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Caribbean Islands Role of Government
The Blaize government played only an advisory role in the
economy, preferring a market-oriented system to the tightly
controlled economy of the previous government. The government saw
its role as one of overseeing the privatization of the economy and
assisting national development through public sector investment, as
well as through monetary and fiscal policies.
The government's principal role as overseer of public
enterprises and manager of infrastructural development was
coordinated through its program of public sector investment. The
purpose of this program was to coordinate private sector and public
sector development efforts to maximize the potential for national
economic growth. This was accomplished by providing direct
assistance to the productive sectors, while also supporting them
with infrastructural development. In 1985 investment in the public
sector focused on three major areas: the productive sectors of
agriculture, tourism, and manufacturing; physical infrastructure,
such as roads; and the social sectors, principally health and
education. Seventy-four percent of the funds were placed in
infrastructural projects, including roads, water and sewerage,
communications, and energy. Agriculture commanded 12 percent of the
funds invested in productive resources, and education, health, and
housing received a combined total of 7 percent of public funds.
Major improvements to communication and transportation
facilities were attributed to public sector investment. Domestic
and international communication systems on Grenada were considered
good in the mid-1980s. The Grenada Telephone Company served all
parts of the island with a 5,600-instrument automatic telephone
system. Radio-relay links to neighboring islands provided highquality international telephone and telex service. St. George's had
one government-owned AM radio station broadcasting on 535 kilohertz
and one television station. The principal local newspaper, the
Grenadian Voice, was independent and was published weekly.
Roads were the primary mode of local transportation. Grenada
had approximately 900 kilometers of improved highways, 600
kilometers of which were paved. Of the two principal roads, one
followed the coastline and the other bisected the island,
connecting St. George's and Grenville. Municipal buses and taxis
linked all areas of the island. There were two airports on the
island: Point Salines International Airport in St. George's and the
older Pearls Airport, located north of Grenville. Grenada had no
railroads or inland waterways and was serviced by ports in
Grenville and St. George's.
Future allocation of funds called for a greater emphasis on the
productive and social sectors; total expenditures on infrastructure
were to be reduced to approximately 47 percent of the public sector
investment budget. Such allocation was expected to assist with
Grenada's development over the long run, but allocation was
vulnerable to regional and economic politics because it depended on
the government's ability to attract sufficient foreign capital.
Although financing of capital expenditures was to be accomplished
using foreign funds on a matching basis, all financing of the 1985
budget came from external grants and loans.
The government's role as public enterprise manager diminished
after 1986 because of its desire to see the private sector control
as much of Grenada's economic assets as possible. Among the twentynine public sector enterprises existing in that year, only five
were slated to remain either partially or totally controlled by the
government. These included three utility companies that provided
water, electricity, and telephone service.
The government's role in the economy also included the
formulation of monetary and fiscal policies. In the case of
monetary policy, however, the government was constrained by its
reliance on the ECCB for controlling the money supply. This forced
the government to rely heavily on fiscal policy to guide the
economy.
Fiscal policy was a major government mechanism for encouraging
economic development but became very controversial in 1987 with the
introduction of the national budget. It provided for an entirely
different tax structure in which a value-added tax (VAT--see Glossary) replaced virtually all other taxes, including personal
income taxes, export duties, and consumption taxes. The primary
purpose of the VAT was to raise funds to correct the budget
imbalance, while simplifying attendant collection and oversight
responsibilities. A reduction in inflation and increased domestic
savings and investment were also expected to result from the new
tax strategy.
These goals were to be achieved by encouraging individual
production, while simultaneously discouraging immediate consumption
in favor of increased personal savings. The elimination of the
personal income tax would make more money available to wage earners
and give them a greater incentive to work. Consumption would be
penalized with a 20-percent VAT placed on all domestically produced
goods. Many essential items, such as food, were exempt from
taxation. The resulting increase in personal savings would then
provide a resource base for domestic investment, while also
reducing aggregate demand and placing a check on inflation. In
early 1987, the VAT did not appear to be succeeding. A large
government deficit was projected because of a decline in aggregate
tax revenue, and political repercussions were also apparent.
Opponents of the VAT argued that it penalized domestically
produced items that faced regional or international competition. In
some cases, for example, Grenadian rum products, imported
substitutes immediately became less expensive. Such a turnaround
forced the government to make many concessions in the VAT, which
reduced revenue needed for central government operations.
The VAT was created to correct the government's budget deficit
that had persisted throughout the 1980s and had been financed by
external grants. Nonetheless, it appeared that this problem would
not be solved in 1987 because the VAT was not capable of generating
sufficient revenue to cover government expenses. Alternative
measures would have to be found, however, because continued
reliance on foreign aid to solve fiscal shortfalls was not a longterm solution.
Data as of November 1987
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