one seat. The SKNLP won six seats.

In the upcoming election, the PAM and CCM will be allied with the People’s Labour Party (PLP – formed by Harris and Condor in June 2013) under the Unity Team banner. The great unknown is how much of an impact the Condor-Harris defection to the opposition will have. At the PLP’s launch, Condor said: “The immediate priorities of the party will be to agitate for a return to good governance and parliamentary democracy, Electoral reform, Integrity in public life, transparency and restructuring of the Sugar Industry Diversification Foundation (SIDF), ridding the country from the clutches of the IMF and pursuit of a unity Government construct.”

As it happens, the International Monetary Fund (IMF) has just given the government a timely boost of morale by declaring that estimated growth of 1.7% in 2013 is expected to increase to 2.7% this year and then “continue to strengthen over the medium-term towards its potential growth rate of 3%-3.5%”.

The difficult bit, however, is the fiscal consolidation. The overall balance has improved from a deficit of 7.8% of GDP in 2010 to a surplus of 10.6% of GDP in 2013. The combination of fiscal consolidation and debt restructuring has reduced the debt-to-GDP ratio from 164% in 2010 to 105% in 2013. An important factor in this improvement has been the strong revenue stream from the Citizenship by Investment (CBI) scheme. CBI revenues increased from 2.3% of GDP in 2010 to an estimated 13% of GDP in 2013.

TRINIDAD & TOBAGO: More political troubles for Kamla

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Trinidad & Tobago’s ruling People’s Partnership (PP) coalition, under Prime Minister Kamla Persad-Bissessar, is in its penultimate year of power before it has to face the electorate in 2015. Two ministerial resignations during the past month have been unhelpful to restoring government stability after a turbulent 2013. The economy, however, is performing relatively well.

The coalition’s main constituent component, the United National Congress (UNC), lost four electoral contests during 2013. In January 2013, the PP had failed to win a single seat in the Tobago House of Assembly election; July saw the corruption-tainted former UNC chairman and security minister Jack Warner’s victory in Chaguanas West; in October, the opposition People’s National Movement (PNM) came out on top in the local elections; and then in November, the UNC lost the St Joseph by-election.

Between the Chaguamas West defeat and the local elections defeat in October, the prime minister had attempted to regain the political initiative with her third major cabinet reshuffle, but that seemed to have as little impact on the electorate as it did on opposition leader Keith Rowley, who jeered that the prime minister was in her fourth year of “chaotic government”. He said: “It is clear that we are in the throes of the most severe political and governance crisis that our country has ever seen. The country has lost all confidence in this government and this prime minister.”

Now the prime minister has lost two ministers within a week of each other. On 25 March, she fired Glenn Ramadharsingh from his position as Minister of the People and Social Development following an incident in which the minister was accused of behaving inappropriately towards a flight attendant on a Caribbean Airlines flight from Tobago. Then on 1 April Minister of Tourism Chandresh Sharma was forced to his resign because of a police investigation into an alleged assault on his girlfriend.

Seeking to make a virtue out of a necessity, the prime minister said: “Each member of my administration must be mindful that we are held to different, higher standards than ever before, even by those who are our most bitter critics. There is no privileged escape, no allowance for arrogance, no forgiveness for indiscretion. Those days are gone, such compromise has expired. The responsible leadership which we promised to usher in a new dawn era is the new political currency.”

The better news for Kamla is on the economy, with the International Monetary Fund (IMF) delivering a generally positive verdict following its 18 March-1 April Article IV consultation. The IMF’s headline verdict was that Trinidad & Tobago “is experiencing more robust growth after several years of sub-par performance”. Growth for 2014 is projected to reach 2.5% after 1.5% in 2013.

However, the IMF did issue a mild warning note on the fiscal deficit. It said: “The mission projects a fiscal deficit of about 1.5% of GDP in 1013/14, closer to balance than envisaged in the budget statement. However, this is due in part to one-off developments, without which the deficit would be closer to 3.5% of GDP.”

It is the longer term that is concerning the IMF – in particular, the moment when Trinidad’s energy reserves run out. It says: “Fiscal policy should be set in a long-term context that ensures the country’s non-renewable energy reserves are used as a steppingstone to lasting prosperity. This requires increasing savings from the substantial resources extracted from this sector, which should be accomplished by moving the fiscal position into surplus within a few years.”

The IMF’s main source of concern is fuel subsidies, which it describes as “extremely costly and inequitable, starving the government of resources that could be better targeted towards poverty reduction.”

The really bright spot for the government is unemployment, which in the first quarter of 2013 fell to 3.7%, the lowest rate in the country’s history and a significant improvement on the previous year’s 5.4%. But this good news only provided the IMF with another reason for calling for more economic responsibility, arguing that the time had come to tighten monetary policy. It said: “The time for withdrawing the accommodative monetary stance of the past few years may be coming nearer as the unemployment rate has fallen meaningfully.”

ST VINCENT & THE GRENADINES: Gonsalves teases electorate

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Prime Minister Ralph Gonsalves has hinted that he may call an early election, ahead of the December 2015 deadline.

Gonsalves heads the ruling United Labour Party (ULP), which won the December 2010 election with eight seats to the seven seats taken by Arnhim Eustace’s New Democratic Party (NDP). This marked the third consecutive victory for the Gonsalves-led ULP, but it was a drop of four seats from the 12 that the ULP held going into the last election and the bare minimum required to keep control of the House of Assembly.

Gonsalves is a divisive figure, portrayed by the opposition as a Marxist with unsavoury international associations such as Cuba and Venezuela. He is accused of electoral malpractice and of favouring cronies and supporters. But he can also pull off startling popular coups, such as this month’s agreement, brokered by international publisher Felix Dennis and funded in part by Venezuela, to supply a laptop computer to every secondary-school pupil.

Less convincing have been the continuing delays to the completion of Argyle airport, which was originally scheduled for 2010 but is now unlikely to be ready until 2016. Economic performance has also been poor since the 2008 global financial crash. In 2006 growth was 7.6%, and this was topped by an even better 8% advance in 2007. From 2008-2011, however, the economy contracted for four straight years (-0.6%, -2.3%, -1.8%, and -0.4%). In 2012 it returned to growth with a 2% advance. The economy is thought to have expanded by 1.2% in 2013 and is expected to grow by 2% in 2014.

With this poor run of economic luck, government finances have also deteriorated. General government gross debt was 57% in 2008 but over 70% in 2012.

On 29 March, at a supporters’ rally marking his 13^th anniversary in office, Gonsalves said: “Comrades, when I told you to go on your marks [for an election campaign], I wasn’t making sport you know…We’re going to give NDP a short rope as we do between now and the next general elections.” There have been suggestions that Gonsalves could call an election as early as July.

HAITI: Key accord struck

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Last month, Haiti’s executive and legislative branches of government and the political parties signed a deal which sets the date for long overdue elections to replace 10 of the 30 senators whose terms expired in May 2012 as well as municipal officials. The accord, which signals a breakthrough in the impasse between the two branches of power (stemming from President Michel Martelly’s lack of presence in the legislature, where his Repons Peyizan has just three seats), has been hailed as a historic step by members of the international community such as Sandra Honoré, the head of the United Nations Stabilisation Mission in Haiti (Minustah).

Focussing on three key areas – governance, elections and the constitution – the deal is the fruit of a process which began on 24 January 2014 and was brokered by Bishop Chibly Langlois. It not only sets the date for the elections “preferably by 26 October”, but also states that elections must take place for another third of the senate and the entire 99-member lower chamber, whose seats were up for re-election this year. A United Nations press release notes that other provisions include: the “amendment of the Electoral Law to confer the appropriate mandate upon the electoral council; replacement of up to one member of the electoral council by each of the three powers of the State; and a cabinet reshuffle to include individuals drawn from interested political parties”.

As well as establishing a commission to comprise representatives of the executive and legislative branches, leaders of political parties and other observer groups, to look at introducing further (unspecified) changes to the 1987 constitution, the accord also addresses what was the previous bone of contention between the legislature and Martelly. Namely, the latter’s refusal to publish the names of 10 new members of the superior court of auditors, Court Supérieure des Comptes et du Contentieux Administratif (CSC/CA), which is tasked with auditing government accounts. The agreement calls for a “resolution without delay” regarding the publication of the list.

Cabinet reshuffle

President Michel Martelly has already complied with one of the provisions of the deal – a cabinet reshuffle to “open up the government”- a gesture towards the opposition. On 2 April Prime Minister Laurent Lamothe announced that nearly half of the 23-member cabinet had been changed - the third major government shake-up since Martelly took office in May 2011. Key changes include: Finance (where Marie Carmelle Jean-Marie replaces Wilson Laleau); Interior (Secretary of State for Public Security Réginald Delva replaces David Basile; Foreign Affairs (Duly Brutus, Haiti’s long-time ambassador to the Organization of American States, replaces Pierre-Richard Casimir); Education (economist Nesmy Manigat replaces Vanneur Pierre); Defence (Ret. armed forces major, Lener Renaud, replaces Rodolphe Joazile); Youth & Sports (Ret. armed forces colonel, Himler Rébu, replaces Magalie Adolphe Racine); Culture (Monique Rocourt, director general of the national heritage preservation institute, replaces Josette Darguste); Communications (Rudy Hérivaux replaces Josette Darguste, who was in charge of the portfolio on an interim basis); and the Ministry in charge of Haitians living abroad (Miami consul general, Francois Guillaume, fills a vacancy left by Bernice Fidelia, who quit ten months ago after a senate investigation into her nationality).

The local media is hailing the appointments of Rébu and Hérivaux in particular as evidence of Martelly’s efforts to be more inclusive. A former senator for Fanmi Lavalas -the party of former president, Jean-Bertrand Aristide (1991; 1994-1996; 2001-2004)- Hérivaux is a leader of the centre-left Konfyans party, which lacks a legislative presence. Meanwhile Rébu is a retired colonel who founded the Grand Rassemblement pour l'évolution d'Haïti (Greh) political party, which also has no presence in the legislature. While previously Rébu has been a vocal critic of Martelly, sceptics suggest this may have been rhetoric to press for position.

Carmelle Jean-Marie
The appointment of Marie Carmelle Jean-Marie as finance minister also attracted attention. Jean-Marie previously held the post in 2012-2013 and was well respected at home and abroad, however, she quit in April 2013, citing a lack of support for her commitment to reform and good governance.

CARIBBEAN POINTERS

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*** JAMAICA PASSES 3^RD IMF REVIEW. On 30 March, the International Monetary Fund (IMF) completed its third review of Jamaica’s performance under its extended fund facility (EFF) agreement, thus paving the way for a further US$71.4m disbursement.

The IMF described Jamaica’s implementation of the EFF requirements as “strong”, with the execution of the 2013/14 budget “broadly on track”. The IMF urged Jamaica to continue boosting investor confidence through “steadfast implementation” of the macroeconomic programme, but also through “determined actions to reduce red tape and bureaucracy”.

In addition, the IMF would like to see Jamaica protecting capital spending despite the need to restrain overall government expenditure.

On the completion of the review, however, the IMF did append a note of caution by warning that the economic recovery “remains fragile”. But then the IMF’s resident representative in Kingston, Bert Van Selm, added that there was also cause for cautious optimism on growth. He said: “In the year that you tighten your fiscal policy, you normally expect to see a negative impact on your economic growth, but actually so far this year we haven’t seen too much of that, we’ve actually had a little bit of economic growth, in spite of this fiscal adjustment.” He said this “bodes well” going forward as “a lot of the difficult stuff has already been done”.

*** FOREIGN DIRECT INVESTMENT. The United Nations (UN) Economic Commission for Latin America (Eclac) has just issued a new study on Foreign Direct Investment in the Caribbean in which it highlights, firstly, the very high relative levels of FDI in the Caribbean; its relative unprofitability; and the relatively slow recovery of FDI in the Caribbean since the 2008 global financial crisis.

The importance of FDI to the Caribbean can be seen in the fact that in 2012 the ratio of FDI inflows to GDP was 7% for the sub-region, with St Vincent & the Grenadines, St Kitts & Nevis, Belize, Guyana, and Trinidad & Tobago all recording a ratio of more than 10%. The ratio for Latin America is just 3%.

FDI flows in the Caribbean rose from US$1.7bn in 1997 to US$6.7bn in 2008. But while FDI flows in Latin America contracted only in 2009 and then rose to new highs in 2010 and 2011, the Caribbean only recorded increases in 2011 and 2012 because of the special case of Trinidad & Tobago. In 2012 the following countries were still recording FDI flows considerably below those of 2008: Antigua & Barbuda, The Bahamas, Dominica, Grenada, Guyana, Jamaica, St Kitts & Nevis, St Vincent & the Grenadines, and St Lucia. Excluding Trinidad & Tobago, FDI in the region fell from US$3.9bn in 2008 to US$1.9bn in 2012. The tourism dependent economies suffered the worst.

Then there is the question of profitability. According to the Eclac report, “FDI profitability in the Caribbean has been modest over the past five years…Belize and Trinidad & Tobago have the highest rates with 7% and 5% respectively and the rest are below 3%.” The average for Latin America over the same period was 7.8%. Interestingly, FDI profitability in the Caribbean was also substantially below that of Latin America in the pre-crisis years: 6% against 12%.

According to Eclac, this divergence in profitability “is possibly due to the sectoral pattern of FDI, which in most Caribbean economies is heavily slanted towards services, particularly tourism.”

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