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Mr. Ali J Al-Sadiq and Ms. Inci Ötker
Declining commodity prices during mid-2014-2016 posed significant challenges to commodity-exporting economies. The severe terms of trade shock associated with a sharp fall in world commodity prices have raised anew questions about the viability of pegged exchange rate regimes. More recently, the COVID-19 pandemic and the measures needed to contain its spread have been associated with a significant disruption in several economic sectors, in particular, travel, tourism, and hospitality industry, adding to the downward pressure on commodity prices, a sharp fall in foreign exchange earnings, and depressed economic activity in most commodity exporters. This paper reviews country experiences with different exchange rate regimes in coping with commodity price shocks and explores the role of flexible exchange rates as a shock absorber, analyzing the macroeconomic impact of adverse term-of-trade shocks under different regimes using event study and panel vector autoregression techniques. It also analyzes, conceptually and empirically, policy and technical considerations in making exchange rate regime choices and discusses the supporting policies that should accompany a given regime choice to make that choice sustainable. It offers lessons that could be helpful to the Caribbean commodity-exporters.
Mr. Ali J Al-Sadiq and Ms. Inci Ötker

Exchange Arrangements and Exchange Restrictions, and authors’ computations. Exchange Rate Arrangements in Commodity Exporters--Number of countries, End-2017 2. Commodity-exporting Caribbean economies have been facing similar challenges . Caribbean commodity exporters rely heavily on a few commodities as their main source of foreign exchange ( Table 1 and text Figure): Trinidad and Tobago on oil and gas; Suriname on gold, oil, alumina, and bauxite, and Guyana on gold, aluminum, bauxite, and agricultural products, with recent oil discoveries adding to the

Mr. Ali J Al-Sadiq and Ms. Inci Ötker

Copyright Page © 2021 International Monetary Fund WP/21/104 IMF Working Paper Western Hemisphere Department Commodity Shocks and Exchange Rate Regimes: Implications for the Caribbean Commodity Exporters Prepared by Ali Al-Sadiq, Pablo Bejar, and İnci Ötker 1 Authorized for distribution by İnci Ötker April 2021 IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate . The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent

Mr. Krishna Srinivasan, Ms. Inci Ötker, Ms. Uma Ramakrishnan, and Mr. Trevor Serge Coleridge Alleyne

.1 2.0 Commodity-Exporting Caribbean Economies 3.7 3.0 Belize 3.4 0.9 Guyana 3.1 2.9 Suriname 4.2 3.0 Trinidad and Tobago 3.9 3.6 Memorandum Non-Caribbean EMDEs 4.2 2.6 Non-Caribbean Small States 3.0 1.4 Non-Caribbean Commodity Exporters 4.2 2.4 Advanced Economies 1.9 1.1 Sources: IMF, World Economic Outlook ; Penn World Table; and IMF staff estimates. Note: EMDE = emerging market and developing economy. This chapter provides an overview of the

International Monetary Fund. Western Hemisphere Dept.

favoring Latin American and Caribbean commodity exporters (see also Box 2.2 ). Weak employment growth prospects in the United States and Europe will further restrain the recovery in tourism, constraining the pace of recovery in tourism-dependent economies. At the same time, weakness in the U.S. housing market and tepid construction activity suggest that construction employment will remain subdued. Given the sector’s strong links with workers’ remittances—most clearly for the case of Mexico and Central America—remittances may recover only slowly from current depressed

International Monetary Fund. Western Hemisphere Dept.

.0 2.2 0.9 1.5 2.1 -1.0 2.2 5.3 -16.8 -9.3 St. Vincent and the Grenadines 1.0 2.2 0.4 -7.0 3.7 3.4 1.4 0.5 1.5 2.0 -11.6 -12.0 -10.0 -18.7 -16.9 Caribbean: Commodity Exporters -0.6 1.1 1.0 0.6 3.8 2.7 1.9 1.3 11.7 4.2 3.4 -0.4 -3.0 -7.6 -3.2 Guyana 3.7 4.4 5.4 26.2 8.1 1.5 1.6 2.1 1.3 2.9 -4.9 -29.2 -33.9 -22.0 -16.2 Suriname 1.8 2.6 0.3 -13.1 1.5 9.3 5

International Monetary Fund
This paper presents background on Caribbean small states as context for the main paper, “Macroeconomic Issues in Small States and Implications for Fund Engagement.” It draws on recent analytical work presented at a conference for policy makers in September 2012, in Trinidad and Tobago. Caribbean small states, while sharing many features of other small states (size-related macroeconomic vulnerabilities, lack of economies of scale, and capacity constraints) have specific characteristics which merit attention
International Monetary Fund. Western Hemisphere Dept.

.2 Jamaica 1.8 1.0 -10.0 4.6 2.7 2.4 6.2 5.2 6.0 6.5 -1.6 -2.3 -0.1 -1.6 -3.7 St. Kitts and Nevis 2.7 4.8 -14.4 -1.0 10.0 -0.7 -0.8 -1.2 -0.8 -0.3 -5.4 -4.8 -14.5 -11.3 -7.3 St. Lucia 2.9 -0.1 --0.4 3.5 13.1 2.2 -0.7 -0.4 3.8 1.8 2.2 6.1 -13.2 -13.5 -9.1 St. Vincent and the Grenadines 2.2 0.5 -3.3 -6.1 8.3 1.4 0.5 -1.0 2.2 2.0 -12.1 -9.7 -16.0 --1.5 -13.4 Caribbean: Commodity Exporters 1.7 0.4 4.0 5.6 -1.1 2.0 1

International Monetary Fund

to the erosion of trade preferences), and from rebuilding costs after frequent natural disasters. As a result, the ratio of public debt to GDP increased by about 15 percentage points between 2008 and 2010. By contrast, Caribbean commodity exporters rebounded rapidly after the crisis, buoyed by high commodity prices, and their debt ratios have stabilized at relatively low levels. 28. Past attempts at tackling high debt in the region have not yielded lasting gains . Several countries have made attempts at reducing debt, mainly through ad hoc restructuring or