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Building capacity in macroeconomic policy analysis in Central America and the Caribbean

Background:

Since the beginning of the 1990s, regional integration schemes in Latin America and the Caribbean have been aiming at complementing common trade policies with better coverage and coordination of their macroeconomic policies. Maintaining a favourable and predictable macro-economic environment became a priority in order to consolidate and sustain these new commercial flows. There are currently two main processes of trade integration taking shape in Central America and the Caribbean: one revolves around the Central American Common Market, the other around the CARICOM community.

The countries in the area, whether belonging to one or other integration scheme, face similar challenges in terms of export orientation, access to developed country markets, and vulnerability to external financial or trade shocks. The small island developing states in the Caribbean area face very specific challenges since their development opportunities depend on and are particularly vulnerable to external developments. The project will develop and harmonize the macro-economic modelling level of each participating country on the basis of a prototype model that will be adjusted to reflect individual country conditions and connect the country models into a regional network utilizing internationally accepted techniques. Modelling the external sector of each economy would assist policy makers in examining more accurately the effects, both positive and negative, of integration with regional economies and the rest of the world. Participants in a series of ECLAC programmes on regional and macroeconomic coordination have expressed strong interest in strengthening capacities for modelling of intra-regional economic relations. The Central American and the Caribbean sub-region is currently poorly represented in global modelling systems, such as Project LINK and the modelling skills developed as the result of the project will provide the basis for these countries’ participation in global policy discussions and meetings, including LINK.

Objective:

Assist policy makers in the small open economies of Central America and the Caribbean in formulating and implementing policy initiatives for viable economic development, and securing their trading position in the global economy through regional and global integration. The project will enable research institutions, Central Banks, and Ministries of Finance to generate inputs for policy makers into policy formulation and evaluation An additional benefit will be to integrate the targeted countries into the LINK – a global and regional non-governmental network for economic policy analysis jointly coordinated by DESA and the University of Toronto. The implementation of the project will directly contribute MDG 8 and 1.

Expected accomplishments:

  • Enhanced national capacities in econometric modelling for the analysis and forecasting of trends and policy alternatives at the national level of each participating country
  • Strengthened subregional and regional capacity in macroeconomic policy formulation with a view to further regional and extra-regional integration
  • Development of a prototype model adaptable to individual country conditions, leading to new economic models for countries that presently do not have one and the upgraded models for countries that already have them
  • Strengthened dialogue between trained researchers and decision makers in the region to carry out policy analysis with the latest instruments
  • Establishment of a sub-regional network of researchers and decision makers based on standardized software packages for econometric modelling with the web site and links to LINK

Implementation status:

Three workshops were held in 2006. All the objectives of the workshops were achieved including excellent preparatory material, administrative hosting arrangements made. The capacity building goal was achieved through high level participatory lectureson econometric theory and techniques with special emphasis on intensive practical training. The three workshops were characterized by consistent and additional involvement of trainees through sponsorship of countries’ Central Banks, and active coordinating role by ECLAC-Mexico.

An important characteristic of the project has been that the training sessions and other activities have been partly adjusted and tailored to meet the needs expressed by the participants from the Central Banks. Key training sessions for the subsequent workshops and policy dialogue meetings to be held during 2007 were also identified. Central Banks’ participants in coordination with senior officers from ECLAC, SECMCA and DESA have agreed, in principle, that the last training workshop would be held in Mexico City in March 2007 where draft articles –prepared by trainees- on macroeconomic issues relevant for each country’s experience will be presented for further discussion. When finalized, those drafts will become chapters of a two volume project publication. It is expected that this publication will become a practical manual for macroeconometric modelbuilding in the region for the future, and may also serve as reference to other small-open developing economies in other regions, if translated into English.