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22 March, 2011 - Published 12:04 GMT

By Sir Ronald Sanders
Consultant and former Caribbean diplomat

Japans tragedy

The devastating earthquake and Tsunami in Japan will have mixed effects on the Caribbean.

Even as the region – like the rest of the world – looks at Japan with the greatest sympathy for its loss of life and damage to property, it is evident that the Caribbean generally will suffer adverse consequences, but there will be an opportunity for some countries.

March 11th, 2011 will live forever in the minds of the people of Japan.

The Tohoku Pacific earthquake that hit the country was the strongest ever recorded in Japan and it triggered a Tsunami of immense proportions killing tens of thousands of people and destroying property estimated, so far, at a value of $200 billion.

The horrific videos transmitted worldwide, as the walls of waves rose and fell crushing everything before them and racing unhindered through streets and over buildings, will live for a long time in the memories of everyone who witnessed them.

The scale of damage was simply unimaginable.

Devastation

As this commentary is being written, Japan’s woes are far from over.

Damaged nuclear reactors are emitting radiation that is sure to affect people within its harmful radius, and the added danger exists that at least one of them - the Fukushima nuclear plant - might pose even greater threats.

200,000 people have already been evacuated from around the area and radiation levels rose on the outskirts of Tokyo, 135 miles (210 kilometres) to the south, with a population of 30 million.

The scale of human suffering is already great.

Injured survivors, children and elderly are crammed into makeshift shelters, often without medicine.

Reuters reports that the Japanese Red Cross has deployed about 90 medical teams who are trying to provide the basics in care for 430,000 people in remote towns spread along the coast.

Resilient

Unlike small islands and coastal states, such as those in the Caribbean and Pacific, Japan’s economy has the resilience to recover quickly even from a disaster of this magnitude.

The negative impact on its economy will be large in the short-term, but once rebuilding starts, the economy will grow and people now in shelters will return to newly built homes.

Japan is still the third largest economy in the world and despite its already high debt levels, financial markets are likely to take the view that the country is too big to allow it to fall.

The constraints that both the commercial financial market and international financial institutions place on small countries, faced with proportionately similar disasters, will not apply to Japan.

The Organisation for Economic Cooperation and Development (OECD) of which Japan is a leading member, has already stated: “While disasters reduce economic activity in the short run, subsequent reconstruction efforts tend to boost output growth.

Reconstruction efforts

The Japanese government has started discussions on reconstruction measures.

At present, fiscal resources appear limited to the remaining 0.2 trillion yen (0.04% of GDP) reserve fund in the Fiscal Year 2010 budget and the 1.1 trillion yen (0.2%) reserve in the Fiscal Year 2011 budget. However, supplementary budgets to finance reconstruction efforts will expand available fiscal resources”.

The financing of reconstruction has already started. The Bank of Japan has pumped about $250 billion dollars worth of liquidity into the Japanese economy in the immediate aftermath of the Tsunami.

Consequences

So what effect will the catastrophic events in Japan have on the rest of the world including the Caribbean?

Global economic experts say that Japan has not been an engine of global growth for some time, and this means that the impact of much lower Japanese growth on the world economy, during this period of devastation, will probably be limited and small.

One immediate effect has been a drop in the cost of oil as Japan’s demand during this period declines.

But, it will be a short-lived drop, and the price of oil will rise again as Japanese demand increases in its rebuilding process.

Caribbean economies should, therefore, be preparing themselves for increases in the price of oil later in the year.

This problem will worsen particularly because of the nervousness that has now developed in Japan over its nuclear power plants. Reports indicate that roughly 10% of electricity generation capacity (both nuclear and coal) may be off line for a few months, until oil - and gas - fired plants are ramped-up. But, ramp-up they will and so will the price of oil.

Trade benefits

As for trade, some Caribbean economies might actually benefit from a short-term reduction in imports of Japanese motor vehicles, spare parts, computer equipment, cameras and entertainment systems.

Some of the factories have had to close temporarily because of the closure of electricity generating facilities

It is in the area of aid that Caribbean countries will feel the pinch of Japan’s problems.

The Japanese government’s finances will be stretched for the next three to four years at least.

It is reasonable, therefore, to expect that the government will divert money it had allocated for aid to Japan’s domestic needs.

That aid money worldwide – very significant for the Caribbean in the decade of the 1990s - had been declining since 2002 when a government Task Force defined aid not simply as a means of helping the poor, but as “the political key to ensuring a stable international environment for Japan”.

In 2003, Japan slashed its aid budget. Further cuts are bound to affect the few Caribbean countries that receive any substantial Japanese support.

It will be interesting to see if Eastern Caribbean countries attend the International Whaling Commission meeting in July this year.

Allegations have been made that Japan pays for the participation of these countries, and provides fisheries refrigeration facilities, in return for their support of Japanese whaling.

For some countries of the Caribbean Community (Caricom), Japan’s rebuilding requirements also present an opportunity.

Guyana and Suriname could sell forestry products and Trinidad and Tobago could export cement and asphalt. Hopefully, the private sector companies involved in these construction materials will quickly investigate the market.

In the meantime, Caricom should also explore what meaningful – albeit relatively small – financial contribution it can make (maybe through the International Red Cross) to help ease the suffering of the affected Japanese people.

The world is now closely inter-connected. Today it is Japan’s Tsunami, tomorrow it could be ours.

Responses and previous commentaries at: www.sirronaldsanders.com