Prologue: Senator the Hon. Gordon Draper, Chairman of the Working Group

Executive Summary and Recommendations

Chapter 1. Governance and Public Sector Management . . . . . . . . . . . . . . . . . . . . . . . 1

Chpater 2. Terms of Reference and Chronology of Events . . . . . . . . . . . . . . . . . . . . . 4

Chapter 3. Constitutional and Administrative Issues(Consultant: Dr. Kenny Anthony) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Chapter 4. Human Resources Management and Development(Consultant: Dr. A Armstrong) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Chapter 5. Policy and Management Issues on Privatisation and Divestment(Consultant: Dr. H. McBain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Chapter 6. Financial Management of the Public Sector (Consultant: Dr. Karl Theodore) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Chapter 7. Information and Communication Systems for Improved Governance . . 70

Chapter 8. Concluding Remarks: A Focus on the Future . . . . . . . . . . . . . . . . . . . . . 75

PROLOGUE

In this initiative of the Caribbean Centre for Development Administration(CARICAD), the collective experiences of a decade have been examined, so that a viableand dynamic process for the management of change and the reform of public servicesthroughout the Caribbean Community (CARICOM), can provide meaningful benefits to thepeoples of the region.

Some seven years ago, at a Conference reviewing the Independence Experience ofthe Republic of Trinidad and Tobago, I had reason to point to our "Quest for AppropriatePublic Service Reform Attempts" over a period of 24 years - from 1962 to 1986. I took theopportunity to observe that:

...there have been a number of committees and task forces established

... with mandates to make recommendations on various aspects ofadministrative reform in the Public Service. A chronological reviewof these reports reveals that the most recent studies identify the sameproblems which plagued the earlier rounds of reform attempts.Administrative reform reports seem to have an uncanny way ofrepeating themselves.

In my view, it is most important that the activities of this Working Group carry usbeyond "repeating" earlier reports, and I am indeed heartened that the problems, thoughprotracted and complex, are being addressed so as to identify their structural, institutionaland attitudinal origins. By this means, an holistic approach to the process of change andmanagement of change can be utilised to achieve tangible and concrete goals.

At the global level, as well as regionally and nationally, changes are being pursuedin ways that make well-established patterns of trade and investments across national bordersand the exchange of information appear obsolete, almost before one can truly identify theirimpact and consequences, on how we do business and conduct the affairs of government.

The pace and depth of change place demands on our skill and ingenuity for insightfulmanagement in ways that perhaps surpass most of the efforts that societies, both developedand developing, have so far considered adequate.

Indeed, it is in partial response to the new imperative for management of change thatthe need "to achieve greater coherence in global economic policy-making" has given rise toa World Trade Organisation (WTO) as an institutional device to realise the goals of theGeneral Agreement on Tariffs and Trade (GATT)

If then for "international trade", the WTO is a logical imperative, so much more acuteis the demand for institutional innovation in the area of change management, where theissues are governance, public policy-making and the delivery of services in efficient andcost-effective ways on behalf of the public and social well-being of our citizens. At theglobal level or across the Caribbean region and, even more so, within all our societies,change and reform of public management systems can not be avoided.

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All of the member governments in the Caribbean Community (CARICOM) have hada "quest" and "deep concern" for public service reform, even if the various attempts have notbeen explicitly identified and categorised as a clearly structured programme of activities.By the exchange of experiences and expertise, through the CARICAD/CARICOM WorkingGroup we continue to learn significant lessons from each other. An overriding desire hasbeen that examples of success, as well as failures, will contribute to our pool of knowledgeon which the implementation of reform programmes could benefit from past experience aswe build a "culture of success."

Beyond the experience of the Caribbean region, my participation in the formation andinauguration of the Commonwealth Association for Public Administration and Management(CAPAM) has helped to strengthen my conviction that common problems and the concurrentcrisis in public management can be overcome. Indeed, I have come to realise that problemsare being overcome, through innovative and strategic interventions in which HumanResource Development and Management exercise a critical role.

In a presentation to the Inaugural Conference of CAPAM, on August 29, 1994 inPrince Edward Island, Canada, I made reference to, at least five (5) common elementsemerging from a review of the role of the State being pursued by many of the world'sgovernments, as follows:

(i) An increased concern with output measures and performance targets and acorresponding movement away from reliance on input controls andbureaucratic procedures;

(ii) Increased devolution of management controls and the correspondingdevelopment of new reporting, monitoring and accountability mechanisms;and consequently increased emphasis on the development of managementskills and competency in the Public Service;

(iii) Increased focus on contracting out of services previously done within thepublic service;

(iv) The introduction within the Public Service of systems which were previouslyseen to be the domain of the Private Sector. These include strategic planning,performance based reward systems and management information systems;and

(v) Increased focus on cost efficiency, effectiveness, reshaping and customerorientation.

By recognizing these central themes, a new outlook for Government has taken shapepointing to the need for governments to play "a facilitatory and catalytic role rather than arole of delivery of all services."

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This shift, in my view, does not suggest a "withering away of the State" but amovement away from big impotent government to one which provides direction, policiesand environments within which others can deliver services.

There can be no real substantive and sustained reform on restructuring of the publicsector in general and the public services as a whole, without a guiding vision and clearunderstanding of the new role of the State. Our deliberations in the Working Group andassessment of the many efforts and attempts, over the years in the Caribbean, confirm thefundamental importance of this point of departure.

It is now evident that we can clearly advocate a vision of Government that is first ofall characterised by "facilitating and monitoring." Secondly, a Government that should bethe head of a network of social partners engaged in a process of continuing interaction forthe purpose of policy formulation and implementation.

In addition, I would suggest three other characteristics of this new vision ofGovernment. These are, firstly one which plays a catalytic role in strengthening theknowledge base of the country. Secondly, Government, given its leadership role mustensure that the country develops an appropriate culture of standards and values. Finally,Government must continue to have a leadership role in a country's international relationsand, among other things, ensure market access for goods and services.

It is on this fundamental position that the Government of Trinidad and Tobago hasplaced a foundation for its current Public Sector Reform initiatives. Building on such afoundation, it is possible to identify nine (9) other core elements in the transition in outlookfor Government.

To these I should briefly make reference, as they are integral to the themes andstructure with which the Working Group set about its mission. These core elements are asfollows:

(a) the increased utilization of the Strategic Planning Process, which implies thedevelopment of a Strategic Planning Culture. Not only are Strategic Planscritical in the management of the new Public Service, but also that the processand culture of strategic planning must be imbued in public sectororganisations.

(b) new approaches to accounting and accountability so as to address the need tomove to accrual-based budgeting and accounting and away from cash basedsystems as well as improved costing of government activities, improvedreporting to Parliament and the increased delegation to managers to permittheir control over resource allocation.

(c) acceptance of the need for more devolution of managerial authority wherebymanagers are allowed to manage. The far-reaching implications of whichgive rise to the need for legislative change or even, as in the case of Trinidadand Tobago, Constitutional change.

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(d) the realisation that governments must become customer-oriented whichrequires a move towards establishing service standards and appropriatemechanisms to monitor service quality. In the case of my own government,we have introduced "Customer Contact Officers" in Ministries andDepartments on whom a dual role rests to ensure performance standards areobserved and citizens' concerns about services are adequately addressed.

(e) rewards for performance implies standards of performance as well asproviding managers with authority to provide incentives and reward for goodperformance.

(f) transparency whereby the public can know and understand Governmentprocedures, while at the same time being assured and feeling confident thattransactions are done to the highest standards of ethics and integrity.

(g) the growing acceptance of the need to restructure and reshape governments,particularly from a customer satisfaction perspective so that functions anddepartments may be brought together for improved services.

(h) a recognition that transition in government demands holistic change sincechanging one element of government functioning requires changes in otherelements. The interdependent nature of organisation systems requires thattransition programmes address a number of changes simultaneously.

(i) the development of a more People-Centred approach to Government is a basicimperative of all reform efforts as we clearly acknowledge that the days of thefaceless, mindless bureaucrat are gone.

It was necessary to state these core elements, as I have tried to encapsulate themabove, because they have truly provided the basis for the initiatives in the CARICADWorking Group and are to be recommended to all our member-governments as visionstatements for the new Public Service and the dawn of new forms of governance towardswhich we are journeying.

Thus we can be reminded of the Kingston Declaration on Public Management, whichemerged from the Caribbean Roundtable in Jamaica in February 1992, and gave us theimpetus to call for a region-wide Working Group on Public Sector Reform and urgedCaribbean Governments to:

(i) acknowledge that the regions' human resources are the most importantdevelopment assets;

(ii) confront structural inefficiencies and determine the proper dimensions of theiradministrative machinery, evaluating the performances of institutions andpersonnel;

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(iii) evolve a more proactive role in the design of macroeconomic and financialmanagement policy; and

(iv) implement a new managerial orientation and strengthen the competence in thepublic service, modernizing training curricula, materials and methods toencourage responsiveness, creativity and the new orientations whileevaluating public servants on the basis of performance criteria.

The Kingston Roundtable also sought to alert Caribbean Governments to recognize:

(i) the character of the changing managerial culture in governance;

(ii) the need, greater now than ever, to streamline public service manpower;

(iii) the need for organizational systems leading to excellence in Public Service;

(iv) that competition for available skills was greater than before;

(v) that demographics in the Public Service was undergoing change;

(vi) that the new managerial culture represented a change from economic topeople centred arrangements.

(vii) that management practice had to be sharper and innovative, yet accountabilityconscious.

These elements and the principles by which the search for improved management ofthe public sector should be guided, have been uppermost in the minds of all of usparticipating in the country missions, case-studies, workshops and consultations of theWorking Group during the last year and a half of its existence.

This Report commends itself to a wider public so that the dialogue and debate canbe deepened and widened, as we advance the cause of better public administration andmanagement in the interest of sustainable human development for the peoples of theCaribbean.

Senator the Hon. Gordon DraperChairman, CARICAD/CARICOMWorking Group on Public Sector ReformTrinidad and Tobago(May 1995)

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EXECUTIVE SUMMARY AND RECOMMENDATIONS

1. Introduction and Background to the Working Group (WG)

1.1 The Fifteenth Meeting of the Conference of Heads of Government in TheBahamas on July 6, 1993 considered a joint submission from the CaribbeanCommunity Secretariat and the Caribbean Centre for DevelopmentAdministration (CARICAD) on the subject of Improved Management of thePublic Sector and endorsed the Terms of Reference for a Working Group onPublic Sector Reform and Administrative Restructuring, as follows:

- undertake a comprehensive analysis of the various initiatives andefforts at public sector reform in the Member States of the Communityin the recent past;

- identify the relevant principles and practices which must beincorporated for effective public sector reform;

- determine a schedule of activities over a six-month period toaccomplish its work;

- prepare a programme for keeping the public informed of its activities;- prepare and submit a Report for consideration of Ministers in the

Community with responsibility for Public Administration and throughthe forum to the immediately following Conference of Heads ofGovernment or the Inter-Sessional Meeting of the Heads ofGovernment.

1.2 It was agreed that Senator the Honourable Gordon Draper, Minister withresponsibility for Public Administration and Information in the Governmentof the Republic of Trinidad & Tobago will chair the Working Group (WG)comprising representatives of the Board of Directors of CARICAD fromMember States of: The Bahamas, Barbados, Belize, Grenada, Guyana,Jamaica and the British Virgin Islands, and a representative of the CaribbeanPublic Services Association (CPSA), with technical resources from theCaribbean Development Bank (CDB), the United Nations EconomicCommission for Latin America and the Caribbean (UNECLAC), the EasternCaribbean Central Bank (ECCB), the University of Guyana and theUniversity of the West Indies.

1.3 Grant assistance from the CDB, the Commonwealth Secretariat and theManagement Development and Governance Division (MDGD) of the UNDPenabled the WG to conduct a series of country missions, workshops, case-studies and two Ministerial Consultations and Symposia during the periodJuly 1993 to November 1994 addressing four major studies on:

(a) Constitutional and Administrative Structures of the Public Sector(b) Human Resources Management and Development

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(c) Policy, Management and Implementation Strategies of Privatisationand Divestment

(d) Financial Management of the Public Sector

1.4 Deliberations on these studies provided opportunities for Ministerialcolleagues of the Community to exchange views among themselves and shareconcerns with senior managers of the public sector, Chairpersons of ServiceCommissions, representatives of public service unions and experts inmanagement and public administration on the urgent and critical importanceof increased efficiency, cost-effectiveness and timely delivery of qualityservices to the public.

1.5 A significant outcome of the WG has been a heightened awarenessthroughout the Community and across various sectors, that comprehensive,concerted and sustained attention must be given by all Member States toPublic Sector Reform as a necessary condition for optimum mobilisation andrational utilisation of all the assets in society, the most precious of which areour human resources.

1.6 Most encouraging is the positive impact of the WG in stimulating and, insome instances, rekindling initiatives at the national level for Public SectorReform Programmes in which the highest level of the political directorate hasprovided outstanding and demonstrable support. Such initiatives haveassumed comparable resonance in the new thinking within donor agenciesand international bodies that governance and public sector managementstrengthening are integral to equitable and sustainable human development inboth developing and developed societies.

1.7 In fulfillment of the Terms of Reference of the WG and having regard to thecollective experiences within the Community, which are extensivelydiscussed in this Report, attention of the Conference of Heads of Governmentis invited to the following principles and practices as the essential elementsfor effective Public Sector Reform and Administrative Restructuring:

2. Redefining the Role of the State

2.1 Public Sector Reform needs to be guided by a clearly articulated vision andmission on the role of the State and its interface with all the social partners,in the pursuit of stable democracy, equity, transparency and accountability bywhich the use of human, financial and natural resources serve the commongood.

2.2 Based on a vision of the State, clearly articulated and serving to fosternational consensus, it becomes incumbent that a rationalisation and revisionof constitutional and legal provision be undertaken. This has been foundnecessary to enable institutions of the State, such as Service Commissions, tofunction free of structural inefficiencies or archaic regulations inconsistent

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with approaches to management aimed at greater productivity of humanresources, while maintaining the integrity of constitutional guarantees.

2.3 The imperative for improved public management requires that those inauthority be prepared to examine all our institutions, procedures and systemsof decision-making in the light of new paradigms and understanding ofhuman behaviour and the need for personal satisfaction and creativity in thedischarge of professional obligations.

3. The Primacy of Human Resource Development

3.1 A human resource philosophy and policy framework for the public servicesof the 21st century are indispensable for the recognition that human resourcesconstitute the most important and precious asset of our societies.

3.2 Enhancement and preservation of the professional integrity of the publicservices must be guided by strict observance of principles of merit. Theaccompanying changes in human resource management to be guided by meritrather than seniority require the development of data-bases on personnel,standards of performance and career paths by means of infrastructure andequipment utilizing information technology and systems.

3.3 The growing complexity of the workplace and the stress of increasinglycompetitive environments, with pressures for consistently high performance,have contributed to the recognition that psychological and socially supportivemechanisms, such as Employee Assistance Programmes (EAP), are of criticalimportance in assisting employees, at all levels, to realise their training,talents and potential to the fullest extent possible.

3.4 Enlarged responsibilities and the burdens of public office, with commensurateconsideration to accountability for public well-being and transparency indecision-making, must be accompanied by adequate and competitivecompensation as well as reasonable opportunity for professional and skillenhancement.

3.5 A critical success factor in the overall Public Sector transformation processis the provision of the necessary resources to facilitate training anddevelopment activities for Permanent Secretaries, Heads of Departments,Senior and Middle Managers. As these key actors are called upon to operatein an environment characterized by new legal and other frameworks,emphasis must be placed on training and re-training to develop new corecompetencies.

This urgent need is highlighted by increased delegation of authority andresponsibilities for Human Resource Management, Financial Managementand Information Technology.

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4. A Public Service must Serve

4.1 The legitimate demands of the public, whose taxes provide the revenue forfunctioning of the state apparatus, and a growing consciousness for betterquality service in all aspects of everyday life, place severe responsibilities onpublic employees and managers to be more responsive, timely and business-like in dealing with the public.

4.2 Negative stereotypes of public employees and a declining appeal of highlytalented and creative persons to want to pursue careers in publicadministration and management are persistent constraints to the developmentof the public sector as an indispensable resource for effective policyformulation and management of the resources of society.

4.3 A customer-oriented focus in public sector reform measures has successfullyinformed the introduction of contact-points as customer-relations officersgiving the public access to the human touch, if it is necessary to seek redress,receive information or offer praise and appreciation of services rendered.

5. No Reform without Commitment at the Highest-Level

5.1 The evidence throughout the region is incontrovertible that the success ofpublic sector management reform is dependent on a demonstrated andconsistent commitment by the political directorate, in its entirety, to thenecessary actions and steps without which reforms cannot be implemented.

5.2 To match the political commitment to reform must be "administrative will",particularly at the upper echelons of the public bureaucracies. While it hasbeen found that a team-building approach by means of retreats, consultations,or some such suitable occasion, among ministers of government, has beencritical to a sustained effort, the attainment of a cohesive and corporate team-spirit within the ranks of senior public managers proves to be extremelyelusive.

5.3 The complex changes of bureaucratic structures and the scale on which theseare to be pursued, to realise a new ethos and culture of public management,must be understood as long-term in nature.

5.4 The benefits and necessity of administrative restructuring in the context ofunsustainable levels of public expenditure, wastage of human resources andinefficient procedures, should be clearly articulated as a basis for reform incontrast to an imposition by an external agency.

5.5 Reform efforts from a centrally organised and coordinated focal point havebeen notably more successful when located in the office of the highest levelof the executive. In addition, it is highly commendable that a Public SectorReform Programme (PSRP) becomes institutionalised as an ongoing and

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essential element of government administration and budgetary allocation, inmuch the same way that a Public Sector Investment Programme (PSIP),addresses capital programmes of government.

5.6 Institutionalization of a reform process cannot be meaningfully sustained orbecome organic and internally-driven, in the broadest possible interest ofnational goals, unless representatives of public sector employees, such as staffassociations and trade unions, are an integral part of the process. By andlarge, the rank and file employees of the State are the key stake-holderswithout whom no significant and appreciable change in attitude, behaviour orperformance can be achieved. Their involvement from the inception of theprocess must be encouraged in a spirit of trust, mutual respect and in thepursuit of national consensus.

The WG has experienced the benefits of intense debate dialogue and honest exchangeof views in the hope that the future of our economies and societies can move beyondstructural adjustment into sustainable paths of growth as we enter the 21st century.Improved management and increased productivity by the public sector are essentialpreconditions for such growth.

6. Conclusions and recommendations

In light of the above principles and guided by the collective experiences of MemberStates, the Working Group respectfully submits, through the CARICOM Secretariat, forconsideration by Heads of Government the following recommendations:

(i) that the findings, as outlined above, be accepted in principle and that theReport be the subject of further deliberations in all Member States, with aview to implementation of policies and programmes that would achieve, witha minimum of delay, more efficient and cost-effective public services insupport of sustainable human development;

(ii) that regular Consultations at Ministerial level and with participation of seniorpublic managers be undertaken as a necessary mechanism to facilitateexchange of experiences in the interest of improved management practices;and that in keeping with its mandate, CARICAD be authorised to convenesuch Consultations at least on an annual basis;

(iii) that Standing Committees of Ministers in their deliberations on sector-specific policies, also take into account the implications of public servicereform strategies by which suitable decision-making and implementationmeasures can be adopted across individual sectors for greater efficiency andoptimum utilisation of human resources;

(iv) that support be given to ensuring further assistance is obtained for CARICADto strengthen the process of implementing administrative restructuring andpublic sector reform programmes at the national level and in this regard, that

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decisions of this Conference of Heads of Government on public sectorreform, be supported by the next cycle of regional resources from UNDP; andfinally,

(v) that implementation of decisions of the Summit of the Americas ongovernance and public administration be incorporated with the findings of theWorking Group and become an integral component of future WorkProgrammes of CARICAD.

Barbados, May 1995

1. GOVERNANCE AND PUBLIC SECTOR MANAGEMENT

The 1980s ushered in widespread acceptance of a political philosophy of neo-liberalism, a reaction, no doubt, to the heavy state involvement in economic developmentparticularly in developing countries in the previous two decades. The "paramountcy of themarket" became the guiding principle in negotiations with multinational financialinstitutions. Governments were urged and expected to subscribe to policies of adjustment,deregulation, liberalisation and privatisation in the interest of the demands of market forces.

Within recent years however, there has emerged a growing awareness that adiminished role and function of the state and public administrative apparatus in the pursuitof development calls into question the inevitable nature of state responsibility for thecommon goal particularly with respect to the welfare of all members of society.

With this awareness, the acceptance of market-oriented development strategies andaccompanying prominence given to the private sector are counterbalanced by a newunderstanding of the management of public affairs. For this, the creation of an enablingenvironment which is required for enhanced participation by all levels of civil societybecomes a primary function of the state within the larger notion of governance.

It is therefore in the pursuit of the improved management of the public service as anessential feature of this understanding of governance as fundamental to human development,that the rationale for a Working Group on Public Sector Reform and AdministrativeRestructuring among Member-States of the Caribbean Community (CARICOM) is to belocated.

Reflection on experiences within the Region during the early 1980s would readilyconfirm a widespread perception of the public sector as the principal vehicle by whicheconomic and social development was to be achieved. The consequence of this over-reliance on the limited capacity of the state and its organs for public policy formulation andimplementation, undoubtedly led to a growth in public sector bureaucracies, in severalinstances, not matched by desired standards of national and regional performance.

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Weaknesses in administrative capacity and need for greater attention to humanresources development for the public sector have not gone unnoticed by policy-makers,advisers and development agencies. These concerns were evident in the February 1992Roundtable on Public Management in the Caribbean, which was held in Jamaica and jointlysponsored by CARICAD, the CARICOM Secretariat, the Government of Jamaica and thethen -Department for Technical Cooperation in Development (DTCD) of the United Nations.Emerging from the 1992 Roundtable was the Kingston Declaration on Public Management,which has been widely circulated among member countries.

Within the last two years, it should be noted that many, if not, most regional and/orgovernmental conferences, budgetary statements or policy documents have discussed issues,raised concerns and advanced various positions on matters related to the achievement ofmore effective, efficient and generally improved public sector management.

For the most part, discussions have focussed on the need for the public sector to playa more proactive, vibrant and supportive role in economic recovery and development. Morerecently, conceptual frameworks and the need for better policy management are developingaround issues of sustainable human development and institutional capacity-building. Fewwould deny that urgent attention is required in this regard. If one is to judge the responseof public sector management to change and transformation during the last decade, then onecan conclude that latest trends and developments would make the challenges of regionalpublic sector reform, an enormous task. Such a task belongs in a wider and on-going processof political and social restructuring based on clearcut goals of economic growth with justiceand equity.

Whereas individual Caribbean countries have attempted at various times in the recentpast, and with varying scope of treatment, to come to grips with reform programmes for theirpublic administration, the region as a whole has not benefitted from a comprehensive reviewof the region's collective experience. From such a review one might better chart a responseto the underlying problems of governance and economic restructuring as the 21st centuryapproaches.

Implementing changes for improved governance calls for a high level of managementcompetencies at the political, public, private and trade union leadership levels.Administrative Reform and Management Development will require a long-term fundamentaladjustment in the way the public sector sees itself, organises its institutions and doesbusiness. This calls for effective planning, organisation, leadership, phasing, monitoring,control, coordination and innovative management skills all balanced with regard to thesociological consequences for the institutions to be changed. These are issues requiringattention by means of an integrated regional strategy, the implementation of which wouldfit within the mandate accorded CARICAD at its inception, by the Heads of Government.

The complexities of these issues confronting Caribbean societies were as evident inJamaica and Guyana at the beginning of the 1980s as they became pronounced in the mostbuoyant, petroleum-based economy of Trinidad & Tobago by 1986. A similar effect hasnow adversely affected the economy of Barbados, having to revert to an IMF StabilizationProgramme. The measures proposed invariably require reduced public sector employment,

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wage and salary cuts, privatization of public enterprises, increasing costs of public servicesand utilities. None of the Caribbean societies have been spared growing disenchantmentwith government, public dissatisfaction and increasingly pointed disaffection, with themanner in which public policies are formulated and adopted apparently directed by externalpressures of the multilateral financial agencies.

Accompanying the standard prescriptions have been "administrative reform"programmes. Jamaica's experience in this regard stems from the 1980s. To policy makersand the public at large, these reforms seem to amount to little more than drastic reductionsof the public service, thereby presenting a situation that is resisted by workers andapproached in a piecemeal manner by the political directorate. The underlying fears andignorance are understandable, given the absence of a rational assessment to date and oflimited critical studies on the role of governance in the context of changing global demandsfor greater efficiency and productivity.

Across the region, member-states remain unaware of the successes and failures thatother countries of the Caribbean have experienced. Few lessons are learnt and mistakescontinue to be repeated. More significantly, external agencies continue to mount missionsand prescribe time-worn measures and at times it seems, without underlying needs of thecountries being adequately taken into account. The recommendations are hardly demand-driven nor do they allow for a corporate memory and expansion of regional expertise to bedeveloped as a basis for sustainability over the longer-term.

A more specific need in this area of governance and public sector management stemsfrom the widespread concern to chart new working relationships between governments andthe social partners so that public/private sector linkages, mobilisation of trade unionmembership and insights of NGOs will forge national consensus and regional cooperationin the face of structural issues that transcend partisan differences.

One of the more interesting experiences in the area of public service reform iscurrently receiving attention by the Government of Trinidad & Tobago, whose Cabinetincludes specific ministerial responsibilities for Public Administration. As indicated in aninitial progress report:

The major objective of the reform process to be undertaken is to generate greater levelsof responsiveness to the legitimate demands of the general public, in a climate in whichthere is increased public scrutiny and an insistence on greater public accountability. Thecurrent focus of achieving "more with less," requires that Public Sector managers, andindeed, all Public Sector workers provide creative solutions to the challenges posed atthis time of restraint and constraints.

Moreover, a climate of opinion has been created among senior government officials,directors of planning, technocrats, academics and influential leaders of the private sectorsupporting a comprehensive review of Caribbean initiatives as a basis for structural changesto the administrative apparatus of the state and for an enlightened pragmatic approach forspecific programmes to support a longer-term process for sustainable development.

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In the Kingston Declaration, it was agreed that:

"Governments should confront structural inefficiencies anddetermine the proper dimensions of their administrativemachinery. Performance of institutions and personnel will needto be evaluated, with a view to increasing productivity, and wherenecessary, reorganise into compact or lean, well-coordinated andhigh-performance-oriented units of Government."

Within this environment of concern for public sector reform, it is to be expected thatthe Working Group would not only provide a comprehensive assessment for the benefit ofthe region, but become an indispensable basis for subsequent achievements in the area ofstructural adjustment and improved governance for Caribbean societies.

The presentation of this Report should therefore be taken as making a new stage inthe endeavour of collective reflection and critical analysis of experiences within CARICOMmember-states with the aim of moving our institutions beyond structural adjustment andtowards sustainable human development.

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2. TERMS OF REFERENCE AND CHRONOLOGY OF EVENTS

Following deliberations with the CARICOM Secretariat and discussions withMember States by CARICAD, both the need and importance were acknowledged for aninitiative to be pursued across the Region so that a synthesis of major concerns andexperiences could inform future policy formulation and implementation. The accompanyingindication of high levels of interest from the Commonwealth Secretariat, (COMSEC), theCaribbean Development Bank (CDB) and the United Nations Economic Commission forLatin America and the Caribbean (ECLAC - Port-of-Spain), in the promotion andsponsorship of a Working Group on Public Sector Reform led to the approval for itsestablishment at the Thirteenth Meeting of the Board of Directors of CARICAD on 6 May1993 in Belize.

The urgency for the convening and operationalising of the Working Group (WG)prompted CARICAD to initiate an inaugural meeting and planning session as a basis forcharting the first phase of region-wide consultations and needs assessment missions onwhich to base an action plan for Public Sector Reform in CARICOM Member States. Theinauguration of the WG took place at the Dover Convention Centre, Barbados, on June 11,1993.

The Working Group was guided by the following Terms of Reference:

- undertake a comprehensive analysis of the various initiatives and efforts atpublic sector reform in the Member Countries of the Community in the recentpast;

- identify the relevant principles and practices which must be incorporated foreffective public sector reform;

- determine a schedule of activities over a six-months period to accomplish itswork;

- prepare a programme for keeping the public informed of its activities;- prepare and submit a final report on its work for the consideration of

Ministers in the Community with responsibility for Public Administration andthrough this forum to the Conference of Heads of Government of theCaribbean Community.

A submission on Improved Management of the Public Sector, providing thebackground, terms of reference and expected outputs of the Working Group, was made tothe Annual Conference of Heads of Government of the Community at their meeting in theBahamas on July 6, 1993. Endorsement of the WG was provided by the Heads ofGovernment and the terms of reference were accepted as presented.

Since the launching of the Working Group in Barbados on June 11, 1993, a technicalassistance grant from the CDB provided resources for CARICAD to undertake a series ofactivities which contributed to the necessary preparatory studies, meetings/symposia andbriefings with decision-makers and key public sector officials.

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Following the inaugural meeting and launching of the Working Group, a planningmeeting was convened in Port-of-Spain, Trinidad on September 9&10, 1993 under thechairmanship of Senator the Hon. Gordon Draper, Minister for Public Administration andPublic Information for the Republic of Trinidad and Tobago. Participants includedCARICAD's Board members, the consultants to the Working Group and Public and PrivateSector personnel.

In addition to members of CARICAD's Board of Directors, five of whom are chairingSub-committees of the Working Group, participants included the Head of the Public Serviceand consultants to the Public Service Reform of Trinidad and Tobago, representatives of theCaribbean Public Services Association and the Public Service Association of Trinidad andTobago, technical specialists from the CDB, Eastern Caribbean Central Bank (ECCB),UNECLAC, U.W.I, the Law Reform Commission of Trinidad and Tobago, the Chairmanof the Public Service Commission and senior officials of the Government of Trinidad andTobago.

At the September meeting, presentations were made by the four main consultants ofthe Working Group on the themes which had been identified previously to be the basis ofthe agenda for Public Sector Reform.

The four themes and the consultants were as follow:

1. Constitutional and Administrative Structures of the Public Sector -Dr. KennyAnthony, Faculty of Law, U.W.I, Cave Hill, Barbados

2. Financial Management of the Public Sector - Dr. Karl Theodore, Faculty ofSocial Sciences, U.W.I, St. Augustine, Trinidad and Tobago

3. Policy and Management Issues in State Owned Enterprises - Dr. HelenMcBain, ISER, U.W.I, Mona, Jamaica.

4. Human Resources Management and Development - Dr Aubrey Armstrong,Aubrey Armstrong Management Associates, Barbados.

A position paper was prepared to identify guidelines to assist governments on"Information Systems and Technological Innovations for Public Sector Management." Aconsultant has not been assigned to this theme but a Sub-committee of the Working Groupwill address the topic.

Each of the consultants provided an overview of the critical issues to be addressedunder the respective themes. In addition, a presentation was made on "The Public Sector inthe Context of Current Structural Adjustment Policies" by Trevor Harker, RegionalEconomic Adviser, UN ECLAC/CDCC.

The meeting received an update on the major aspects of the Public Service ReformProcess being undertaken by the Government of Trinidad and Tobago as well as extensivestatements on the experience and approaches to reform in the Commonwealth of theBahamas, Barbados, Grenada, Guyana and Jamaica.

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At the end of the meeting several issues were identified for further study and aschedule of work was outlined.

The second meeting to discuss status reports for the Working Group on PublicSector Reform was held in Barbados on December 8, 1993 under the chairmanship ofProfessor Edwin Jones, Faculty of Social Sciences, UWI, Mona, Jamaica.

At this meeting the four consultants to the Working Group gave an update on theprogress of their studies. The consultants received valuable feedback from the discussantsas well as from participants.

A Symposium and Ministerial Consultation on Improved Management of the PublicSector was hosted by the Government of the Republic of Guyana with financial support fromthe CDB and COMSEC between March 1-4, 1994 in Guyana. Participants includedMinisters and Parliamentary Secretaries responsible for the Public Service from theBahamas, Grenada, Guyana, Jamaica and the Chairman of the Working Group. In addition,there were Members of the Board of Directors of CARICAD, senior officials from member-countries from CARICOM Secretariat, academics from the UWI and U.G., Public Serviceunions, representatives of regional organisations and donor agencies.

The Symposium received presentations from Mr. Leroy Trotman, President of theCaribbean Congress of Labour (CCL), Dr. Andrew Downes, Chairman of the NationalProductivity Board (Barbados), Mr. David Yankana A.A., Executive Director of theConsultative Association of Guyanese Industry (CAGI), Dr. Alvin Bertrand of TrinidadCement Ltd. and Dr. Garnet Brown, Executive Chairman of the Management Institute forNational Development (MIND) of Jamaica.

Some 80-odd participants were involved over the 3-day period and a series ofrecommendations for follow-up action was presented to CARICAD. One of which resultedin a Workshop on Public Service Commissions and Human Resources Management, whichaddressed the role and composition of Commissions and identified areas for delegation ofauthority and review of Service regulations.

* In the preparation of this Chapter, use was made of published material by the author, and also reports preparedby the author jointly with other persons. Permission has been secured for the use of this material.

1 Smith and Others v. Attorney General of Belize [1985] LRC (Const.) 1128 at 1129.

2 See, for example, s. 12(4)(b), s. 13(2)(b), Antigua Constitution; s. 10(2)(c), s. 11(2)(c), St. Vincent Constitution;

3 S. 20(2)(c), s. 21(2)(c), Barbados Constitution; s. 12(2)(c), s. 13(2)(c), Belize Constitution.

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CHAPTER 3 : CONSTITUTIONAL AND ADMINISTRATIVE ISSUESBY

KENNY D. ANTHONY*1

Introduction

The significant increase in litigation in matters of Public Service Law should providesalutary warnings to managers in the Public Service that there is urgent need for modernisingthe law and administration of the Public Service. It may sound strange but it is neverthelesstrue that the impact of the Independent Constitutions on the Public Services is hardlyunderstood. Chief Justice Moe of Belize once emphasized "the need for a clearunderstanding of the new constitutional status and faithful counselling on the situation".1 Hiscall has been largely ignored.

Impact of the Independence Constitutions

Under the colonial regime, the Public Service usually fell under the prerogative ofthe colonial Governor. During the period of decolonisation, the prerogative gradually gaveway to legislation. In most states, Service Commissions were created by statute to advisethe Governor on matters of appointment, discipline and removal of public officers. TheIndependence Constitutions absorbed, with modifications, the model which was in forceprior to independence. This meant that most states entered into independence with many ofthe deformities of the colonial period.

Impact of Independence

The Independence Constitutions did three things:

(1) Firstly, it conferred authority on Parliament to impose restrictions on thefundamental rights of public officers, primarily (a) freedom of speech and (b)freedom of association. Some Constitutions require these restrictions to bereasonably required for the proper performance of the functions of PublicOfficers2, others do not3.

(2) Secondly, it created independent and autonomous Service Commissions togovern the appointment, discipline and removal of nearly all public officers.

(3) Thirdly, it redefined the nomenclature to describe employees of the state.Instead of the terms "civil service", "civil service" or "crown servant" or

4 Thomas v. Attorney General of Trinidad and Tobago [1982] A.C. 113 (P.C.; Carl Smith et al v. AttorneyGeneral of Belize (1985) LRC (Const.) 431.

5 F.E. Nunes, The Public Service Commission and Modern Management, unpublished, 1984.

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"crown service" the Constitutions employed the terms "public officer" and"public service". Strictly speaking, therefore, employees of the state/crownshould be described as "public officers".

Despite the new constitutional order, most countries continued to apply rules andpractices fashioned by the colonial regime. The real challenge is to modernise the PublicService in accordance with constitutional prescriptions. In searching for appropriate models,great care must be exercised. By their inclusion in the Independence Constitutions, thePublic Services of the region have been placed on an entirely different plane from the PublicServices of Canada, Australia and the United States.

The Nature of the Public Service

It is crucial to recognise that the composition of the Public Services has altered. ThePublic Services have been compelled to employ persons of different skills, training andexperiences. It is likely that the division of skills will become even sharper in the yearsahead. Existing legislation emphasize uniformity rather than diversity.

The disciplined services are governed by a separate body of laws. However, in mostcases, one body of law governs all other public officers. Admittedly, such an approach isconvenient. It may also be justified on the basis that it expresses the principle of equalitybefore the law. But, the terms and conditions of employment often differ among andbetween categories of employees. The offences which attract disciplinary action in respectof nurses are clearly not identical to the offences which may attract disciplinary actionagainst teachers.

A modern legal framework should attempt to respond to the different sections of thePublic Service. Different regimes should be enacted to govern the conditions of employmentof teachers, medical personnel, officers in the disciplined services, and other public officersemployed in central government.

Criticisms of Service Commissions

Some of the most frequent criticisms of the Public Services of the region have beendirected at the composition, powers and procedure of the Service Commissions establishedby the various Constitutions. These commissions were created to insulate members of thePublic Service from political influence exercised upon them, by the government of the day.4

Many have doubted that this original rationale remains relevant. Nunes contends thatService Commissions are "counter productive anachronism[s] and should be abolished".5

Where they "are weak they fail to protect [public officers] from political interference and

6 Ibid.

7 B.A.N. Collins, "Some Notes on Public Service Commissions in the Commonwealth Caribbean", (1967) 16:01S.E.S. 1.

8 G. Eaton et al, "The Public Service Commission in Grenada", in S. Ryan and D. Brown (eds.), Issues andProblems in Caribbean Public Administration, I.S.E.R., U.W.I., Trinidad and Tobago, 1992, at p. 15.

9 Ibid.

10 Ibid., at p. 16.

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where they are strong they undermine the managerial duties of senior [public officers]".6

Collins has long dismissed Service Commissions as "anomalous constitutional relics".7More recently, George Eaton et al, reporting on the Grenada Public Service, declared theconcept of an "impartial" commission to be "anachronistic" and inconsistent with "the normsof modern personnel management or of professionalism".8 They argued that commissionerswho are "drawn exclusively from outside the service cannot be fully conversant withpersonnel practices and subtleties of job requirements within the Public Service".9

On that ground, they recommended that,

"the prohibition against the appointment of serving publicofficers to the PSC be removed and that the membership of theCommission be reconstituted to accord membership to at leastone but preferably two of the senior Permanent Secretaries ona one-year rotating basis to represent executive managementof the civil service... We can find no good reason also why themembers of the PSC who are appointed on the advice of thePrime Minister after consultation with the appropriaterepresentative bodies, cannot be serving public officers."10

Interestingly, the above approach was embraced by the Grenada Constitution ReviewCommission. They recommended that,

"the Chairman be appointed by the Governor-General actingin accordance with the advice of the Prime Minister for a termof 3 years. The Commission also recommends that twomembers be appointed for a term of 3 years by the Governor-General, acting in accordance with the advice of the PrimeMinister, after the Prime Minister has consulted theappropriate representative bodies - provided, that noappointment shall be made unless the bodies consulted are inagreement. At least one of these two Commissioners shouldbe from outside the Service. The Commission recommendsthat the remaining two members of the Public ServiceCommission be appointed from the ranks of Permanent

11 Report of the Grenada Constitution Review Commission, 1985, at p. 77.

12 The functions are performed by the Commission in the following divisions of membership:

"(b) two being ex-officio the Chief Justice and the Solicitor General, shall be responsible for mattersrelating to the judicial and legal service;

(c) four, of whom the Permanent Secretary to the Ministry of Defence and the Commandant of the BelizeDefence Force shall be ex-officio members shall be responsible for matters relating to the militaryservice;

(d) three, of whom the Permanent Secretary to the Ministry of Home Affairs and the Commissioner ofPolice shall be ex-officio members, shall be responsible for matters relating to the Police Force andthe National Fire Service; and

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Secretaries by the Governor-General in his own deliberatejudgment".11

Further afield, the Belizean Constitution has made provision for PermanentSecretaries to be included in the membership of the Public Services Commission. Section105(1) of the Constitution provides as follows:

"There shall be for Belize a Public Services Commissionwhich shall consist of a Chairman and eighteen other memberswho shall include as ex-officio members the Chief Justice, theSolicitor General, the Permanent Secretary, Establishment, thePermanent Secretary to the Ministry of Home Affairs, thePermanent Secretary to the Minister of Defence, thePermanent Secretary to the Ministry for the time beingresponsible for the Prison Service, the Superintendent ofPrisons, the Commissioner of Police, the Director, Securityand Intelligence Service and the Commandant of the BelizeDefence Force".

The Constitution assigns the Permanent Secretaries according to the functions to beperformed. Thus, in the exercise of its functions the Commission shall be so organised thatof the eighteen members other than the Chairman,

"five of whom the Permanent Secretary, Establishment shall beex-officio member, shall be responsible for matters relating tothe public service other than the judicial and legal services, thePolice Force, the Security and Intelligence Service, theNational Fire Service, the Prison Service and the MilitaryService;"

Other divisions of membership exist for the performance of functions in relation tojudicial personnel, military personnel, police and fire service officers, security andintelligence personnel and prison officers.12

(e) three, of whom the Permanent Secretary to the Ministry of Home Affairs and the Director, Securityand Intelligence Service shall be ex-officio members, shall be responsible for matters relating to theSecurity and Intelligence Service;

(f) two, being ex-officio the Permanent Secretary to the Ministry for the time being responsible for thePrison Service and the Superintendent of Prisons shall be responsible for matters relating to the PrisonService;

13 George Eaton et al at 1, supra n. 8 at p. 16.

14 Ibid.

15 [1985] 2 S.C.R. 450.

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It is extremely doubtful that the inclusion of Permanent Secretaries on themembership of Service Commissions will help to professionalise the Public Service.Permanent Secretaries are more likely to protect the narrow interests of the Public Serviceand where appropriate, the interests of the Executive. Beyond that, serious conflicts ofinterest could arise. Consider for a moment, the Belizean approach. The PermanentSecretary, Establishment, will be required to tender advice to other Permanent Secretarieson a range of personnel matters including disciplinary control. Yet, by virtue of his office,the Permanent Secretary, Establishment is a member of a Commission which may well haveto determine cases in which the same Permanent Secretary may have given advice anddirections.

It is true that Permanent Secretaries who are members of Commissions could, in thewords of Eaton et al, sensitise other members to "personnel practices and subtleties of jobrequirements within the Public Services".13 But this alone cannot justify their membershipof Service Commissions. Placing Permanent Secretaries on commissions will simply notconfer greater accountability on Permanent Secretaries and Heads Of Departments to "guidethe efforts of their staff towards successful achievement of objectives or realization ofgoals".14 These changes can only occur on reorganization of the personnel function withinthe Public Services.

Relevance of Corporate Ideology

It is debatable whether the corporate ideology advocated by Eaton et al is suitable tothe Public Services of the Commonwealth Caribbean. The Public Service exists not only toprovide administrative services to the state but crucially to the public at large. What has tobe decided is whether the corporate ideology of the private sector can enhance and protectthe public interest in the delivery of services by the state.

It is often assumed that the Constitutions establish impartial Public Services for thesole benefit of public officers. It is fundamental to the public interest, especially in the smallstates of the Commonwealth Caribbean, that the Public Service is independent and impartial.The Constitutions seek, as a general rule, to ensure that public officers are loyal to theGovernment, "not the political party in power at any one time". As explained, by DicksonC.J. in the Canadian case of Neil Fraser v. Public Service Staff Relations Board,15

16 Ibid, at p. 470.

17 S. 42(2), Dominica Constitution.

18 S. 42(3), Ibid.

19 S. 42(3), Ibid.

20 For example, only a two thirds majority is required in both Houses in Barbados. See s. 49, BarbadosConstitution.

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"[There] is a powerful reason for this general requirement ofloyalty, namely the public interest in both the actual andapparent, impartiality of the Public Service."16

In any event, if the proposals of the critics of Service Commissions were accepted,then the Constitutions would require amendments. In most Commonwealth Caribbeanstates, the chapter of the Constitution which deals with the Public Service is heavilyentrenched, usually at the deepest level. For example, in the case of Dominica, a bill toamend the section which creates the Public Service Commission requires on its final readingin the House, the votes of three-quarters of all the elected members of the House.17

Additionally, the bill is subject to a delay of ninety days between its first reading and itssecond reading.18 The bill must also receive a majority of the votes validly cast at areferendum.19 These formidable requirements do not exist in all states.20

Unless the Governments are prepared to effect constitutional amendments, then theonly viable alternative is to utilise in a creative manner the existing provisions of theConstitutions to achieve greater efficiency in the management and administration of thePublic Service.

It is conceded that there is considerable force in the argument that CommonwealthCaribbean Constitutions are inefficient, insensitive and dilatory. It is well known that theirprocedures are cumbersome. Some have over-centralized the personnel function. Delaysin responding to charges of indiscipline have contributed to the undermining of the moraleof the Public Service. Public Service managers are denied control over employees and thishas encouraged them to abdicate their responsibility to maintain discipline in the PublicService.

Confusion Over Constitutional Roles

Some of the difficulties may be traced to the continuing confusion over the respectiveroles and functions of the Executive and the Service Commissions. The Constitutionscontemplate that the governance of the Public Service is a shared responsibility. In Thomas

21 [1982] A.C. 113 (P.C.).

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v. Attorney General of Trinidad and Tobago,21 the Privy Council confirmed that the ServiceCommissions are entrusted with the following powers:

(a) The appointment, discipline, transfer and removal of public officers.(b) the enactment of rules to govern their procedure in respect of the exercise of

the powers named above. For example, Commissions may establishprocedures for disciplinary proceedings and for the selection and appointmentof recruits to the Public Service.

In turn, it is the constitutional responsibility of the Executive and/or Parliament to:

(a) lay down terms of service for public officers. Terms of Service include,

(i) determining the duration of the contract of employment e.g. fora fixed period, ending on attaining retiring age, or after theprobationary period;

(ii) remuneration and pensions;(iii) the physical and educational qualifications for recruitment into

the Public Service; and(b) the enactment of a code of conduct, to include, inter alia, the offences which

render public officers liable to disciplinary action by a Service Commission.

In effect, the Service Commissions are not employers of public officers. They merelyappoint, discipline and remove public officers on behalf of the State/Crown in accordancewith the Constitution.

It is possible for the Executive to compromise public officers by the nature of theterms and conditions of employment which they establish. For example, the Executive mayspecify that the term of employment should be no more than x years or y months. In thatevent, the relevant Commission is compelled to appoint a public officer for the duration oftime specified by the Executive. Clearly, in this situation the ability of the Commission toprotect the public officer is severely compromised.

The prevailing deformities and weaknesses of Service Commissions have often ledto attacks on the constitutional arrangements which govern their composition and functions.However, the simple truth is that no Commonwealth Caribbean Government has modernisedits Public Service in accordance with the constitutional prescriptions. No Government hasyet exploited the promise of the Constitutions by enacting the statutory regime contemplatedby the Constitutions.

The behaviour of some Services Commissions have not been helpful. SomeCommissions seem preoccupied in jealously protecting their independence and neutrality.Consequently, they define their agenda narrowly. Others behave as rubber stamps and

22 Antigua and Barbuda Constitution, s. 100 (2).Bahamas Constitution, Art. 110.Barbados Constitution, s. 92 (1).Belize Constitution, s. 106 (5).Grenada Constitution, s. 84 (2).Dominica Constitution, s. 84 (13).Guyana Constitution, Art. 20 (2).Jamaica Constitution, s. 127(1).St. Christopher & Nevis Constitution, s. 77 (12).St. Lucia Constitution, s. 86 (2); s. 93 (2).St. Vincent Constitution, s. 78 (2).Trinidad and Tobago Constitution, s. 127 (1).

23 Antigua and Barbuda Constitution, s. 99 (13).Grenada Constitution, s. 83 (13).Dominica Constitution, s. 84 (13).St. Christopher & Nevis Constitution, s. 77 (12).St. Lucia Constitution, s. 85 (13); s. .St. Vincent Constitution, s. 77 (13).Trinidad and Tobago Constitution, s. 129 (1).

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abdicate their constitutional responsibilities to the Executive. Few Service Commissionshave decentralised their authority to the extent permitted by the Constitutions.

The Scope for Delegation

All the Constitutions provide that the Service Commissions "may, by directions inwriting and subject to such conditions as they think fit, delegate any of their powers [toappoint persons to hold or act as officers, to remove persons and to exercise disciplinarycontrol] to any one or more members of the Commission or with the consent of the PrimeMinister [or Head of State], to any public officer".22 Yet, few Commissions have utilizedthese powers in a creative way.

Some authority could be delegated to Permanent Secretaries and Heads ofDepartments by appropriate "Delegation Orders" to strengthen their professional controlover public officers. There is no reason why Permanent Secretaries cannot be conferredwith delegated authority to appoint and discipline public officers in specified cases.Likewise, the Service Commissions could constitute themselves into committees to handlematters pertaining to specific areas of the Public Service. For example, where no TeachingService Commissions exist, the Public Service Commission could delegate to a sub-committee its power and authority in relation to members of the Teaching Service. The sub-committee could then meet on a regular basis to deal with matters pertaining exclusively tothe Teaching Service. A similar approach could be taken in respect of the nursing staff.

Another power that is available but hardly ever utilised relates to the power of someService Commissions, with the consent of the Prime Minister, to confer powers or imposeduties on any public officer or any authority of the Government for the purpose of theexercise of its functions.23 The Grenada Constitution Review Commission is of the view thatsection 83(3) of the Grenada Constitution which expresses a similar power allows the Public

24 Report Of The Grenada Constitution Review Commission, 1985 at p. 38.

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Service Commission to use the Ministry of the Public as its "executive arm".24

Unfortunately, the Commission failed to specify the nature of the executive powers whichcould be entrusted to the Ministry of the Public Service. Notwithstanding, therecommendation demonstrates a possible use of the provision.

Abolition of Part-time Service Commissions

But if the Commissions are to perform their intended roles efficiently, Governmentsmust reconsider the practice of making part-time appointments to the commissions. Somemembers of the commissions are either self-employed or employed in the private sector.Consequently, they are only available on a part-time basis. The commissions meet as andwhen it is convenient to do so. Delay and procrastination are the inevitable results.Chairpersons of the Service Commissions should be appointed on a full-time basis. Onebenefit of this would be constant supervision of the work of the commissions. Additionally,the commissions could then delegate some of their powers to their chairpersons to performspecified functions. By this approach, delay in decision making could be minimised.

Strengthening Access to Legal Advice

The work of Service Commissions involve some very complex choices and a deepunderstanding of the principles of Constitutional and Administrative Law. Yet manyCommissions do not have easy access to an Attorney-at-Law. When confronted with legalproblems, the Service Commissions are compelled to either use the services of the attorneywho is a member of the Commission or a legal officer in the Attorney General's Chambers.

Invariably a complaint lodged with the Public Service Commission is a complaintagainst the Crown or the State. Clearly, it compromises the integrity and independence ofthe Service Commissions if they have to rely on legal advice tendered through the AttorneyGeneral's Chambers. Commissions should be provided with an independent and full timeAttorney- at-Law. Alternatively, they should be provided with a budget to employ anAttorney- at-Law as and when the need arises.

Strengthening Resource Capabilities

If the Service Commissions are to perform at increased levels of efficiency, it isnecessary to re-examine the resources allocated to them. All Service Commissions should,subject to the usual controls for accountability, be allocated a specified budget. Moreover,a separate budget and facilities would lessen dependence on the Executive and enhance theirindependence and autonomy. The budget should include provisions for the payment of thesalary of a full time chairperson, and the payment of legal services to the commissions asand when such services are needed. Efforts should also be made to computerise as far aspossible, the records of the commissions in order to quicken decision-making.

The Legal Character of the Employment Relationship

25 Roshan Lal v Union of India (1967) S.C. 1889.

26 Thomas v Attorney General of Trinidad and Tobago [1982] A.C. 113 (P.C.) at p. 127D; Bernadette Hood-Caesar v The Prime Minister and Minister of Finance and Economy and Attorney General [Unreported, No.3015 of 1987, June 7, 1988, H. Ct., T'dad and T'bago].

27 R v. Lord Chancellor's Department, ex parte Nangle [1992] 1 All E.R. 897.

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Another burning issue relates to the nature of the employment relationship betweenpublic officers and their employers. Is the relationship "contractual" or is it better describedas "a relationship of status".

The relationship appears to have four of the five dimensions of a contract, namely,(a) offer; (b) acceptance; (c) capacity; and (d) consideration. The fifth requirement, theintention to create legal relation, is often said to be absent on the ground that theCrown/State never intended to enter into contractual arrangements with its employees.Indeed, the General Orders of some countries deny that the Orders constitute or form acontract between the Crown/State and its employees.

It does appear anomalous to suggest that the relationship is contractual when asubstantial body of the terms and conditions is defined by statute. Subject to theConstitution, Parliament is free to alter those terms at its pleasure. In other words, there isno contractual equality between the Crown or State and its employees. Public officers havelittle freedom to regulate the incidents arising out of the employment relationship. Therelationship is sui generis, largely governed by statute. The legal compulsion as to the fixingof the terms appear to be inconsistent with the creation of a contract. For this and otherreasons, the courts of some countries have concluded that the relationship is one of status.25

It is, however, true to say that the courts in the Commonwealth Caribbean appear to bemoving in the direction of treating the relationship as contractual.26 English courts appearto be moving in a similar direction.27 In the final analysis, it may be necessary to enactlegislation to resolve the issue. This would help public officers to properly understand thenature and character of their relationship with their employers.

Absence of a Comprehensive Legal Regime

Earlier, it was emphasized that the provisions of the Constitutions which establishedPublic Services were never supported by the enactment of appropriate and comprehensivestatutory regimes. Some Service Commissions have not enacted rules to govern theirprocedure. Some states have not enacted Regulations pertaining to the conduct of publicofficers. Reliance is placed on General Orders which were introduced by the colonialauthorities. Many of the provisions of these General Orders are unconstitutional. Barbados,Jamaica, and Saint Lucia have modernised their General Orders but it is exceedinglydoubtful that these Orders enjoy the force of law. Commonwealth Caribbean Courts are not

28 Evelyn v. Chichester (1970) 15 W.I.R. 410; Sheik Mohammed Hyder Ali v. Public Service Commission[Unreported, No. 37 of 1974, C.A. - GUY]; Fahie v. Attorney General of Guyana [Unreported, No. 10 of 1983,16th Nov., 1984, H.Ct. - Anguilla]; Winton Campbell v. Attorney General and Chief Personnel Officer[Unreported, No. 134 of 1990, Feb. 20, 1991, H.Ct., B'dos].

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unanimous in their treatment of the legal status of these Orders.28 In any event these Ordersuse archaic language and are of little use in a modern Public Service.

A legal regime for the Public Service should comprise the following:

(1) A Public Service Act with provisions, inter alia, for a modern PersonnelDepartment, creation and abolition of public offices, and treating with thePublic Service. The Act should also empower the Minister to makeregulations governing the conditions of employment including the code ofconduct.

(2) Regulations made by the Minister to govern conditions of employment.Separate regulations should be enacted for (a) The Teaching Service; (b) ThePolice Service; (c) The Fire Service; and (d) The Nursing Service. TheseRegulations should be made by the responsible Minister under authorityconferred by the appropriate Act. For example, in the case of teachers, theMinister should enact regulations under the authority of the extant EducationAct.

(3) Regulations enacted by Service Commissions under the appropriateprovisions of the Constitutions to govern their procedure in respect of mattersof appointment, disciplinary procedure and removal of public officers.

Modernisation of Personnel Departments

Save to some extent in the case of Jamaica, Trinidad and Tobago and possiblyBarbados, Commonwealth Caribbean countries have not modernised their PersonnelDepartments.

In a recent report to Caricad on The Role Of The Public Service Commission InManagement Of Human Resources, Sir Carlisle Burton and associates advocated thestrengthening of human resource management systems in the Public Services of theCommonwealth Caribbean. Sir Carlisle advised that the following issues need to beaddressed:

"- the development of appropriate human resource policystatement.

- review of existing orders, rules and regulations. - the development of human resources information

systems (already begun in some countries). - the development of appropriate performance appraisal

systems.

29 Carlisle Burton, Report On The Role Of The Public Service Commission In Management of Human Resources,Caricad, Nov. 1992, at p. 12.

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- Strengthening the training and development functions,and the provision of more management training formiddle and senior level managers.

- the development of a core of personnel technicians towork in line ministries".29

Legislative reform to the Public Service should aim at enhancing the human resourcemanagement capabilities of the Public Service. The Personnel Department should berecognised in legislation, preferably in a Public Service Act, and could be renamed andredesigned as the Public Service Human Resources Development Department. Legislationshould provide that the functions of that Department shall be the administration andmanagement of the Public Service and without limiting the generality of those functionsinclude,

(a) promotion of efficient service to the public;

(b) conducting management audits of departments by reviewing the organizationof the business of government, including the organization of ministries anddepartments of government, and providing advice and makingrecommendations respecting the organization;

(c) promotion of the efficient use of the human resources of the Public Service;

(d) reviewing the classification, reclassification and nomenclature of offices andproviding and making recommendations respecting the classification,reclassification and nomenclature of offices;

(e) development and maintenance of an integrated human resources informationsystem of personnel records and training profiles to aid in the making oftraining decisions in the Public Service;

(f) conducting personnel and training needs assessments, establishment of areasof priority based on the findings of the assessments and on resourceconstraints and taking appropriate action to satisfy those needs;

(g) compilation and dissemination of personnel related information and policydecisions to authorized officers for the efficient administration andmanagement of the Public Service and the efficient performance of officers;

(h) ensuring the maintenance of a safe and development oriented workingenvironment for officers;

30 Yaw v. Correia [Unreported, Jan. 9, 1975, Civ. App. No. 12 of 1973, C.A. - Guyana].

31 See Mohammad v Ahmad [1994] 1 WLR 697 (P.C.). In this case the Privy Council suggests that an individualwho is appointed to perform a function in the service of the state in a civil capacity in respect of the governmentand held or acted in an office in the public service within the constitutional definition of that term, had to beappointed by the Public Service Commission.

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(i) promotion of high level of performance and productivity, setting of workstandards, development of results - oriented job descriptions, and techniquesthat contribute to high morale, motivation and job satisfaction amongstofficers;

(j) reviewing the terms of service, including salaries and allowances for officers,providing advice to the Minister and officers and making recommendationsto the Minister respecting those terms;

(k) reviewing legislation, collective agreements and directives affecting officersand making recommendations to the Minister respecting the legislation,collection agreements and directives;

(l) coordination of the work of any committee established by the Minister;

(m) effective management of any housing provided by Government to publicofficers or to other persons who serve the Government in a civil capacity;

Categories of Employees in the Public Service

In most countries, two categories of employees of the state may be identified. Thefirst category comprise public officers who are appointed by Service Commissions. Thesecond category comprise employees appointed by Permanent Secretaries either acting ontheir own initiative or on the instruction of a Minister. These employees are variouslydescribed as "casual", "temporary" or "unestablished". The existence of this corp ofemployees provides opportunities for patronage appointments, and in the process,undermines the traditional public service. In strict theory, an entire Ministry could be staffedby these employees.

Though they enjoy the status of public employees, these employees are not publicofficers since they are not appointed by or on the delegated authority of the Public ServiceCommission.30 Therefore, they do not enjoy the constitutional protection extended to publicofficers who fall within the jurisdiction of the Public Service Commission. It would appearthat all the Constitutions of the Independent Commonwealth Caribbean states condone theloophole whereby persons can be appointed and removed from the Public Service withoutthe intervention of the Service Commissions. However, this loophole is not entirely immunefrom constitutional challenge.31

32 Public Service Act, No. 27 of 1991.

33 S. 31 (1), ibid.

34 S. 31 (2)(a), ibid.

35 S. 19 (1), ibid.

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It is recognised and indeed, conceded, that the Governments require flexibility toappoint and remove these employees from the Public Service. However, the opportunityprovided to appoint these employees whether on a daily or monthly basis, gives theExecutive an opportunity to circumvent the jurisdiction of the Public Service Commission.Of equal concern is the vulnerability of the employees. It seems manifestly unfair and ablatant denial of equality of treatment that these employees are afforded so little protectionparticularly after being continuously employed for a period of years.

It should be noted that the failure to control the appointment and removal of theseemployees has contributed to the significant increase in the number of persons employed inthe Public Service of Commonwealth Caribbean states. Indeed, the steady increase in therecurrent costs of the Public Service may, in part, be traced to the unbridled increase in thenumber of these employees. Not surprisingly, these employees are usually the first victimsof structural adjustment programmes. The salutary lesson is that the growth and expansionof these employees should be carefully controlled.

In light of the above factors, a regulatory regime should be introduced to govern theappointment, discipline, removal and financial entitlements of these employees. The regimeshould permit the accrual of specified employment benefits such as severance after a periodof continuous employment. It should also facilitate their appointment and removal from thePublic Service.

3.16 INDUSTRIAL RELATIONS AND COLLECTIVE BARGAINING

With the exceptions of Trinidad and Tobago, and to a more limited extent Dominicaand Jamaica, Commonwealth Caribbean States have been reluctant to establish clearprocedures to treat with organizations representing public officers. Few endow collectivebargaining agreements with the force of law. Arguably, the chaos which usually attendssalary negotiations in most states could be dealt with by a statutory regime which possiblyincludes voluntary arbitration. In this regard, the Dominican approach merits considerationin other states.

The Dominican legislation32 envisages a scheme of wage negotiations supported byvoluntary arbitration in the event of disputes. The Act establishes a Public Service Boardof Arbitration consisting of not more than eight members.33 Of that number, the Ministershall appoint three persons nominated by a Board of Management.34 That Board comprises,inter alia, a member of Committee of Permanent Secretaries, the Chief Personnel Officer,the Permanent Secretary or nominee, and a legal officer designated by the Prime Minister.35

36 S. 31 (2)(b), ibid.

37 S. 32 (1), ibid.

38 S. 28 (1), ibid.

39 Gladwyn Ophelia King v Attorney General of Barbados [1994] 3 W.L.R. 1560 (P.C.).

40 [1982] A.C. 113 (P.C.).

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Additionally, three other persons shall be nominated "by the representative body".36 AChairman and Vice Chairman "may be appointed by the Head of State, after consultationwith the Minister and the representative body".37 The Act has also made collectiveagreements binding on the Government, the representative body and public officers.38

Of course, the Dominica approach may be adapted to suit particular circumstances.However, a regulatory regime should emerge on the basis of discussion and consensus withthe representative bodies.

3.17 REDUCING THE SIZE OF THE PUBLIC SERVICE

Few studies have been done to determine the optimum size of the Public Service toguarantee efficient delivery of services to the public. However, it is generally felt that thePublic Services of Commonwealth Caribbean states are bloated and costly. Consequently,a reduction in the size of the Public Service has always been a major component of structuraladjustment programmes.

In the majority of cases, reduction of the size of the Public Service has been achievedby mass dismissal of the "temporary" or "daily paid" or "unestablished employees" referredto earlier. In Barbados and Trinidad and Tobago, the reduction of expenditure has been dealtwith by legislating reductions in emoluments. In the case of Barbados, the Privy Councilhas agreed that Government is authorised to reduce salaries of public officers.39 However,a recent amendment to the Constitution now makes it impossible to effect such reduction.Presumably, a reduction in salaries is to be preferred to increasing unemployment.Arguably, removal of public officers for the purpose of containing public expenditure wouldconstitute "reasonable cause" for removal within the meaning established by the PrivyCouncil in Thomas v. Attorney General of Trinidad and Tobago.40

3.18 CREATION OF PUBLIC OFFICES

Precisely because of the problems associated with reducing the size of the PublicService, it is crucial that Governments exercise some control over the creation and abolitionof offices in the Public Service. For that purpose, it might be useful to subject the creationof officers to legislative scrutiny.

With the exception of Barbados, Jamaica and Dominica, other states have notestablished clear procedures, whether statutory of otherwise, to regulate the establishmentand abolition of public offices. This has led, in some cases, to the unregulated growth of the

41 Public Service Commission and Attorney General of Dominica v. Darnell Shillingford, [Unreported, No. 10of 1988, C.A. - O.E.C.S., Dominica].

42 See generally, Civil Establishment Act, Cap. 21.

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Public Service with serious consequences for recurrent expenditure. Legally, it is unclearwhether the authority to create an office is the Cabinet or Parliament when it votes funds forthe recurrent expenditure of the Public Service. The establishment of a clearly definedprocedure does not guarantee the size of the Public Service would be contained at adequatelevels to ensure economies of scale. However, in the absence of prescription, it is easier forthe Public Service to develop without control or guidance.

In a recent decision, the Court of Appeal of the Organisation of Eastern CaribbeanStates agreed that in an appropriate case a Dominican public officer may be entitled to beheard where the Executive decides to abolish his substantive post.41 The effect of thedecision seems to be that the Executive cannot abolish an office at its whim. The affectedofficer should be heard if only to determine whether there is a suitable alternative office towhich the officer could be appointed by the commission. If no alternative employment canbe identified, then subject to the powers of removal by the Public Service Commission,provision should be made for the payment of compensation.

In light of the above factors, it would be wise to follow the Barbadian approach42 andinclude in appropriate legislation, provisions to empower the Minister from time to time byOrder to,

(a) establish offices in the Public Service;

(b) determine the number of persons who may be appointed to such offices;

(c) prescribe the qualifications required by persons appointed to such offices;

(d) determine the emoluments to be attached to such offices; and

(e) establish appropriate procedures for the abolition of public offices.

Understanding the Constitution and Other Statutes

Since the conferment of independence on the majority of Commonwealth Caribbeanstates, there has been a noticeable and steady increase in the litigation of matters touchingon the administration of the Public Service. These cases dramatise the increasing use of thecourts as the arena for the resolution of disputes in the Public Sector.

Some cases which have reached the courts were occasioned by administrativebungling and sheer inefficiency. In others, very basic legal errors were committed. Thereis widespread ignorance of the impact of the Constitutions on the traditional powers andresponsibilities of public officers. Ongoing attempts at enhancing the qualifications and

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skills of public officers should include exposure to the Constitutional and AdministrativeLaw of the Public Service. Every Public Service in the region should seek to organiseworkshops for its managers on the Law Of The Public Service.

There is abundant evidence that public officers do not fully appreciate the extent andnature of statutory powers conferred on them. Some abdicate their powers to Ministers,others only act at the dictation of Ministers, and still others, do not know how the lawimpacts on the management of the Public Service.

If the forecast for an increase in litigation is correct, then there will be an obviousdemand for advice and guidance to managers in the Public Service. Few governments, ifany, employ legal officers who specialise in specific subject areas. As the law becomesmore specialised, so too will the need for legal officers trained in Public Service Lawincrease. It may not be economical to assign a legal officer who is a specialist in Public Lawto particular ministries but it can hardly be denied that such an officer is needed in theChambers of the Attorneys General.

Consistent with the view that litigation in Public Service matters should be avoidedas reasonably as possibly, Service Commission and Public Service Managers need toconsider initiatives to enhance administrative redress without compromising constitutionalobligations. The continuing need to develop mechanisms to handle personnel problemsshould not be ignored. Some problems do not require legal solutions. Managers in thePublic Service should be encouraged to create mechanisms for resolving conflicts beforethey become problems certified fit for resolution by Service Commissions.

Summary : the Agenda for Reform

In the legislative domain, reforms to the Law of the Public Service should aim to (a)update existing laws to reflect the Independence Constitution; (b) utilise the plentitude ofpowers conferred by these Constitutions to modernise the Public Services; (c) cure existinggaps in some Constitutions; and (d) introduce appropriate legal regimes to control andregulate the employment of public employees who fall outside of the jurisdiction of ServiceCommissions.

A modern legal framework should recognise the diversity of the Public Service.Different statutory regimes should be enacted to govern the conditions of employment of theseparate categories of Public Officers.

Serious consideration should be given to the enactment of an all encompassing PublicService Employment Act. Such an Act should make provisions for the identification of thePublic Service, the creation and abolition of public offices, the rights of public officersincluding their trade union rights, the establishment of a Human Resources and DevelopmentDepartment either as a "Department" or a "Ministry", treating with organisations of publicofficers and other related matters. The Act should empower the Minister to enactregulations to govern conditions of employment of the various categories of public officers.Enactment of these regulations should lead to the repeal of the General Orders where theycontinue to exist.

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The Public Services of the region should operate on a philosophy of partnershipbetween the Executive, the Service Commissions, public officers, representativeorganizations and the public at large. Every efforts should be made to reform the legislativeframework on the basis of shared consensus.

The Service Commissions must be enticed to participate fully in any process oflegislative reform. Specifically, they should modernise the legislation which governsprocedural matters pertaining to the appointment, discipline and removal of public officers.The legislation should emphasize speed and efficiency of decision making. Equally, the newregime should decentralise decision making by making wider use of powers of delegationto the Chairpersons of the Commissions, Committees of the Commissions and to PermanentSecretaries and Heads of Departments. In order to improve the efficiency and independenceof Service Commissions, consideration should be given to increasing the financial resourcesof Service Commissions to enable them to meet, inter alia, the costs of employing theirChairpersons on a full-time basis, to secure the services of independent counsels if and whenthe need arises, and to computerise their records and other correspondence.

As far as possible, efforts should be me made to eliminate any misunderstandingarising out of the failure of the State/Crown to clarify its legal relationship with itsemployees. In this regard, it seems necessary to clarify the nature of the employmentrelationship by determining whether it is one of status or of contract.

The role of the Personnel Department is critical to the reform process. Considerablecare should be exercised in staffing these Departments. Adequate provision should be madein the Public Service Act to provide these Departments with the legal powers to reform andtransform the Public Service over time.

Public Service Reform cannot afford to ignore the role of the representativeorganizations of public officers. Quite apart from conceding an institutional role to theseorganisations, efforts should be made to develop an appropriate framework, preferably bystatute to govern industrial relations and collective bargaining. The possibility of voluntaryarbitration should be explored.

Finally, in view of the increasing resort to litigation, it is necessary to sensitise PublicService Managers with the Law of the Public Service. Seminars and Workshops should beorganized on an ongoing basis to explore and explain the impact of the law on themanagement of the Public Service.

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4. HUMAN RESOURCES MANAGEMENT AND DEVELOPMENT

Introduction

The sub-committee's work spearheaded by consultant Dr. Aubrey Armstrong wasexecuted using a comprehensive and collaborative approach. This allowed for reviews ofdocumentation of the various countries, conduct of interviews, missions to some countries,workshop discussions and Working Group Consultations. The Consultant also workedclosely with members of the Working Group, especially in collaboration with the Chairmanof the overall working group and the chairperson of the sub-committee on Human ResourceManagement.

Interviews included members of Political Directorates and other key managers inboth the public and private sectors as well as academics, consultants and trade unionists.

While the overall work of this sub-committee has pointed to general shortcomings,great emphasis has been placed on new models paradigms and tools that can be utilised indeveloping more proactive HRM systems in the Caribbean Public Services.

Some Critical Background Issues

The most important resource of any organisation is often said to be its humanresource. In this regard the sub-committee on HRM provided useful frameworks whichcould enhance the region's ability to address HRM with some degree of consistency andcommonality, various differences from country to country notwithstanding.

These frameworks included the following:

- A definition of HRM as the process of bringing people and organisationstogether so that the goals of each are met. It can be viewed as the process ofcombining four components, (the environment, the organisation, the job andthe individual) in a harmonious and productive fashion. Its goal is an optimaldegree of fit among these four components.

- An approach to HRM that is systems oriented and focussed on strategic issuesif the public services are to become facilitative and proactive; and that fostersstrategic human resource management based on the principle that it is peoplewho implement plans. It therefore takes a broader more integrated view ofthe H.R. Function.

- The formulation of mission, goals and objectives for HRM so that publicservice employees can consciously and effectively contribute to theirachievement.

- A total Human Resource Management system that would operate at twomajor levels viz, a strategic level and an implementation or operational level.

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At the strategic level;

(i) the human resource issues are considered in the formulation of strategic plans,(ii) there is a human resource dimension to all levels of plans,(iii) Human Resource practitioners are integral to the planning process.

At the level of implementation Human Resource activities in support of the overallstrategic plan should include:

-organisation design, job design, organisation efficiency and effectiveness.-H. R. Planning and forecasting, recruitment and selection-Human Resource Development and training, Performance Management,Career management and Development-Job evaluation, classification, incentive programmes and employee benefits-Employee Relations, Industrial Relations.-Health, Safety and Welfare-Public Employment and Personnel Administrative issues to include the legalframework, employment practices and procedures, and Human ResourceInformation Systems.

This sub-committee appropriately described a set of major background issues thatprovided important contexts for HRM in the region and that could be found in the global,regional and national trends shaping the Caribbean Public Services. These issues include;

-Worldwide turbulent and accelerated change-Fluctuations in regional economies and the attendant social political andfinancial problems.-The growth of large trading blocs-The end of the socialist bloc-The Rapid development in technology especially with regard tocomputerisation, communications-Physical infrastructural pressures and structural adjustment programmes.

Against the foregoing scenarios the work of the sub-committee concluded that theHuman Resource dimension would be central in;

(i) the transformation of the Caribbean Public Service System(ii) the improvement of their management capacity(iii) overall administrative reform programmes and processes

Some Major Issues

The pivotal issue and the one that proves the greatest challenge is how to transformpublic service organisations from reactive, administrative centralised colonial bureaucracies

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into strategic, executive, proactive, flexible and results oriented modern organisations. Otherissues remaining perhaps fairly constant and appearing to be without resolution, include;

- The need to emphasise programme planning and targetable outcomes insteadof the enforcement of rules and regulations

- The strengthening of policy analysis and formulation in ways that allow forimproved data gathering and feedback, policy review and reformulation

- The adjustment to modern technology for technical and professionalenhancement, increased efficiency and effectiveness, and managementinformation and decision support

- The need for clarification of the respective roles of political and managerialdirectorate

- The strengthening of arrangements for coordinating, monitoring andregulating in key agencies such as those responsible for Finance and HumanResources

- Strengthening Financial Management Systems, Institutions, Skills andProcedures.

- Developing strategic and operational planning as a critical area- The need for approaches that would modernise the area of Human Resource

Management and development- The creation of an organisational climate to motivate employees to

participate, develop and contribute to the achievement of the goals of thePublic Service.

- Establishment of clear policies on the role of Human Resource Managers inthe development process

- Development of adequate compensation and incentive packages, programmesand mechanisms for appropriate career pathing and career management

- The need to address change and its management by the Political andAdministrative Directorates as well as by rank and file employees.

In addition to the above issues, the sub-committee's work was appropriately directedtowards analysing the future of human resource management by engaging in an analysis ofsome critical issues that were emerging as the region approached the twenty first century.These are summarised as follows:-

- A continuing safe guarding role of the HRM function with regard tolongstanding troubling realities and deep suspicions. However to these mustbe added partisan political, gender and even ethnic and racial concerns thathave become part of the realities.

- A new Strategic Paradigm in which HRM functions, such that it isstrategically oriented and located, flowing from and being interdependentwith the strategic planning function. This new approach adds a dimension ofinnovation to traditional problem solving.

- Rules and regulations need to be revised and updated to reflect the new worldorder and to conform more closely to modern management. The goal should

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be greater flexibility for the strengthening of the strategic performanceoriented culture that is necessary.

- Organisation structures are over centralised with excessive bureaucraticcontrol mechanisms. For the future the task is for HRM practitioners tocreate and develop flexible, responsive and team-oriented structures that aredriven by a reliance on new missions, a changed set of values and newleadership styles.

- Performance Management Systems have deteriorated, so that the key task ofappraising performance has become largely meaningless. The Public Serviceof the future requires a Performance Management System which is acontinuous process and which is based on the joint agreement of objectives,standards, action plans and development needs.

- Relations with Worker Representatives is a critical sub-system of HRM, andin the new strategic direction would require a different and more collaborativepartnership in which the workers' representatives are fully involved.

- Strategic Human Resource Planning must be linked to national plans, as wellas strategic and operational plans of the various Ministries and departmentsso that demand can be forecast.

- Human Resource Development task of the future is one of "fundamentalchange". It is a task that must be executed primarily by having the regionsbest institutions, resources and experts apply themselves to the developmentof approaches that are creative, untried yet with the potential for successbecause they would have greater meaning and connections to societal andenvironment impacts.

- Creative Resourcing is required urgently as the task ahead is to developmentpolicies and procedures for bringing in talented people and giving them scopeto use their talent. The public sector of the 90's needs an array of morecomplex skills and is competing for then within the region, with the PrivateSector, with international organisations. Resourcing the future Public Servicewill call for;

- encouraging mobility and flexibility- introducing high quality people to the organisation- removing non-performers regardless of persuasion and political or

other affiliation.- long term planning and anticipation of the HR needs of the Caribbean

in the 21st century.

- Compensation structures, packages and management are major inhibitors anddemotivators. The task ahead is to establish performance management and

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compensation management systems that support each area. Remumerationshould be related to competence, performance, level of skills and market rate.

The combination of long standing and emerging issues clearly points to the need forreformation and transformation so that the public service of the 21st century under theclosest scrutiny would be, in effect, rather than from all appearances, more oriented andintegrally linked to the strategic management functions, less rule and more client driven,more facilitative rather than controlling, more results oriented, more collaborative thanautocratic/bureaucratic and more proactive in demonstrating systematic H.R. planning anddevelopment.

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Conclusions and Recommendations

HRM while being an integral sub-system of the overall strategic management systemthat is critical to the future development of the regions public services, must be accordedmeaningful roles and responsibilities in order to ensure inter-alia

! protection of the rights of public servants! reintroduction of the merit principle! restoration of the right of managers to manage! enhancement of the performance of public servants ! introduction of out put based performance management systems! anticipation of H.R. needs and finding creative ways to fulfil those needs! training and development of staff based on more effective assessment of skills

and competency needs.! exploration of creative ways of compensating or rewarding public servants

The challenge is how to effect urgently the required fundamental shift in paradigmsin the face of well established status quo and deeply entrenched resistance on the part of awide range of "stakeholders" with vested interests. However many countries have beenpersistent over the last two decades in their efforts to bring about change improvement anddevelopment. From them there are many lessons to be learnt about failures, successes andthose best practices and examples that have achieved desired results. This is a practical andpragmatic approach well worth pursuing; and coupled with a multi-pronged, well plannedregional cum national approach to be implemented at all costs, might well provide thedirections for the road ahead, and toward a realistic and real HRM system that can be trulyfunctional for the region's people, institutions and organisations.

The task of designing a new HRM regime in Commonwealth Caribbean PublicServices is one of great complexity and difficulty, and requires commitment from thegeneral citizenry. Most importantly the political culture must change to also reflect the newparadigms, so too must the administrative culture.

In this regard there are some obligations, not just tasks to be fulffilled such that

! credibility in the HRM systems is estored! confidence in the impartiality of HRM systems must be regained! there must be equity and equality in the suitability and relevance of

opportunities for mobility! the integrity of relations with workers must be nurtured and developed! the purpose and relevance of the regulations governing the service must have

meaning and practicality.! the professionalism dedication, competence and integrity of HRM

professionals must be acknowledged and honoured. Profound behaviouralchanges are necessary but it is only from this solid base that the new HRMparadigms and regime can be built.

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The HRM sub-committee through its consultants' report has provided a virtual bankof recommendations, which must be considered closely, but need not be described anddiscussed in this medium. These recommendations should not be ignored or lost and shouldin fact be isolated and placed or grouped with the more major recommendations whereverthe latter are being considered as in pre-implementation stages.

Major Recommendations

Strengthen the Role of the Working Group Especially the HRMSub-Committee within it

The present sub-committee on HRM should be strengthened, its role reviewed andsome resources found to "service" it. This sub-committee should then become the focalpoint for an effort aimed at supporting public HRM agencies in member countries in theireffort to develop into strategic and proactive HRM systems.

A Definition of a New Approach to HRM

HR practitioners in the region's public services must first of all, on acollective basis, define role for a strategic public HRM. Such a first step canbe achieved through the modality of CARICAD and the present workinggroup arrangement. The definition must have the concurrence and blessingof the public services unions in the region and must be highly promoted as theway forward for regional public services.

Develop Orientation Programmes for Senior Managers

On a regional basis, again through the modality of CARICAD, develop an orientationprogramme for senior managers both as a "stand alone" and as a "part" of ongoingtraining programmes. The implementation of this Orientation programme should bethe preserve of the national training centres and institutes and is necessary insensitising senior public servants whose support and understanding will be necessaryin bringing about a new HRM regime.

Develop Specification for a Stream of HR Professionals

It is necessary, again at both a regional and national level, to develop new jobdescriptions and specifications reflecting the demands of new strategic approach toHRM. Every effort should be made to standardise these specifications across the region.The Caribbean Management Development Association might take the lead in thisregard, with CARICAD undertaking to implement the actual development andproduction of the specification for the "new" HRM professional.

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Provide Training for HRD Professionals

While attempting to build support for a more strategic, efficient and effective HRMfunction, persons in the field have to prepare themselves professionally. The skillsand competencies needed by HR professionals to manage the new strategic HRMsystem in the decade of the 90's are more varied and complex then the traditional"Personnel Administration" type training of an earlier decade. Some of thecompetencies and skills necessary are the following:

Strategic Planning, Organisation Development, Computer Skills, Team BuildingCompensation Management, Consultancy Skills, Negotiation Skills, Budgeting

It is not necessary for every national training institute to do it own thing when co-operation through CMDA can be facilitated. In this regard one of the best newprogrammes in HRM has just been started by the Institute of Business of UWI, StAugustine, viz The Diploma in Human Resource Management.

Document the HRM Policies of the Commonwealth Caribbean Countries

Still another "supportive" step could be taken at a regional level with thedocumentation of the HRM policies of the various Commonwealth Caribbean PublicServices and along with suggestions for a model HRM policy framework for the 90's.Such a document would facilitate national HRM professionals to compare and refinetheir own policy documents, a pre-condition for the effective transformation of theirrespective systems.

43*This chapter is an abridged version of Policy, Management and ImplementationStrategies of Privatisation in the Caribbean, ISER, Mona, March 1995, pp. 41.

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CHAPTER 5: POLICY AND MANAGEMENT ISSUES ON PRIVATISATION AND DIVESTMENT

BY

HELEN McBAIN*43

1. INTRODUCTION

The issue of public sector reform emerged since the 1980s when countries in theregion which had been adversely affected by external shocks such as the rise in oil prices inthe 1970s and the fall in oil prices in the 1980s, embarked on economic adjustmentprogrammes to bring demand in line with falling output and foreign exchange earnings andto diversify their productive and export structures.

The expansion of the state-owned enterprise sector (SOE) which took place fromabout the late 1960s was brought about, generally by the failure of the private sector tocontribute significantly to the process of industrialisation and economic development, andspecifically by the inability of some firms to restructure their operations to meet changingdemands. The growth of the SOE sector due to nationalisations and the creation of newenterprises during the 1970s was particularly significant in Jamaica, Trinidad and Tobago,Guyana and Grenada. Most of the enterprises operated at a loss and had to be subsidisedthrough budgetary transfers. This along with adverse changes in the international economicenvironment led to growing budget deficits as governments incurred foreign debt to meetdomestic demand and cushion the impact of external shocks. The countries with large SOEsectors happened to be the ones that experienced slow or negative growth, high inflation,significant balance-of-payments and budget deficits and high levels of foreign debt.

The four countries mentioned above have been pursuing structural adjustment (andin some cases stabilisation measures) with support from the IMF and the World Bank tocorrect these problems. A major focus of the adjustment programmes is the public sectorand the need to reduce budget deficits which are seen as contributing to high inflation rates.The policy prescriptions of the World Bank's structural adjustment programme (SAP) areaimed at reducing the size and scope of the state sector through reduction of public sectoremployment and the divestment, liquidation and/or restructuring of SOEs. They are alsoaimed at liberalisation and deregulation to increase competition within the economy.

Divestment seems to be the preferred option of the World Bank as it would broadenownership and strengthen the private sector as well as reduce the financial burden of thestate. This is in spite of the options suggested by a number of World Bank studies, namely:

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a) full divestment of firms producing private goods such as food and clothing;

b) contracting out of services produced by government such as road maintenance, streetcleaning and garbage collection; and

c) divestment or partial privatisation (leasing, franchising, management contracts) ofenterprises providing electricity, water and telecommunications.

The Bank is however aware of the fact that Caribbean governments may have topursue partial privatisation as a first option, that is, leasing, franchising or contractingmanagement and/or services; and in fact it does recommend such options after studying thespecific country situation. Nevertheless, it maintains the view that although some SOEs maybe run efficiently government ownership does not make this sustainable in the long run.Divestment therefore ultimately becomes a necessary condition for achieving the objectivesof economic development and poverty alleviation. It encourages investment and hence thegrowth of output and employment while it facilitates public investment in infrastructure andsocial programmes. Whether various levels of privatisation can be pursued without fulldivestment is something that would have to be determined at country, sector and enterpriselevels, and within the context of government strategy for restructuring the economy.

This study attempts to evaluate policy and implementation strategies of privatisationand their applicability to the Caribbean. The short time frame and limited resourcesprecluded any systematic evaluation of the actual privatisation and post-privatisationexperiences as well as impact in individual countries. Cost-benefit analysis of variousstrategies of privatisation were also not carried out, partly because of similar constraints butalso because of the difficulty in getting information from official sources. Nevertheless,these types of evaluation are necessary to enable governments to make optimal choices.

We avoided entering into the debate on whether Caribbean governments shouldprivatise or retain significant state-owned sectors. This is not because the debate is nolonger relevant. However, most governments in the region have been pursuing privatisation,some in an ad hoc manner. The more fruitful approach is to determine what policies andstrategies are needed to allow Caribbean economies to maximise benefits and minimiseadverse effects from the international economy.

The private sector does not have to expand only at the expense of the state sector.The government can facilitate the growth and development of the private sector by pursuingprivatisation strategies such as restructuring public enterprises, spinning off new firms fromexisting public enterprises and by removing the barriers to entry by new firms in certainindustries. However, the need to improve efficiency in the public sector would dictate whatprivatisation policies and strategies should be considered.

Most of the field research for the study was carried out between November 1993 andMarch 1994 in order to meet a March 1994 deadline for a Ministerial Consultation inGuyana; and interviews with officials in the public enterprise sector were conducted mainlyin Grenada and Jamaica. Because the study was based at UWI, Mona, it drew significantlyon the Jamaican experience with privatisation strategies.

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2. POLICY ISSUES

Objectives of Reform

The first question that must be addressed is the objective of public enterprise reform,and in particular privatisation. This should be geared toward achieving efficiency andcompetitiveness of firms in basic and other industries. Although public enterprises haveplayed a role in the industrialisation process in developing countries where there was apaucity of entrepreneurs, they have nevertheless along with government policy, constrainedthe development of dynamic and competitive industrial enterprises and sectors. Publicenterprises have tended to be large, hierarchically structured and capital-intensive. This hasresulted in "inflexible and uninnovative" public enterprises.

If the ultimate goal is economic democracy and marketisation, that is, the spread ofownership in the economy and reliance on market forces, then another objective ofgovernment policy should be to reduce the size of public enterprises (to the extent that isfeasible), and to promote the growth and development of small and medium enterprises. Thelatter is a necessary condition for creating and maintaining a competitive market structure[Prokopenko 1991].

The establishment of small and medium firms would assist in creating morecompetitive market structures. However, this must be coupled with other policy measuressuch as import liberalisation and the liberalisation of entry and exit of firms in sectors whichhave hitherto been protected. Competition policy is also needed to prevent cartelisation andthe emergence of monopolies through mergers. Equally important is the need to educate andmobilise the public to take a more aggressive position in relation to product price andquality.

Promotion of Competition

Competition policy should facilitate competitive market structures but it is debatablewhether it would promote efficient production and equity - the twin goals of developmentpolicy. It has been argued that efficient production results from having few large-scale firmsbenefiting from economies of scale, whereas equity results from competition among severalsmall-scale firms. Policy makers may therefore have to make a trade-off between efficiencyand equity.

However, it cannot be assumed that large firms are efficient because they minimiseunit costs, nor can it be assumed that an optimal distribution of income will occur wheremany small firms operate in perfectly competitive markets [Burke et al. 1991]. Since a fewlarge firms are operating in non-competitive markets, their production costs would not bethe minimum required for efficient production but would tend to be higher resulting in whatis called X-inefficiency. Internal efficiency can be achieved by internal efforts or byexternal competition. Large firms which are not price takers would not be motivated toachieve X-efficiency. In the case of small firms, it has been argued based on empiricalevidence, that these firms have an incentive to expand in the long run in order to achievelower unit costs since increased output would result in diseconomies of scale.

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Although monopolies and oligopolies may not achieve desired levels of efficiencythey may nevertheless achieve competitiveness in external markets. And smaller firms maybe inclined to pursue mergers to achieve competitiveness in both local and external markets.The policy prescription suggested here is to promote competition (and efficiency) bybreaking up monopolies and facilitating mergers (even of the original components of thesemonopolies) where these would enhance competitiveness.

In the Caribbean, governments promoted industrialisation from the 1950s to the1970s by protection of both basic and processing industries. There was no explicitcompetition policy until the 1990s and the passage of The Fair Competition Act of 1993 inJamaica. That Act is patterned after the UK Fair Trading Act of 1973. Although it wasestablished "to maintain and encourage competition in trade, business and the supply ofservices" it makes no specific mention of the control of monopolies and mergers which maybe necessary in order to encourage and maintain competition. The competition specified inthe law is largely price competition which could be affected by agreements which fix sellingprices or limit supply among other things. The agreements which are exempt under the laware those that contribute to "the improvement of production or distribution of goods andservices or to the promotion of technical progress" [III. 4 (a) of Act 9 of 1993]. However,the onus is on the Fair Trading Commission to determine this.

The dominant position of a firm in the market is dealt with in Sections 19 to 21 ofPart III. However, that position is not defined. In the UK a dominant position is defined interms of the control of one third of the output of the industry. (This was later reduced to onequarter). In Jamaica an enterprise is considered to have abused its dominant position if itimpedes competition in the market by, among other things, restricting market entry of otherfirms or causing the exit from the market of other firms. However, such actions would notbe considered abusive of a dominant position if they result in the improvement of productionor distribution or if they promote technical or economic progress and if consumers benefitfrom the results. Again, the onus is on the Commission to determine this.

The Jamaican law is as vague as the British law in specifying how the Commissionshall determine whether competition and hence the public interest is adversely affected. Inboth cases the Commission has to take into account all factors that appear relevant. Ultimate enforcement of the Fair Trading Commission's ruling is by the Courts; either a fineof J$20,000 is imposed or sentence to imprisonment of up to two years or both fine andimprisonment.

Competition policy has not been effective in reducing industrial concentration inBritain or the United States. In fact, concentration grew and was facilitated by mergerswhich occurred during the 1980s and which were influenced by, among other things, the riseof conservatism and the need to counter foreign competition.

Public Enterprise Reform

If competition policy and legislation are not very effective in promoting unstructuredcompetition or competition among several firms, then one would have to consider other

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mechanisms for creating competitive markets. One of these is public enterprise reform toencourage the development of entrepreneurship. There are two main ways in which this canbe done. Firstly, government can decentralise and hence disaggregate large publicenterprises into smaller units and divest these through management-employee buy-outs. Themain advantages of break-up and buy-out are, more appropriate organisational structure forthe firm and the substitution of market transactions for hierarchical relations within theintegrated firm [Prokopenko 1991, p.188]. And secondly, government can encourageentrepreneurship - individual or collective - within public enterprises in order to allowemployees to develop and exercise entrepreneurial drive. This could be achieved by alteringthe organisational structure to achieve a flatter and less hierarchical one and giving greaterautonomy to the individual units. More employees should be allowed to perform managerialfunctions and greater emphasis should be placed on team work.

Networking also allows for the development of entrepreneurship. The publicenterprise can facilitate the entry into business by members of its staff who haveentrepreneurial abilities by assisting them with training in how to run a company and byproviding them with services such as marketing, finance and taxation. The "spin-off" firmscreated by these employees would be linked to the public enterprise through the provisionof goods and services to, and receiving assistance from, the latter.

An example of how this could be done is through the mechanism of contracting outgoods and services. Contracting out specific goods and/or services is indicated for publicenterprises which cannot produce these more efficiently and at less cost in-house.Contracting-out of specific services have been undertaken in Jamaica by entities such aspublic hospitals, organisations responsible for public cleansing and by the water utility. Themotivation was the need to cut costs (including number of employees) because of budgetconstraints. The main problems encountered were absence of performance indicators whichimpaired the ability to monitor contracts, political influence on the selection of contractorsand the lack of equipment by the contractors.

Networking could be used to overcome these problems. Instead of hiring individuals(including previous employees) to produce the service and supplying them with theimplements, or hiring existing firms, the government should encourage the establishment ofnew firms by some of its employees with entrepreneurial skills, by assisting them withtraining in how to run the business and in acquiring equipment and finance to carry out thebusiness. This is in effect spinning off functions previously performed by the publicenterprise to some of its employees operating in the private enterprise sector. The resultingfirm(s) would be linked to the "parent" public enterprise. Thus, the public enterprisecharged with garbage disposal would be linked to small firms providing it with specificservices. These firms could, in an effort to innovate develop the capability for providingother services to both public and private enterprises. This method of governmentsponsorship of new enterprises would solve the twin goals of enterprise and employmentcreation.

Regulation

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Regulatory issues have been significant in relation to the infrastructure industries, inparticular electricity and telecommunications. The need for regulation has arisen becauseof industrial concentration in the economy which is particularly high in some developingcountries because of small market size [Jones 1993, p.187]. Governments have facilitatedthis through licensing requirements which act as barriers to entry into the market. Anexample is the telecommunications industry in Jamaica where the sole provider of theservice was given an exclusive licence for 25 years. The case for regulation increases wherethere is a natural monopoly defined as a firm producing the industry output more efficiencythan two or more firms [Yarrow 1993]. Electricity and telecommunications utilities areconsidered natural monopolies in the small markets of CARICOM countries. Governmentstherefore have to regulate these entities in order to ensure that they do not use their dominantpositions to extract higher profits than the efficiency of their production warrants.

What to regulate and how to regulate are related to the objectives of regulation. Themain objectives of regulation are: to encourage foreign and local investment to expand andupgrade the service provided to the population; and to encourage efficiency in theproduction of the good or service. To encourage investment (or even loan capital) thegovernment would have to privatise at least part of the industry. In the monopoly segmentthat is being regulated, government would have to institute constraints on the discretion ofthe regulator as well as on changing the regulatory system itself [Levy & Spiller 1993,p.217]. To encourage efficiency the nature of the regulatory regime or the type of regulatorymechanism used is important.

3. PRIVATISATION STRATEGIES

1. Definition

Privatisation is defined by some as the transfer by sale of the ownership and controlof state-owned assets to the private sector. Restructuring of the enterprise and the issuanceof leases, franchises and management contracts to the private sector for the production ofthe good or service have also been referred to as privatisation. We are adopting a broadapproach which treats divestment of assets, restructuring of the enterprise including the useof leases, franchises and management contracts and liberalisation of prices and trade asdifferent strategies of privatisation.

2. Types of Privatisation

A. Organisational Privatisation - this entails changing the legal structure of theenterprise to public or private limited liability company, decentralisation under a holdingcompany, lease of the assets or restructuring of the finances and functions of the enterprise;

B. Operational Privatisation - contracting out services, issuing franchises, deregulatingprices, liberalising imports, offering incentives and setting targets. Contracting of servicesshould be based on competitive tendering and on the use of short-term (2-year) renewablecontracts; and

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C. Ownership Privatisation - total sale of the enterprise by private treaty, public offeror employee/management buyout; partial sale with government majority shares, withgovernment minority shares or through a joint venture.

D. Liquidation - closure of the enterprise when the other options are not feasible.

The first mode of privatisation is appropriate for any public enterprise which is largeand operates as a monopoly. Privatisation of operations, in particular contracting out, issuitable for services such as road maintenance, repairs, garbage collection and healthservices. Contracting out can also be used in the operation of enterprises such as utilities andother productive enterprises. The mechanism of franchising is often used in road transport.

Ownership privatisation can be appropriate for any SOE once certain conditions aremet, namely a competitive market, an appropriate macroeconomic policy framework, anappropriate regulatory environment and effective institutions to enforce the rules.

When none of the above options is feasible the enterprise should be liquidated. Suchaction is also considered as a privatisation option as it is the action taken by private operatorsreacting to market conditions.

The objective of privatisation would determine the type of privatisation pursued.Efficiency and competitiveness of enterprises should be among the major objectives ofpublic enterprise reform. However, governments have been pursuing a number of otherobjectives, in the main increasing revenue, acquiring foreign exchange, reducing foreigndebt and balancing the budget. These have been dictated by the type of problems that thecountry is facing. Jamaica, Guyana and Grenada have been experiencing significant fiscal,foreign exchange and foreign debt problems. Initial privatisations, in the form ofdivestment, were pursued in order to maximise short-term revenue and reduce the foreigndebt. Some of the Jamaican privatisations have been aimed at broadening ownership andhence encouraging support for the privatisation programme. They have also been aimed atdeveloping the capital market. This is also true to some extent for Trinidad.

Objective Method

1. Maximise Revenue - Sell Enterprise wholly or partially for Cash

2. Reduce Foreign Debt - Sell Enterprise wholly or partially to Foreign Investor for Cashor Debt/Equity Swap

3. Aquire Foreign Exchange - Sell Enterprise wholly or partially toForeign Ivestor for Cash

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4. Attract Investment - Sell Enterprise wholly or partially

5. Develop Capital Market - Sell Shares in Enterprise through the Issue of Public Share Offers 6. Broaden Ownership - Restructure Enterprise - Issue Public Share Offers

- Sell to Employees (ESOP)- Sell to Institutional Investors

7. Efficiency - Restructure Enterprise - Privatise Management/Lease Assets/

Issue Franchise/Sell Enterprise- Contract Out Service- Deregulate Prices- Liberalise Imports- Monitor and Regulate

8. Competition - Deregulate Prices- Liberalise Imports- Monitor and Regulate

- Break up and Sell Enterprise

Some of these objectives may conflict with each other. For example, the objectivesof broadening ownership and developing the capital market which require public sales arenot compatible with the need to reduce the foreign debt and access foreign exchange whichin turn would require private sales to foreign (and local) investors. Similarly, the objectiveof efficiency may require only privatisation of management but the need to attract foreigninvestment may require the sale of shares/assets. The latter is not as conflicting as it mayseem since privatisation of management may be the first step to full privatisation of theenterprise. Nevertheless, Governments would have to carefully trade off objectives. Sincean important issue is the choice between privatising management and fully privatising theenterprise, it is useful to consider the advantages and disadvantages.

Privatising Management vis-a-vis Outright Sales

Privatising the management of a SOE as a means of improving its efficiency can bedone either by leasing or through a management contract. Its major advantage overdivestment is the prevention of asset concentration. The main disadvantage is the absenceof incentives to improve the performance of the enterprise; ownership gives the investor astake in the enterprise and hence the main incentive for improving its performance. Othershortcomings are: contract fees are not linked to performance (they are flat fees for service);operating losses are borne by the owner of the enterprise; and local counterparts are notadequately trained. To overcome these, governments would have to be able to draw up andmonitor favourable management contracts; negotiating skills and institutional capacity arenecessary conditions for success. A feasible option which would give greater incentive to

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the contractor to improve performance of the enterprise and maintain the value of its assets,is to encourage equity investment by offering a percentage of the shares to the contractor.

Leasing of assets is another way of overcoming some of the shortcomings of themanagement contract. In the case of the former, the leasee pays the government a fee foruse of the assets. The fees can be linked to performance and profit of the enterprise.Although in this arrangement the operator assumes the risk of operating the enterprise andmaintaining the value of the assets, the option to purchase shares or assets at the end wouldbe a further incentive to ensure optimal performance.

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3. Timing and Sequencing of Privatisation

The timing of various privatisation measures would be determined by prevailingmacroeconomic conditions. Governments should pursue economic stabilisation beforeembarking on an extensive programme of privatisation. For example, Jamaica during theearly 1980s had an unstable macroeconomic environment shaped by growing inflation, fiscaland balance-of-payments deficits and limited activity on the stock exchange. Operationaland ownership privatisations had to proceed slowly with divestment options pursued largelythrough private sales. With improvement in internal and external balance resulting from thestabilisation measures adopted, several privatisations (23) were undertaken; four of thetransactions involved public offers, five were sold privately to foreign buyers and three tojoint venture partners. Stock market activity increased with the public offers and thisfacilitated further ownership privatisation through public share offers.

In Trinidad, limited ownership privatisation through public share offers wasundertaken prior to the period of economic decline (1982-1988). This changed after 1988but the number of public enterprises that were actually sold was small compared with thenumber that was recommended to be sold. The Trinidad stock market is small andprivatisation did not expand the capacity of the market. In Guyana the economy experiencedsevere crisis during the 1980s. Privatisation was actively pursued after 1989 as part of thestructural adjustment programme which the government embarked on. Sale of enterprisesproceeded slowly because of economic instability. This changed from late 1991 when theeconomy began to show some improvement in macroeconomic indicators. However, onlylimited use was made of the mechanism of share issues to the public. A Stock Exchangedoes not exist and a securities market for trading stocks, public share issues and treasurybills is just emerging. The small size of the market and the small number of actors does notmake this a suitable mechanism for large-scale privatisations until such time as a StockExchange and a regulatory framework are established. Moreover, monetary policy to reduceliquidity (via high T-Bill rates) constrained the use of equity financing.

What we see here is that the privatisation process was very slow during periods ofmacroeconomic instability; Jamaica 1981-1985, Trinidad 1982-1986, and Guyana prior to1989. This contrasts with Chile where the government returned over 300 state enterprisesto former owners during a period of macroeconomic instability, 1974-1979 [Hachette andEnders 1993]. The mode of privatisation contributed to the crisis; the government offeredcontrolling stock packages as well as credit to investors. Financial institutions gainedleverage in many of the privatised companies. The highly indebted conglomerates whichresulted from the privatisations became bankrupt in the early 1980s as a result of reducedeconomic activity caused by the stabilisation programme [Edwards 1985]. Many of theprivatised enterprises were repossessed by the government.

Much work has not been done on the role of privatisation in the sequencing ofeconomic reforms. However, some studies done for the World Bank and drawing on theChilean experience, suggest that privatisation should not be pursued in a high-inflationenvironment. It should be pursued in a macroeconomic environment where deregulation and

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trade liberalisation have taken place. The privatisation of monopolies should only bepursued within a framework of transparent regulatory oversight by government.

The sequencing of privatisation is also related to the objectives of privatisation andto the objectives of the adjustment programme as a whole. The broad objectives ofadjustment programmes can be described as the achievement of internal and externalbalance and the sustainability of export led and private-sector-led economic growth.Stabilisation and structural adjustment programmes involve managing demand whileincreasing output, exports and investment inflows. The main policy measures pursued byCaribbean countries have been:

1. Elimination of non-tariff barriers and adoption of tarification2. Reduction of tariffs and tariff dispersion3. Currency Devaluation4. Maintaining positive real interest rates5. Price deregulation6. Reduction of government expenditure (and in particular current transfers to

SOEs) 7. Increase in the price of goods and services produced by SOEs8. Reduction of income tax rates and simplification of the tax system9. Deregulation of administrative controls on private sector activity10. Divestment of SOEs

In Jamaica, most of the structural adjustment measures were pursued slowly. Tradeliberalisation proceeded slowly with non-tariff barriers being removed before significantreduction in tariffs. Price deregulation was carried out in the mid 1980s but the policy wasreversed in pursuit of low inflation to prevent further decline in the exchange rate followingthe significant devaluations from 1983 to 1985. Reform of the SOEs was pursued to controlthe public sector deficit. Some monopolies manufacturing import-substitution goods suchas cement and oils and fats were privatised before trade liberalisation had advanced. Thetelecommunications monopoly was privatised before an appropriate legal and regulatoryframework was put in place. In Guyana, the number of privatisations have been assignificant as in Jamaica; and as in the case of Jamaica, the telecommuications monopolywas sold to foreign interests (80%) before an appropriate legal and regulatory frameworkcould be put in place. Other monopolies (in sugar and bauxite) were subjected toorganisational privatisation, that is privatisation of the management through managementcontracts. In Trinidad, privatisation and liberalisation (up to 1994) have not been assignificant as in Jamaica and Guyana. Organisational privatisation was the preferred option;the steel company which is a monopoly was leased rather than sold outright. Where thedivestment option was taken only minority shares were sold to private investors such as inthe telecommunications company.

The sequencing of the privatisations were influenced as much by political aseconomic considerations. The need to indicate serious intention and for a successful caseof privatisation led to the privatisation of the telecommunications monopoly in Guyana,GTC, when this company was not even on the original list of firms scheduled forprivatisation [Greenidge 1993]. The early privatisation of two large entities, the National

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Commercial Bank and the Caribbean Cement Company not only gave the Jamaicangovernment its privatisation success stories but ensured through the mode of privatisation(wide share ownership) that the process could not be reversed by the political opposition[Adam, Cavendish & Mistry 1992].

These cases point to the issue of sequencing of the privtisation process itself. Eventhough budgetary considerations and the nature of the macroeconomic environment maydetermine that small and loss-making enterprises be divested first, it is the larger and moreprofitable enterprises that would attract interest and determine the direction and success ofthe privatisation process [Greenidge 1993]. The length of time and cost involved inpreparing enterprises for privatisation (including restructuring) would not allow many largeenterprises to be privatised within a short time frame. Moreover, the sequencing of large-scale privatisations is necessary to ensure optimal returns from divestment. The first trancheof a share issue gives an indication of the market price and determines the price of thesubsequent tranche.

The issue of sequencing is also related to which enterprises should be fully divested,partially divested or retained within the public sector. The options will depend on whatgoods and services are being produced by the enterprises. World Bank studies suggest thefollowing.

The firms producing private goods such as food and clothing could be fully divestedin private offers even in cases where they may be monopolies since policies could bepursued to ensure a competitive market. Enterprises producing 'collective' goods such asroad maintenance, street cleaning and garbage collection can be contracted out as is alreadythe case in Jamaica. Government can fully or partially privatise enterprises producing 'toll'goods, namely electricity, water and telecommunications. The franchising method tends tobe common in the case of utilities and road transport [Paul 1985]. Given the length of timeand complexity of the privatisation process, developing countries such as those in theCaribbean should pursue partial privatisation as a first option, that is, contracting,franchising and leasing [Greenidge 1993]

The option of liquidation of enterprises has not been pursued by many developingcountries. Chile pursued this option during the second phase of privatisation and in relationto some of the enterprises that government had repossessed after the earlier privatisations.Jamaica and Guyana also pursued the option of closure. In Guyana, about five enterpriseswere closed between 1989 and 1991; closure resulted from the failure to successfullynegotiate a sale.

The foregoing suggests some general guidelines for pursuing privatisation optionswithin the context of a structural adjustment programme. Given the fiscal imperatives of thelatter, SOEs should be restructured (commercialised) to improve both financial andeconomic efficiency. Enterprises in non-strategic industries and in sectors where similarfirms operate, should be sold first, through private sales. SOEs which are monopolies oroperate in strategic sectors should be divested only after specific policies have beenformulated for the sectors/industries and a legal and regulatory framework has been put inplace to promote contestable markets. The next stage that suggests itself is partial

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privatisation through management contracts, leases, franchises and the partial sale of shares,with the final step being full privatisation. How the last step is pursued will depend on theparticular conditions within each country.

A number of lessons from individual country experiences can be drawn. The caseof New Zealand shows that full privatisation can be pursued using the method of open bids.This can solve two problems: eliminates the cost of underwriting share issues; andremoves the pressure on the domestic capital market whose absorptive capacity for largenumbers of shares may be weak [Jones 1991]. If the objective is to broaden the ownershipbase then share sales to small investors can be pursued in respect of enterprises (such asbanks) which operated in markets that are competitive to some extent (cases of Chile,Jamaica, Guyana and Trinidad). Shares can also be sold to the employees of the firms to beprivatised, in full as was the case of the Government Printery in Jamaica or partially as inthe case of the Chilean computer firm ECOM which controlled 50% of the Chilean market.In countries where a vibrant private sector does not yet exist government may retain majorityownership in a partially privatised enterprise as was the case of the telecommunicationsmonopoly in Trinidad.

We are recommending the following policy actions to be adopted under certainmacroeconomic conditions. In a high inflation environment (where the inflation rateexceeds 60 percent), the foreign debt and the trade and budget deficits are large, anddomestic savings are low (less than 15% GDP), trade liberalisation should be pursuedslowly. Government expenditure should be reduced and interest rates should be increasedto restrain demand. However, significant exchange rate changes should be avoided. Policyactions in respect of SOEs should be to restructure the finances and functions of theenterprises and commercialise them by changing their legal status where necessary. Leasingof the assets of the enterprise or contracting out the management can also be pursued.Enterprises can also be partially divested with government retaining majority shares. Smallenterprises and larger ones in non-strategic industries can be fully divested through privatesales or through share issues where markets are competitive.

As macroeconomic conditions improve - inflation reduced to less than 20%, foreigndebt and trade deficits reduced and domestic savings increased to 20% GDP and higher -trade liberalisation can proceed at a faster rate, the domestic capital market can be liberalisedfollowed by liberalisation of the foreign exchange market. Exchange rate action would bedetermined by the rate of trade liberalisation and the level of inflation. Low inflation anda high savings rate would facilitate reduction in nominal interest rates. Larger privatisationsthrough local private sales or share issues become feasible under these conditions.Employee buy-out of enterprises and sale to small-scale investors are options than can alsobe pursued. For large sales of enterprises that are monopolies or oligopolies a frameworkfor regulation or competition should be established to curb monopolistic behaviour.

4. PRIVATISATION IN SELECTED INDUSTRIES

The structure of a particular industry and government's policies towards itsdevelopment would determine the privatisation option that is chosen. However, in theCaribbean privatisation options were determined largely by fiscal objectives and by the

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conditionality of World Bank structural adjustment loans; the latter actually specifies thenumber of public enterprises that must be divested by a specific date [Nellis 1991, p.125].In most cases clear industrial and sectoral policies were not devised prior to pursuingprivatisation.

Basic and processing industries in the region were protected from the 1950s to the1970s under incentive regimes to promote industrialisation. State enterprises becamedominant in basic industries such as energy, telecommunications, water, cement and steeland in processing industries such as sugar and oils, fats and soap. In addition, the statebecame dominant in the hotel and airline industries in Jamaica; was dominant in the airlineindustry and in the production of fertilizer in Trinidad and Tobago; and became dominantin bauxite, packaging and retail trading among other things in Guyana.

We now look at strategies of privatisation and regulation in certain industries andsectors, namely, packaging (Jamaica, Trinidad & Tobago and Guyana), sugar (Jamaica,Trinidad & Tobago, Guyana and Grenada), bauxite (Guyana), health (Jamaica and Grenada)and solid waste disposal (Jamaica and Grenada).

Packaging

The three companies in Jamaica, Trinidad & Tobago and Guyana, West Indies Glass(WIG), Trinidad and Tobago Printing and Packaging (TTPP) and Seals and PackagingIndustries Limited (SAPIL) were sold for basically similar reasons: the need fortechnological upgrading, more efficient management and use of productive inputs. TheJamaican and Trinidadian companies were sold outright, the former by private offer and thelatter by competitive bidding. The Guyanese company was sold by private offer (debt forequity swap) and by public share issue with government retaining 51 percent of the shares.

The mechanisms used for privatisation differed in the three countries. Although WIGwas a publicly owned limited liability company, it was sold by private treaty becausegovernment shareholding (61.5%) did not constitute a sufficient condition for passing aresolution to accommodate a public offer. Private sector representatives outnumbered theofficial representatives on the Board of the Jamaica Development Bank which held thegovernment's shares. The Trinidad government did not retain any ownership in TTPP. TheGuyana government retained majority ownership as well as satisfied two other objectives -reduction of foreign debt through a debt-for-equity swap and wider share ownership throughthe issue of shares to the public. In respect of Jamaica and Trinidad, policies to preventmonopolistic practices, such as import liberalisation, should be pursued to complement thepolicy of full privatisation to private interests.

The Sugar Industry

This industry is important for Guyana, Jamaica and to a lesser extent Trinidad &Tobago. In Guyana it occupies a dominant position in the economy especially since thedecline of the bauxite industry over the last decade. It is a strategic industry in terms offoreign exchange earnings (66% of total agricultural exports) and employment (47% of thetotal employed in agriculture) and the forward linkages into manufacturing. Sugar

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manufacturing has been a monopoly initially under transnational corporation ownership andsubsequently under state ownership.

The state owns the eight (8) factories producing sugar in Guyana. Guyana SugarCorporation (GUYSUCO) had already been established as a public limited liability companyin 1976. Its management was privatised in 1990 through a management contract withBooker-Tate of the UK. Sugar production increased from 132,000 metric tonnes in 1990 to243,000 metric tonnes in 1992 on account of expansion of cultivation, increased yields andefficiency in production. This achievement has been attributed to the contracting out of themanagement of the state enterprise to a private firm.

If ownership privatisation is considered, it would be preferable that the sugaroperations falling under GUYSUCO be sold separately or in groups rather than as a singleentity. On the other hand, the improved performance since the divestment of managementwould suggest that the corporation could be divested as a monopoly. A review of theindustry and its operations would determine whether sugar production could be rationalisedin fewer factories, and hence the type of privatisation that should be pursued.

The sugar estates control the largest acreage of cane, over 85 percent. If it isdetermined that the estates are more efficient in producing sugar cane than private farmers,these lands should be leased to the factories to guarantee the supply of cane. Otherwise, theland should be leased to private cane farmers who would supply the factories on acontractual basis. The Jamaican experience would be instructive in considering options forGuyana's sugar industry.

In Jamaica where sugar is the third largest foreign exchange earner, the governmentgained control of eight sugar factories or 65% of the country's sugar processing capacityduring the 1970s. Four of these factories have since been closed. There are five otherprivately owned factories operating in the industry, one under a long-term lease from thegovernment. The government-owned factories operated at about 40 to 60 percent capacitywhereas the private factories operated at about 90 percent capacity; hence the strongemphasis of the Multilateral Financial Agencies on privatisation.

The privatisation option initially chosen was privatisation of management throughmanagement contracts with former Transnational Corporation owners, Tate & Lyle.However, the performance of most of the factories did not improve over time. The questionthen can be asked is why the divestment of management resulted in improved efficiency andincreased output in Guyana but not in Jamaica; and why the private contractees were ableto turn around the industry where the government could not. The divestment of managementin Guyana was done in 1990 when macroeconomic conditions started to improve. InJamaica, it was done in the 1980s when economic conditions were still unstable. The factthat the situation improved under private management vindicates the World Bank's positionthat management performs better when it is allowed to operate without governmentinterference and is given incentives to improve performance of the enterprise.

The factories have now been divested using a model which could inform prospectivedivestment of sugar factories in other Caribbean countries. Three factories were sold to a

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consortium of investors including the Booker Tate Group and rum and banking interests,whereas the fourth was sold to a consortium of local interests - banking, insurance andfarming. The government retains 24 percent of all shares which will subsequently be offeredto the public. The sugar lands are to be leased; a specified amount to the new sugarcompanies and the remainder to cane farmers. Provision for employee share ownership hasalso been made in the agreement. The major difficulty in concluding the divestment wasgetting consensus among the various interests; in particular the workers who did not trust theprocess; and in relation to pricing.

A regulatory framework has been put in place for the sugar industry in Jamaica. Rawsugar is produced to meet export and domestic requirements. Sugar producers arecommitted to meeting preferential quotas and domestic requirements first before exportingfreely. The Sugar Industry Authority (SIA) which is a statutory body set up during the 1970sto regulate the industry prior to its nationalisation by government, is the only entity permittedto import raw sugar to make up for domestic shortfalls or to counter unreasonable local priceincreases. The SIA prescribes the quota allocation mechanism for sugar producers andprovides information on domestic sugar supply and demand as well as information oninternational market prices and local wholesale and retail prices. The SIA is funded by acess levied by the government on the production of sugar. There is no control on theimportation of refined sugar except a tariff regime designed to protect the local industryfrom subsidised foreign imports.

In Trinidad, the sugar industry is not as significant as in Guyana and Jamaica.Nevertheless, it is a significant employer of labour and contributes to foreign exchangeearnings from its export quota in the European Union. The government-owned sugarcompany, Caroni, has been consistently making losses over the years. The option ofdivestment to Tate & Lyle was raised. However, the government chose the option ofrestructuring the company to put it in a viable position within a specified period of time.

A Tripartite Committee was set up in 1992 to develop a plan to restructure thecompany. Operations were decentralised through the subdivision of the company into threesubsidiaries. This would give the company an appropriate level of autonomy in accountingand management and would encourage an inflow of investment. Target setting wasinstituted through: an industry target of a specified amount of sugar to be produced annually;a target for the mix of farmers' and Company canes by a specified date; an increase in thepercentage of mechanically harvested canes by a specified date; reduction of the labourforce; increase in the domestic price of sugar; and that the Company becomes the soleimporter of sugar and industrial sweeteners. The company was also financially restructuredwith government assuming responsibility for outstanding loans, treating the company's loancapital as a subvention and making available to the reorganised structure the accumulatedlosses for taxation purposes; which means that the company will enjoy tax free status forat least twenty years.

The Trinidad option represented a consensus among sugar workers, cane farmers andthe company (government) on the measures to improve the performance and hence viabilityof the company. Privatisation has been pursued by changing the public-service-orientedstructure of the company and subjecting it to business practices in its operations.

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The sugar cane industry in Grenada is small; only about 12,000 tonnes of cane aregrown. However, about 400 small cane farmers depend upon it for a living. The processingof sugar is done exclusively for the rum industry as Grenada does not produce sugar for thedomestic or export markets. The country imports its sugar requirements. The GrenadaSugar Factory (GSF) does not produce sugar. It processes its cane directly into syrup formaking rum most of which is sold in the domestic market. The company owns 150 acresof land, 35 acres of which are under cane and the rest rented to tenant farmers. Thecompany is a public limited liability company with government owning about 75 percent ofthe shares; the rest is owned by the Cane Farmers Association and other farmers. The grossand net profits of the company have declined since the late 1980s. The company just breakseven on its cane growing operations. Company officials see the main financial burden asthe profit-sharing agreement with the Technical and Allied Workers Union (TAWU), theunion representing the workers; 25% after tax profits go to the workers annually. TAWUoffered the company a rebate on profit sharing (5-10%) providing that the workers areallowed to acquire shares (up to a maximum of 49%). TAWU would hold the shares for theworkers and have rights of representation on the Company's Board consistent with thenumber of shares. This option is not favourable to the company which fears a takeover bythe workers.

GSF is one of the public enterprises listed for privatisation. The small size and non-strategic nature of the sugar cane industry would suggest that the enterprise could be fullyprivatised as there are a number of small private mills processing small farmers' cane.However, it is uneconomical to operate small mills to process cane for rum manufacturing.Hence one competing mill imports foreign rum (cheaper to import) which is then blendedwith the local rum. If GSF should go this route both cane farmers and workers would beaffected at least in the short term.

The strength of the trade union and the interests of the cane farmers suggest that anon-divestment option may have to be pursued in the first instance. However, consensuswould have to be reached among the various interests and restructuring of the operations ofGSF would have to be undertaken. For example, the company could divest its cane growingfunctions to the farmers and contract out the haulage of the cane to the factory. The companyis already structured as a public limited liability company. A percentage of shares could beoffered to the workers which would enhance the collective effort to improve the performanceof the enterprise. These may be necessary conditions but insufficient unless specific targetsare set as in the case of Caroni. In addition, price deregulation and tariff policy regardingforeign rum may be necessary to increase the profitability of locally produced rum.

The Bauxite Industry

Jamaica and Guyana are the two bauxite producing countries in the region. Thegovernment does not have significant ownership in the bauxite industry in Jamaica comparedto the full ownership of the industry by the Guyana government following thenationalisations of the 1970s. Privatisation of the industry is therefore an option directedspecifically at the Guyana government. The Guyana Mining Enterprise (GUYMINE) hasexperienced similar problems to those of the other SOEs and has had to rely on governmenttransfers. The enterprise is slated for privatisation with restructuring of the organisation and

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operations preceding divestment. GUYMINE was dissolved and its two mining operationswere incorporated as separate enterprises, LINMINE and BERMINE. The LINMINEmanagement has been contracted to an Australian firm. Production targets have been set andplant rehabilitation, financial restructuring and labour rationalisation planned. At the sametime government divested two mines owned by GUYMINE as the latter could not findresources to undertake new investment. The exploitation of new bauxite deposits in one ofthe mines, AROIMA, is being undertaken by the American company, Reynolds.

The strategic nature of this industry justifies the establishment of an appropriate andeffective monitoring and regulatory structure even as the industry is being partiallyprivatised and certainly before it becomes fully privatised.

SERVICES

Contracting out services has been the strategy of privatisation used by governmentsas well as the SOEs to reduce the cost of producing them within the public sector. This canbe considered a loss to the economy when the contract is given to a foreign entity. Forexample, the Guyanese Mining Enterprise contracted out the removal of overburden, a stageat which considerable value is added in the industry, to a foreign private company.

This strategy has been pursued by several state-owned enterprises as well as bycentral government. For example, in Jamaica, the National Water Commission hascontracted out the operation and maintenance of most of the sewage plants to privateindividuals. A number of other services have also been contracted out such asdisconnection, reconnection and installation of new meters. Former workers who were maderedundant were contracted to provide these services. They however do not posses capitaland tools and have had to borrow equipment and fittings from the Utility. The Companyplans to introduce formal criteria to select contractors with the requirement that potentialcontractors use their own capital and equipment. Security companies have been contractedto do the work of the watchmen who were made redundant and private companies to replacethe cleaners who were made redundant. The building of new capacity would also becontracted to private entrepreneurs via the B-O-T (buld, own/operate, transfer) system. Inthe absence of a systematic assessment of the benefits and costs of using this method ofprivatisation, little can be said of its utility and effectiveness.

Health Services

Health services in Jamaica are contracted out in the areas of cleaning, portering,janitorial, sanitation, housekeeping and laundry. The procedure is by competitive bidding.Selection of supplier is determined by experience of the bidder, the cost of the services tobe provided, financial and technical capability of the bidder and plans for compliance withspecifications and standards. The techniques used for the delivery of services includestronger and more frequent supervision, clearly defined performance standards andcomputerisation of laundry services. This approach has been successful in contrast to the

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one used initially where standards and specifications were absent. There are still someshortcomings such as pilfering of hospital supplies, the inadequate involvement of hospitaladministrators in the design and negotiation of contracts, political influence in theemployment of some staff, the small number of competent firms in the market for hospitalservices and the increasing cost of the contracted services. Although the contracting-outprogramme has had a positive impact it has been sustained by international donor funding(USAID) and there is no indication of a commitment to continue with local funding.

The Ministry of Health in Grenada has requested from PAHO models for contractingout health services. A report should be ready by May 1994. The Chief Medical Officerfavours the option of hospital services being managed by the public sector with the objectiveof achieving cost effectiveness over time.

Solid Waste Disposal

In Jamaica, a local government council, the Kingston and St.Andrew Corporation(KSAC) was originally responsible for the management of public parks, public markets andpublic cleansing operations. The Ministry of Local Government entered into an agreementwith Metropolitan Parks and Markets (MPM) which was established in 1984 as a whollyowned subsidiary of the state owned Urban Development Corporation to administer theseservices. (In 1989 the company became an agency of the Ministry of Local Government).The cleansing functions are performed by private contractors and supervised by MPMthrough its in-house Public Cleansing Inspectors. The major weaknesses of the system arethe inadequate and unreliable fleet of vehicles, the lack of standards and specifications in theservice contracts, political influence on the selection of contractors and the inability toeffectively monitor the contracts (due to absence of performance indicators among otherthings).

The privatisation of the municipal markets through leasing arrangements has beenmore successfully sustained. A Carl Stone study showed that before privatisation only 4 outof 59 markets made profits. Since privatisation, 63 percent of the markets have becomeprofitable largely through increased collection of market fees (from vendors), reduction oflabour costs (by laying off excess workers) and increasing revenues by operating newservices such as canteens and entertainment centres.

In Grenada there is no significant contracting out of services. Only the larger hotelscontract the disposal of garbage. Contracting-out of solid waste disposal would have to bedone within the framework of the OECS/World Bank Solid Waste Management Programme.That programme suggests that the most cost effective approach to managing waste is toundertake initiatives that result in decreasing the amount of waste which must be managedat public expense. The intention is to reduce the number of vehicle pick-ups by using bulkbins and waste depots. The Project Report recommended that the delivery of wastemanagement be contracted to the private sector because the latter can operate moreeffectively than the public sector. Contracts should be awarded for a five-year period andshould specify the lease (and proper maintenance) of all equipment as part of contractperformance. This approach would be constrained by the lack of private contractors; onlythree private contractors exist in Grenada with one using his own truck. Nevertheless, this

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constraint may be overcome by encouraging workers who have been made redundant to setup small businesses to provide this service and lease equipment from the government as partof the service contract. The government on the other hand would have to strengthen itscapacity to successfully monitor these contracts.

Although privatisation has been used as a strategy for balancing the government'sbudget, emphasis should now be placed on achieving efficiency and competitiveness inpublic (and private) sector firms. Privatisation itself and the form it takes should bedetermined by government's objective for the industry or sector, and after a review of thesector/industry and the performance of the enterprise(s).

From the above cases, governments could sell SOEs in packaging either wholly orin the form of majority shares. What is important is having complementary measures suchas liberalisation to encourage efficiency. The same thing applies to firms in other import-substitution industries such as fats and soaps. In Jamaica, SOEs in these industries were soldsince the mid-80s by private treaty without a review of the whole sector. The earlyprivatisations were fiscal driven. By contrast, the privatisation of the sugar industry wasundertaken after a thorough review in the early 1990s. Sugar is considered a strategicindustry. So are the infrastructure industries - telecommunications, electricity and water -which, with the exception of telecommunications, are yet to be fully privatised in the region.

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5. POLICY REGARDING UTILITIES

Telecommunications

The telecommunications industry in the United States has always been privatelyowned but competition has been introduced in long-distance service. The industries inEurope and Japan have developed as state-owned monopolies. They were considered naturalmonopolies because of the large economies of scale involved in providing the service.However, in Japan small-scale businesses in 1982 were allowed to provide data transmissionservices to other small-scale businesses; and in 1985 legislation was passed privatising thestate monopoly (Nippon Telegraph and Telephone) and allowing for the creation ofcompetitive communication companies [Baily 1993, p.82]. Rate regulation based on rate-of-return is nevertheless used to restrain competition which could be ruinous. The Europeantelecommunications networks suffer from inefficiencies associated with state ownership andlack of competition. British policy has not resulted in effective competition as BritishTelecom almost totally monopolises local telephone service and Mercury has only a smallpercent of the long-distance market (3% in 1990).

In the telecommunications industry provision of local network services benefits fromeconomies of scale and hence the enterprise providing the service could be considered anatural monopoly. Value-added and long distance services such as fibre optics and cellularcan be subjected to competition and hence monopoly on them should not be granted to theenterprise operating a fixed-link network [Levy & Spiller, p.238]. In order to promotecompetition in the provision of the latter services the monopoly serving the local networkshould not be allowed to compete in them for a given period of time. This is the approachtaken by the UK in privatising the monopoly, British Telecoms. Competition in valuedadded services would only be successful if the firms seeking to provide these services haveaccess to interconnection. This would have to be specified in the licence issued to themonopoly.

Telecommunications in the Caribbean

In considering the development of the telecommunications sector in Caribbeancountries, we need to determine what should be the objectives for the sector and how itshould be organised in order to realise those objectives. The sector should be able to providetelephone and other telecommunications services to all persons who demand them. One canidentify four main objectives: (1) to provide universal service (telephone and telegraph); (2)to modernise service; (3) to provide value-added service; and (4) to provide service atreasonable (reduced) cost.

To satisfy (1) to (3) above, the sector needs investment in order to expand andupgrade. To satisfy (4) would require that the company (or companies) providing serviceoperate efficiently. Since most of the companies providing service in the Caribbean havebeen state-owned monopolies, some level of privatisation was seen as necessary to attractinvestment (and loan) funds to the sector. On the other hand, promotion of efficiency inthese companies requires re-structuring the companies, among other things. It would

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therefore seem that the key to transforming public telecommunications monopolies toachieve desired objectives lies in restructuring companies, promoting competition andregulating where competition is limited. To examine these issues we need to look at thestructure of the sector in the region.

Antigua & Barbuda and Barbados in the Eastern Caribbean have duopolies, twomonopolies each operating in the telecommunications sector. Trinidad & Tobago in theSouth and Jamaica in the North originally had duopolies but these were merged in 1991 and1985 respectively. All the other Caribbean countries have single company monopolies.They have all been corporatised in the sense that they have moved away from the originaldepartmental structure within government to that of a statutory corporation and finally to thatof the limited liability company. The ownership structures in the region vary from total ormajority ownership by Cable and Wireless in most countries to total government ownershipin Antigua and Bahamas and majority government ownership in Trinidad. An Americancompany, Atlantic Telecommunications Network, owns the majority of the shares in theGuyanese company, whereas British Telecoms owns a minority of the shares in the Belizeancompany.

What the structure and ownership pattern in the sector shows is that whereas inindustrial countries governments were breaking up and restructuring monopolies to allowfor more competition, in the Caribbean governments retained the status quo and in somecases, Jamaica and Trinidad, actually consolidated the monopolies. The Trinidad monopolywas originally two monopolies, TELCO providing domestic services and wholly owned bythe government and TEXTEL, providing international services and operating as a jointventure between the government and Cable & Wireless. These companies were merged in1991 when government sold 49 percent of its shares to Cable & Wireless. The Jamaicanmonopoly was also originally two separate companies, Jamaica Telephone Companyproviding domestic services and JAMINTEL providing international services. Thesecompanies became owned by Telecommunications of Jamaica (TOJ) which was set up asa joint venture between government and Cable & Wireless in 1985. The mergers of thecompanies in Trinidad and Jamaica seem to have been determined by a policy of crosssubsidy and the need to attract (foreign) investment.

Competition policy also varies among the countries. No competition is allowed inBahamas, Belize, Dominica, Grenada, St.Kitts, St.Vincent and Jamaica, although in Jamaicathere has been relaxation of the monopoly on the provision of terminal equipment. InGuyana monopoly was granted only on wireline and international telephone and telegraphservices. Competition is allowed in paging in Barbados; in terminal equipment in Trinidad;and in value-added services in Antigua. By comparison, all services in the DominicanRepublic are available for competition.

Cable & Wireless is the dominant player in the sector in the region. The fact that itowns the majority of the shares in the two monopolies in Barbados - 85% in Bartel and 75%in BET - reduces some of the advantage of having two monopolies providing domestic andinternational services respectively. On the other hand, greater advantage is gained byAntigua where the monopoly providing domestic services is owned by the government andthe monopoly providing international services is owned by Cable & Wireless. Nevertheless,

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because Caribbean countries are small, the company providing only domestic service wouldbe at a disadvantage vis-a-vis the company providing international service which tends tobe more lucrative.

The next issue to consider is the regulatory framework. A Public Utilities Boardregulates the monopoly providing domestic services in Barbados, and a Public UtilitiesCommission (PUC) regulates the single monopoly providing both local and internationalservices in Guyana. However, the PUC in Guyana approves tariffs for the monopolywhereas the Ministry responsible for telecommunications is the overall regulatory agency.In Barbados, the Ministry responsible for telecommunications regulates the monopolyproviding international services.

Telecommunications legislation exists in all countries but has been modified only ina few, namely, Guyana, Grenada, Belize and Antigua. New legislation is pending forJamaica and Trinidad. The regulatory regimes have been based on rate-of-return regulationwhere the rate of return is either designated as a "fair rate" or is specified in the Act or in thelicence given to the monopoly. The regulator, public utilities entity or Ministry, monitorsthe rate of return and decides whether tariff increases should be granted. Dispute resolutionis referred to the Courts.

The mechanisms for achieving the objectives for the telecommunications sector inthe region are competition policy and an effective regulatory framework. Because of thesmall size of Caribbean countries monopoly provision of domestic services may have to begranted to companies for an indefinite or long period of time. Liberalisation of the provisionof other services could take place on a phased basis. In Singapore, monopoly oninternational services is granted to Singapore Telecommunications (ST) in which thegovernment owns almost 90 percent of the shares, until the year 2007. Monopoly ondomestic services is granted indefinitely whereas that on the provision of paging and cellularservices is given until 1997. Value added services are liberalised.

Ownership privatisation or divestment, is not essential for the competitive provisionof telecommunications services. Singapore has a modern and efficient telecommunicationssector despite majority government ownership in Singapore Telecommunications. What hasbeen important is the government's competition policy. In the Caribbean, the privatisationpolicies pursued by a number of governments, in particular Guyana, Grenada and Jamaica,have shifted ownership and control over the provision of most if not all services to a specificforeign telecommunications entity. The case of Jamaica is instructive, in that the policy waslinked to a policy of cross subsidisation.

In Jamaica in 1985 the government consolidated the two monopolies to maintain thesubsidy of domestic telephone tariffs which the increase in international calls had madepossible for JTC since the late 1970s [Spiller & Sampson 1994]. Monopoly was thereforegiven for the provision of all telecommunications services. However, monopoly on theprovision of domestic and international services may have been adequate for continuedsubsidisation so that value-added services could have been liberalised [Spiller & Sampson,p.49]. Nevertheless, cross-subsidisation is not an efficient way of providing services atreduced cost, although it is politically paletable. Competition and the efficient operation of

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the company would be more effective and sustainable. The introduction of competition andthe efficiency of the Telecommunication Corporation of New Zealand resulted in a reductionof the real price for a basket of telecommunications services by 31 percent; and this resultwas achieved while the government still held the single largest amount of shares in theTelecommunications Corporation [Scherer 1994, p.78]. What is still possible in theJamaican case is for the government to pursue a policy of liberalisation on a phased basisto abolish cross subsidy within a specific time frame and rely instead on efficiency andtechnological upgrading. The mechanism for achieving this is a new regulatory framework:legislation, licence and regulatory structure.

New legislation in Caribbean countries should support government'stelecommunications policy. Telecommunications legislation (Acts of Parliament) shouldspecify the services over which monopoly would be granted and the length of time for whichthe monopoly would hold. It should also allow competition in the provision of all otherservices. The licence which is the contract between the government and the company shouldset out the price-setting procedures for the monopoly. The regulatory structure would begoverned by legislation setting out the role of the regulator and the procedure for disputeresolution.

The regulatory regime can be based on cost-plus (rate-of-return) regulation orincentive (price caps) regulation. The Caribbean has used rate-of-return regulation andPublic Utilities Commission patterned after the United States. The United Kingdom usesprice-cap regulation and industry-specific regulators. R-O-R regulation does not offerincentives for improvement in efficiency but requires a lot of work to ensure that companiesdo not exceed the rate of return specified in their licences. On the other hand, price capsoffer incentives for companies to improve efficiency although in practice they sometimeshave the opposite effect. Price-cap regulation may not be effective in countries such asJamaica which have been experiencing high rates of inflation and where it may be difficultto set a rate at which efficiency may be expected to increase.

In price-cap regulation, price control is exercised over the weighted average of a"basket" of prices; the prices in the basket are given weights according to how much theycontribute to the revenues of the monopoly. This type of regulation is intended to substitutefor that provided by effective competition. In the presence of the latter, a company wouldonly be able to significantly increase its profits if it increases its efficiency beyond what isnormal for the industry. Price-cap regulation is based on the following procedure: areasonable rate of return on capital employed is determined by the structure and operationof the company and by comparison with relevant companies and industries; estimatesdetermined in a similar manner are made of what improvements in efficiency are reasonableto expect; a price cap is calculated based on these estimates and the actual rate of return ofthe company. The cap is set for 5 years at the end of which the company would be gettingthe allowed rate of return provided that efficiency increased as envisaged.

Electricity

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The generation and supply of electricity are part of the operations of the power sector.Government's objectives for the sector should be: (1) to satisfy the demand for electricityat the lowest cost; (2) to attract investment for development of the system; (3) and to ensuresecurity of electricity supply. The power sector should therefore be organised in order torealise these objectives.

To satisfy the first objective, companies producing electricity must be structured (orrestructured) to increase efficiency. In the past in a number of countries including those inthe Caribbean, electricity was produced by a number of small private companies operatingon the basis of short-term licences (usually for a year). Within the last four to five decadesthe electricity sector in the Caribbean (and elsewhere) was restructured with monopoliesintegrating the various functions of electricity production. These monopolies eventuallybecame state-owned. But most of them have not operated efficiently; supply has fallen farshort of demand in a number of countries such as Guyana, Trinidad, Antigua and Jamaica.Consumers have not had influence on decisions to invest in machinery and equipment; onthe use of fuel; nor on the overall accountability of the companies. But increased costsresulting from inefficiency have been passed on to consumers. Privatisation strategies havetherefore been advocated to improve efficiency and reduce cost and subject companies togreater accountability.

These objectives can be achieved by increased competition in the sector and byeffective regulation. These are not mutually exclusive. The monopolies can be subjectedto competition by unbundling, that is, separating the function of generation from those oftransmission and distribution and by liberalisation of entry into the sector. Divestment ofgenerators and the commissioning of new plants through BOO (build, own and operate)systems are strategies for attracting investment for expanding and upgrading the supplycapability of the sector.

To ensure security of supply of electricity government policy must be geared towardsensuring the control of the generating and transmission systems; that there is enoughcapacity to meet demand; and that the system is protected from disruption in fuel supply.The government would have to maintain some control of the system. Increased generationcapacity can be secured through privatisation of generation; and protection againstinterruption in fuel supply can be achieved by diversifying sources of supply, includinggeneration from renewable sources of energy and cogeneration.

The power sector in the Caribbean is structured in terms of vertically integratedmonopolies with long-term exclusive licences. The ownership structure varies from 100percent state ownership of the utility in Guyana, Trinidad, Jamaica, Antigua and St. Vincentto minority government ownership of shares in Barbados, Belize, Grenada, Dominica,Montserrat and St. Kitts. Grenada and Dominica had 100 percent state-owned utilities butgovernment divested majority shares recently. Ownership in the companies which are nolonger majority owned by the government is shared between the government, local privatesector (insurance companies), the general public and foreign power companies.

44*Details on these proposals and for other utilities are presented in a monograph by theconsultant, including a list of references.

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Competition in the sector was prevented because of government's policy of universalcoverage, that is to extend access to electricity to all households. It was also constrained bythe high sunk costs of investing in the sector. Electricity coverage has increasedsignificantly over the last three decades, especially in Belize and the Southern and EasternCaribbean. The lowest level of coverage, extending to 63 percent of the population, existsin Jamaica. Because of the significant increase in coverage, focus has shifted towardsefficiency and improved quality. Competition is therefore now being encouraged to achievethese objectives.

The question we need to address is how should the power sector be structured toachieve efficiency, attract investment and ensure security of supply. Unbundling andprivatisation of the power utility have been the policy measures recommended forrestructuring the sector. A firm of consultants (Coopers and Lybrand) have made proposalsalong these lines for the electricity utility in Jamaica.*44

6. MANAGEMENT OF THE PRIVATISATION PROCESS

In managing the privatisation process a number of issues assume importance;institutional structure, transparency, speediness, cost and consensus. Decisions have tobe made about the type of privatisation which will be used for each state enterprise.Ownership privatisation is the most sensitive type of privatisation and has been the type ofprivatisation most widely used in the region. In managing this type of privatisation theprivatising entity must try to achieve transparency and some level of consensus amongaffected parties. Transparency can be achieved by relying on competitive biddingprocedures; by using simple selection criteria for evaluating the bids; by disclosinginformation on the buyers and the purchase price; and by proper monitoring and supervisionof the process. In cases where the enterprise is to be sold, attention must also be paid to theenterprise's liabilities, the valuation of its assets, how shares should be sold and how itslabour force should be treated. The sales proceeds could be used to cover the enterprise'sdebts which the prospective owners would not want to assume. The value of the assets couldbest be determined through competitive bidding although independent asset valuation isrequired to set a benchmark price for the sale. Nevertheless, the earnings value of theenterprise would be of greater relevance to the buyer who wants to make a reasonable returnon the asset [Kay 1993, p8]. Shares in the enterprise could be sold in tranches so that themarket can set the price of subsequent offers. Alternatively, discounted prices could beoffered to small investors to encourage democratisation of ownership. This can be offset byhigher prices offered to institutional investors.

On the question of labour, employee ownership schemes and attractive compensationpackages should be offered, and workers that have to be retrenched should be encouragedto start small businesses/create their own employment. At the same time, programmes forretraining workers should be devised.

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The institutional structure is important in managing privatisation to achieve desiredoutcomes. The privatisation structure is more or less the same in the three major Caribbeancountries, Jamaica, Trinidad & Tobago and Guyana. At the apex of the structure is theCabinet which makes the final decision. The next level is a Privatisation Board(Guyana)/Privatisation Committee (Jamaica)/Investment Division of Ministry of Finance(Trinidad) which monitors privatisation among other things. This is followed at asubsequent level by the National Investment Bank of Jamaica, NIBJ (Jamaica)/PrivatisationUnit (Guyana) which coordinates and implements privatisation. At the base are EnterpriseTeams which perform specific privatisation tasks and make recommendations to the higherlevels for implementation.

The Privatisation/Divestment Committee in Jamaica which comprisesrepresentatives from the Bank of Jamaica, Ministry of Finance, Attorney General, the NIBJas well as two representatives from the private sector, has responsibility only for the sale ofindustrial and financial enterprises. The sale/lease of hotels has been the responsibility ofa Divestment Committee comprising representatives from the Tourism Ministry amongothers. An Enterprise Team comprising representatives from the Prime Minister's Office,the NIBJ, the Ministry of Agriculture and other representatives was responsible for thedivestment of the sugar estates. The privatisation structure in Jamaica was thereforeconsidered decentralised and uncoordinated [Adam, Cavendish & Mistry, 1992, p.118].However, in the case of sugar, a coordinator was appointed to interface with the decision-making and implementation functions of the process.

It has been suggested that the privatisation structure should be small and centralisedin a focal point to avoid a long bureaucratic process. In Mexico, one group of seven personsprivatised over 1000 SOEs. They were given the authority to restructure firms prior todivestment. They relied on advisors, followed transparent and competitive sales criteria andreported directly to an interministerial body that could take quick decisions on theirrecommendations [Shirley 1994, p.1319]. In the Caribbean, one privatising Group could bethe focal point, like the Privatisation/Divestment Committee in Jamaica with NIBJ servingas its Secretariat. Advisors could be relied on rather than setting up a number of teams forthe privatisation of specific enterprises. The privatising Group or Committee would reportdirectly to Cabinet who would take the final decisions.

The privatisation of four sugar estates in Jamaica is instructive in light of the aboveconcerns. The mechanism used was competitive bidding and the whole process lasted forover two years starting in 1991 when a review was done of the factory and field operationsat each estate to be sold. An Enterprise Team with representation from the Office of thePrime Minister, NIBJ, the Ministry of Agriculture and other organisations was appointed inSeptember 1992. The NIBJ published a Regulatory Framework for the Sugar Industry inMay 1993. Evaluation criteria were established and an Evaluation Team was appointed,supported by a Technical Team, to evaluate bids according to the weights established. InJune 1993 the public was invited to submit bids and an information memorandum for eachestate was made available at J$300 per copy. The Evaluation Team evaluated the bids andagreed on a final rating which was recommended to the Enterprise Team which thenreported to Cabinet. Cabinet instructed that negotiations should begin. A Negotiating Teamwas appointed in November 1993 and by December 1993 negotiation was completed and

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the agreements signed. By the end of the year the assets were handed over to the newowners.

An important agreement reached was that the investors would honour existing tradeunion representation agreements. The sugar workers would receive pay in lieu of notice andseverance pay in accordance with current collective bargaining rights. Another importantagreement is the Regulatory Framework for the sugar industry. The Sugar IndustryAuthority would be restructured to shed its responsibility for marketing sugar abroad andwould concentrate on regulatory activities. An important feature is that government hasretained 24 percent of the shares which will subsequently be offered to the public.Employees have also been granted 10 percent of the shares.

The process excluding the review took more than one year. This length of time couldhave been shorter if one group - a central privatisation/divestment body - had responsibilityfor the process drawing on the expertise of advisors. This would have obviated the need(and the time taken) to appoint an "enterprise" team, an "evaluation" team and a "technical"team; although the structure was more complex than this, involving other functions such aslegal, administrative and public relations. The various levels of reporting are timeconsuming exercises. If the intention is to achieve consensus, the costs may outweigh thebenefits. On the other hand, a less bureaucratic approach does not mean that achieving somelevel of concensus would have to be sacrificed.

Keeping the bureaucratic structure for managing the privatisation process simplewould be a preferred option. Nevertheless, the costs and benefits of the strategy used forprivatising sugar in Jamaica should be determined before recommending the model for otherCaribbean countries.

7. CONCLUSION

The declining performance and increasing liabilities of state- owned enterprisesdictated that reform was necessary; and that strategies of privatisation should be pursuedin order to subject enterprises to greater market discipline. The SOE sector in the region isstill substantial despite the significant number of ownership privatisations that have takenplace. However, the number of enterprises privatised, especially through ownershipprivatisation, is less significant in itself than in its impact on significant industries andsectors in the economy.

Impact assessment of privatisation should be undertaken after a number of years, forat least a 5-year period. This study was geared towards devising policy and managementstrategies of privatisation within the context of economic growth and development.However, the short time frame and limited resources for completing the study meant thateconomic assessment would have to constitute a separate exercise undertaken on behalf ofor with support of governments. Moreover, enough time had not elapsed to allow forassessment of significant privatisations which were carried out within the last couple ofyears. Nevertheless, post-privatisation experiences would have to be studied in order todevise optimal policies and implementation strategies for the future.

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Privatisation Experience

Of the four countries whose privatisation strategies we reviewed, Jamaica has hadthe largest SOE sector, in terms of number of enterprises, comprising over 200 entitiescompared with less than 100 each in Guyana and Trinidad. In each country SOEs haveoccupied significant positions in key industries such as sugar, steel and other basicindustries; and in airline, hotel and utilities. Jamaica has so far had the largest privatisationprogramme in the region with over 30 enterprises privatised. Most of the privatisations havebeen in the form of ownership privatisation - sale of shares or assets. Foreign investors werethe main beneficiaries in privatisations of large enterprises in specific industries such asdairy, iron and steel, tourism and telecommunications. CARICOM investors played asignificant role in acquiring enterprises in Guyana.

In all the countries examined, it was found that limited use was made of non-ownership privatisation, that is, organisational and operational privatisation. Divestment ofmanagement was pursued in respect of the sugar industry in Jamaica; the sugar and bauxiteindustries in Guyana; and the steel industry in Trinidad (the steel company was sold to thelessee at the end of 1994). The state-owned sugar company in Trindad was restructured.However, extensive restructuring was not undertaken in respect of enterprises prior todivestment. In Jamaica, restructuring was part of the World Bank supported structuraladjustment programme but took the form mainly of financial restructuring. Moreover,privatisation was seen as an end in itself rather than as a means to an end, namely efficientand competitive enterprises. Major constraints on restructuring were the relatively shorttime frame the government had to privatise enterprises and the cost associated with effectiverestructuring.

Most enterprises in the region were sold to achieve fiscal objectives. Hence, leasingand contracting out were options that were not widely pursued. The success of non-divestment options depends on the ability of public sector personnel to monitor leases anddevelop and monitor performance contracts. Joint venture was therefore the preferred optionin Guyana but was affected by instability in the economy [Greenidge, 1992, p.30].However, this could not have been the only reason as the Cuban economy has beenexperiencing economic imbalances but the government has nevertheless been able to attractjoint ventures in several areas of economic activity.

Liberalisation was not pursued in order to facilitate privatisation although it was partof the requirement of structural adjustment. In most cases it occurred after the fact,especially in Jamaica. In Guyana, liberalisation was undertaken specifically in the riceindustry to facilitate privatisation. In Trinidad, the products of the National Flour Mills havebeen liberalised to facilitate the privatisation (partial divestment) of the company. And inJamaica, petroleum has been liberalised to facilitate the privatisation of the oil refinery andpetroleum distribution company.

Competition and regulatory policies were not put in place to facilitate privatisationof monopolies. Competition policy has been developed only in Jamaica and this occurred

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after a significant number of privatisations had taken place. Regulatory structures have beenestablished in an ad hoc fashion. Legislative and regulatory frameworks need to becoherently developed in order to be effective in promoting competition.

Privatisation Impact

No systematic evaluation has been made of the impact of privatisation on Caribbeaneconomies. Impact assessment should be undertaken focusing on a number of variables,such as efficiency, government revenue, fixed capital formation, capital market, ownershipstructure and size distribution of firms, competition and employment.

Privatisation will only result in overall efficiency gains if allocative and internalefficiency of privatised enterprises improves. Restructuring enterprises and incentiveregulation of monopolies in infrastructure or strategic industries would facilitate thisoutcome. Improving efficiency would have to have a higher priority than balancing thebudget. For example, in the Jamaican privatisation policy matrix for the petroleum refinery,improvement of efficiency had a weighting of 1 whereas government revenue andpreventing the enterprise from being a drain on government funds had weightings of 4 and5 respectively.

The method of privatisation could also contribute to improved efficiency, althoughit may inhibit democratisation in ownership. In Jamaica, the National Commercial Bank wasprivatised through public share issues which set limitation on the amount of shares to bepurchased by each buyer. Although this led to widespread share ownership, largerconcentrations of shareholdings would have been more effective in influencing managementto improve efficiency [Adam, Cavendish & Mistry 1991]. On the other hand, profitabilityof the rice and sugar industries in Guyana improved after privatisation due to the method ofprivatisation of the sugar entity and price liberalisation associated with the privatisation ofthe rice entity. The method of privatisation enhanced the efficiency of the containerenterprise, SAPIL in Guyana. The vertical integration of the firm facilitated by sale to itsmajor customer, allowed it to face significant competition in the industry.

Using profitability as a measure of efficiency, the firms which increased profits sinceprivatisation were already profitable prior to privatisation (e.g NCB of Jamaica) or wererestructured either before or after privatisation. The Trinidad Cement Limited had itsmanagement restructured, the price of its output liberalised and half of its outstanding debtcapitalised. The Seprod companies in Jamaica did not improve their profitability untilrestructuring about five years after privatisation.

Privatisation and in particular divestment which has been pursued extensively,significantly increased government revenues through the proceeds from sales and leases,earnings from dividends in privatised enterprises as well as increased tax contributions fromprivatised enterprises whose profitability improved. In addition, government was relievedfrom the burden of making current transfers to SOEs that experienced annual losses. Whatis important here is how privatisation /divestment proceeds are utilised. If they are used tofinance current expenditure they would not have any long-term effect on growth anddevelopment in the economy. Some proportion should be channeled into investment in

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infrastructural and enterprise development, in particular small and medium enterprises. Aproportion of divestment proceeds has been used by the Jamaican government to facilitatethe development of small-scale businesses.

Democratisation of ownership has been facilitated by the adoption of employee shareownership schemes. In Jamaica, Employee Share Ownership Plan (ESOP) legislation hasbeen designed to encourage long-term shareholding by providing tax incentives foremployees, employers and lenders. Employees would not pay tax on income used topurchase employer's shares or share options. Employers can clain a tax deduction on profitsused to purchase share for employees. Loans or grants to employees to purchase employer'sshares would be treated as deductible expenses for the employer. Employers can also writeoff interest payments and part or all of the principal on funds borrowed, and loaned or givenas the case may be to employees to purchase shares. Financial institutions are also given taxexemptions on loans to finance employee's purchase of employer's shares [NIBJ 1992].

Privatisation has not yet had a significant impact on the size distribution of firms andhence democratisation of the economy. Many large state enterprises have been sold intactand governments have not facilitated creation of new enterprises by spinning off functionsand encouraging entrepreneurial behaviour by SOE managers and employees. Moreover,privatisation itself -where an already privatised entity acquires an enterprise that is beingprivatised - and liberalisation policies which have made some privatised entitiesuncompetitive, have led to mergers which have facilitated industrial concentration.

Privatisation has tended to be associated with reduction in the work force asprivatised entities tried to increase profitability and reduce costs, in particular wage costs.This has been true for countries such as Jamaica although we do not have data on the extentof labour shedding or employment creation in privatised enterprises. On the other hand thereare instances of increased employment in privatised firms in Guyana such as the sugar entityand the firm producing seafood; the latter doubled employment within eight months afterprivatisation [Greenidge, 1992, p.36]. Privatisation did not lead to employment retention orcreation in the bauxite industry because of the nature of the industry in Guyana and thedepressed state of the market for its output. Where the enterprise suffered from underutilisedcapacity, inadequate working capital and the inability to attract skilled labour, privatisationhad a positive impact on employment as capital was injected into the privatised entity.

RECOMMENDATIONS

1. State owned enterprises should be restructured away from hierarchical (conflictful)relations towards horizontal (cooperative) relations. Emphasis should be on team work andflexibility.

2. State owned enterprises should assist staff who display entrepreneurial ability withtraining in how to run a company, and should provide them with services in marketing,finance and taxation.

3. Government should disaggregate non-strategic enterprises and divest them throughmanagement/employee buyouts.

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4. Non-divestment forms of privatisation should be pursued first. For enterprises instrategic industries such as sugar, bauxite and steel, management should be contracted outor assets leased to private operators.

5. Strategies of leasing and contracting out would only be effective if public sectorinstitutional capacity (and skills) for monitoring leases and developing and monitoringerformance contracts are strengthened.

6. Significant ownership privatisation (divestment) of shares and assets should bepursued under stable macroeconomic conditions. Government may have to trade offobjectives; for example, the objectives of efficiency and broad ownership base may not besimultaneously attainable because the method of privatisation to achieve the latter (limitationon public share ownership) constraints efficiency.

7. Trade and price liberalisation measures should be pursued to facilitate privatisation.

8. Divestment of enterprises in important basic industries such as sugar should beaccompanied by the establishment of a regulatory regime for the industry.

9. The strategy of contracting out services by public entities would only be effective ifstandards and specifications are included in the service contracts; if contractors are notselected on the basis of political considerations; and if public entities have the capacity tomonitor the contracts.

10. In the telecommunications industry, monopoly provision of domestic services mayhave to be granted for a long period of time (or indefinitely). Liberalisation of the provisionof other services should be done on a phased basis. Competition policy is more importantthan divestment for the competitive provision of telecommunications services.

11. Power utilities should not be fragmented. They should be restructured and non-ownership strategies of privatisation pursued. Where some level of divestment is considerednecessary for attracting capital, government should pursue a joint venture strategy.Commissioning new plants on a BOO (build, own and operate) basis should be pursued.

12. Water utilities should also be restructured. New systems should be commissionedon a BOT (build, own and operate and then transfer) basis. Wholly integrated water systemscould be divested.

13. Incentive regulation should be relied on for enterprises in infrastructure industries.Tariffs should be set to encourage efficiency and conservation and should change according to the RPI-X formula which takes into account inflation and efficiencyimprovement.

14. The body regulating utilities should be kept small and non-bureaucratic and couldfunction as a part of the entity regulating for competition. The technicians in the region whoare involved in regulation should meet annually to share information on developments inrelevant areas.

15. The privatising agency should also be small, non-bureaucratic and relativelyindependent and should function full time and report directly to an interministerial body(Cabinet).

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16. Standards (for contracting) and legislative and regulatory regimes should bedeveloped regionally; for example, CARICOM standards for contracting services,CARICOM competition framework, and CARICOM legislative and regulatory regimes.

45see Karl Theodore, Financial Management of the Public Sector in the Context ofStructural Adjustment: A Report prepared for the CARICAD-CARICOM Working Groupon Public Sector Reform, Feb. 1994. pp 48.

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CHAPTER 6: FINANCIAL MANAGEMENT OF THE PUBLIC SECTOR

BY

KARL THEODORE

In an attempt to address the issues pertinent to financial management as one of theimportant instruments in ensuring that the new-look public sector, which was emerging,would use resources in the most efficient manner possible, a background working paper wasprepared.45

At the root of this discussion was the awareness that member-states were now beingcalled upon to do more with less resources and to do more with a smaller public sector. Inrecognizing both the external and internal pressures, as these derive in the former, fromstructural adjustment programmes (SAPs) prescribed by the multinational financialinstitutions, and in the latter instance, from the tendency for the macro-planning frameworkto be divorced from the budgeting process, a growing consensus was emerging. This gaverise to the principle that "any reform in the area of Financial Management must be donesimultaneously with other Administrative Reform Initiatives," and should therefore be amajor consideration in the design and implementation of reform measures (see Appendix 1of Theodore, 1994).

From an analysis of trends in public sector financial performance policy, it wasreasonable to suggest that three areas of special difficulties have arisen in respect ofgovernment recurrent expenditure, viz:

-personnel expenditure-transfers to statutory corporations-interest payments

Personnel Expenditure

Available data suggest that within the region, this component ranges between 11%and 20% of GDP (Theodore, 1992). In terms of expenditure shares the percentage range isbetween 30 and 70 %. What this means is that in a situation where a deficit might havearisen and there is an apparent need to cut back on expenditure, it is extremely difficult toavoid giving consideration to making an adjustment in personnel expenditure. In mostcountries, it is the single largest component of recurrent expenditure. Yet it is quite obviousthat this is one area that is fraught with special political difficulty. There is no simple wayto cut income levels of persons working in the public sector. There is equally no simple wayof retrenching significant numbers in this sector. In a context where unemployment ischronic and unemployment levels are high, and in a context where separation from

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employment would usually mean having no other source of income, there is anunderstandable reluctance on the part of the governments of the region to treat with the issueof retrenchment.

In spite of the political difficulties there have been notable personnel expenditureadjustments in the region. We have seen the governments of Jamaica, Trinidad and Tobagoand Grenada introduce measures which amounted both to income reductions and reductionsin numbers. One of the more dramatic attempts was seen in Trinidad and Tobago over theperiod 1987 to 1989. Starting with a suspension of Cost of Living Allowance (COLA), thegovernment of that country imposed a temporary 10 percent wage cut in 1989. Theseattempts have had serious political and probable social consequences. While thegovernments involved must be given due credit for the courage demonstrated it is notobvious that the eventual impact of the measures reflected sustainable improvements in thefinancial management of the public sector.

Transfers to Statutory Corporations and Similar Bodies

Here again, the evidence points to relatively high rates of expenditure. In some cases,as high as 20 percent of the expenditure within the region. The evidence from Trinidad andTobago, Jamaica and Barbados, and to a lesser extent in recent times, St. Lucia, wouldindicate that in periods of buoyancy when the governments are not under severe cashconstraints, there has been little or no consideration of managing the financial affairs ofparastatals and other statutory institutions. Not surprisingly, with the reduction in the abilityof governments to provide fiscal resources the operations of these entities has become animportant public sector management issue. In this report it will be necessary to considerspecific responses and recommendations in dealing with this particular difficulty. In onesense, there may be some overlap between this part of the report and the separate study beingdone on privatisation because there is little doubt that many governments within the regionwill view privatisation as one of the important instruments for dealing with this problem ofsubstantial transfers to the different units in the state enterprise sector and to other statutorycorporations.

Interest Payments on Public Debt

The third difficulty which has been a more recent concern, has had to do with debtpayments. There is some evidence that countries have been accumulating substantial arrearson their debt payments, in particular, on foreign debt payments. This is supported byevidence which indicates that debt payments, in particular, interest payments have becomemore and more significant as a fraction of government's total expenditure. In Grenada, forexample, while these payments accounted for 5.4% of recurrent expenditure in 1980, thisshare has more than doubled to 11.4% by 1990. For Trinidad and Tobago the share ofinterest payments in recurrent expenditure moved from 4.0% in 1980 to 17.8% by 1990 -more than a fourfold increase in the share. These payments now stand at close to 20% ofrecurrent expenditure. For Guyana interest payments accounted for close to half of recurrentexpenditure (49.2%) in 1983 and rose to 55% by 1990. These payments now stand at 42%.

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There are two aspects to this particular difficulty which need to be noted as afinancial management concern. The first aspect would relate to the need for set of guidelinesfor determining the share of domestic resources which ought to be devoted to the repaymentof debt. In general, there has been little or no explicit consideration of this matter in theregion. Such shares as we have observed have therefore come about for a variety ofcontingent reasons.

Related to this rising share of interest payments is a second dimension and that is theconcomitant decline in the allocations to social expenditures, in particular, health andeducation. For even in a case like Trinidad and Tobago where the share of healthexpenditure has remained fairly stable, around 8% of recurrent expenditure, per capitaallocations have been more than halved. The longer term implications of inadequateprovisions to health and education cannot be lightly ignored. From a financial managementpoint of view, therefore we cannot pretend that there might be a causal relation betweenincreasing interest payment shares and declining levels of social expenditure. Financialmanagement must take into consideration the need to ensure an appropriate flow ofresources in order to cater for those human capital needs which have traditionally beenidentified as being critical to social development.

Within these three broad areas of difficulty encountered by policy makers, responsesof a short-term nature tend to consist of expenditure switching, expenditure reduction andexpenditure withholding. Thus, it has been found that allocations, originally meant forcapital items are switched to meet recurrent demands. In some member-countries directreductions have been made in the level of emoluments, by the removal of "extra payments",for example, cost of living allowances (COLA) or cuts in basic rates of pay for fixed periods.Reference can also be made to the withholding of payment for goods and services orderedor received. The result is an accumulation of short term debt that is incidentally not recordedas part of the public debt. At the national level, small-scale suppliers have consequentlyfaced serious cash-flow problems.

On the revenue side, short-term responses include a tightening of revenue collectionprocedures, and in some cases the introduction of new or higher user of licence fees forservices.

In this regard, the tendency has been for three kinds of approaches by CARICOMmember-states. On the one hand, there have been attempts to reform the taxation systemin an effort both to increase the flow of revenue and to reduce the costs of accruing thoserevenues. Such responses have been seen in Jamaica, in Dominica, in Grenada, in Trinidadand Tobago, and more recently in Barbados. We have also had attempts at expenditurereform by way of expanded training of personnel and improved recruitment practices.Thirdly, we have had responses along the lines establishing closer links between financialperformance and operating performance of public sector entities, and in particular, the StateCorporation. In some cases this has meant a downward adjustment in the size of the labourforce, with the adjustment taking place via voluntary separation where that was feasible.We have therefore had longer term responses on the taxation/revenue side of the budget, andwe have also had reform attempts on the expenditure side. Finally we have had reform

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attempts on the monitoring or evaluation side, as well as in the form of reducing the use oflabour where that seemed to make sense.

There is a fourth longer term response which should be mentioned. We refer to theattempt of some governments to improve their debt management practices. It is somewhatembarrassing to note that as important as debt payments have been in many countries of theregion, it is extremely difficult to get up-to-date, reliable information of these payments.Some countries have sought to address this situation either by establishing debt managementunits or by recruiting international consultants.

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Autonomous and Mandated Responses

In some cases the responses were autonomous in the sense that they were home-grown, that is, they came as a result of local or national discussion of the issues and with anattempt to put corrective measures in place. In other cases, the responses came as part of theconditionalities that had to be agreed upon between countries and the international lendinginstitutions. For present purposes, this distinction probably does not matter, except perhapsfrom a purely historical point of view.

Perhaps the most significant example of autonomous intervention has been themanner in which the Grenada structural adjustment programme was developed. Essentiallyit was a home grown programme even if it ended up as a close resemblance to one of theprogrammes sanctioned by the IFIs. A similar comment may be made about the EconomicRecovery Programme (ERP) in Guyana, which although having some influences fromoutside, was largely a reflection of Guyanese acknowledgement that drastic changeamounting to almost a full about-turn, was necessary if the country was to move forward.In the case of Trinidad and Tobago, it is known that although the country officially adoptedan IMF Programme in November of 1988, at least three of four years prior to that, a numberof measures were already being taken which were very much in line with IMF stabilization.

To the extent that it is the objective reality that dictates the kind of response todifficulties it is probably not critical to make the distinction between the autonomous and themandated response to financial difficulties. Having said that, however, we cannot ignore theC. Y. Thomas charge of misdiagnosis on the part of the IFIs. In some ways this charge wasechoed by Mosely, Harrigan and Toye who claimed that the World Bank severelyunderestimated the scope of the role that the public sector is still required to play in thecountries where programmes had not had much success.

Hence it is clear that whatever the judgement about the quality of the response of thegovernments of the region to the economic disequilibrium occasioned by financialdifficulties in the public sector, there is no question that the responses reflected a recognitionthat fundamental changes had to be made. It was not crystal clear what those changes oughtto have been, especially on the financial management front, but there seems to be a generalacceptance that they will very likely entail a smaller public sector, but one that will need tobe much more efficient and effective than in the past.

It is important therefore that member countries consolidate the bias towards change.

Solvency, growth and efficiency

The dominant reality in member-states today is undoubtedly that of structuraladjustment and within this content financial management takes on a very economisticflavour. This is partly because in this period finance is seen primarily as a resource that isavailable to the adjustment process. Like any other resource it can therefore help or hinderthis process. Related to this, however, are two considerations - the fact that financialresources may have a very high opportunity cost during this period of adjustment and the

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fact that the severity of the financial constraints may make it impossible to move towardsoptimal use of this resource without the dislocation of other resources.

In reality the latter consideration may simply be the reflection of loan conditionalitieswhich require governments to reduce the size of the public sector, thereby seeking toimprove the cost-efficiency of that sector. While the data on the numbers employed in thepublic sector generally, are not readily available, the Trinidad and Tobago situation is mostinstructive. In that country we have already seen that areas like the Port and LocalGovernment Bodies have already engaged in heavy labour shedding in the interest ofimproved financial performance. The prospect for the Utilities and the State Corporationsis not very different. This is a consideration which will have to be adequately taken intoaccount in any set of reforms that are proposed.

If finance is now to be seen as a factor of production it will become very importantthat we be able to identify the outputs that are expected from this most valuable resource.It is generally accepted that the outputs of public sector agencies are not always subject tothe calculus of the market. What this means is that the valuation of the relevant outputs maybe subject to very special assumptions and sometimes to very special techniques. To theextent most public sector agencies have their raison d'etre in the quest for development asopposed to a single-focussed quest for profit this make the evaluation of financialperformance during a period of structural adjustment fraught with difficulty.

For purposes of simplifying the task of the present project we propose to adopt abasic working hypothesis about the relationship between structural adjustment anddevelopment. The hypothesis will be presented in the form of five propositions - threeassumptions and two concluding statements:

a) Structural Adjustment is essentially about a country's solvency, andhence about the ability to repay debt;

b) Development is essentially about improving the social and economicsecurity and hence the quality of life of all sections of the populationof a country;

c) Development requires significant unrequited or low cost capitaltransfers from already developed to less developed countries;

d) When growth and trade problems limit the ability of developedcountries to make the kind of transfers required by developingcountries the vacuum is filled by conditional lending under structuraladjustment programmes;

d) Structural adjustment therefore represents an acknowledgement ofthe cessation of the development support normally provided byalready developed countries;

e) Depending on the stage of development attained - in particular, thedegree of human resource development and export diversification -

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structural adjustment brings the development process within acountry effectively to a halt.

If we accept the validity of this hypothesis we have then put our evaluation exercisebeyond the ken of development criteria. Our concern is then with the solvency of the publicsector agencies. Of course, in a dynamic context, solvency is directly related to the growthpotential of these agencies, and hence our evaluation will have to focus on matters ofeconomic efficiency.

There are two reasons why it now seems necessary to consider financial managementfrom the perspective outlined. First, a dominant focus on economic efficiency is perhaps theonly route back to any semblance of full national control of the economic affairs of anycountry under structural adjustment. Without such control the ability of any country toaddress development problems previously regarded as important would probably be non-existent. Second, it has become quite apparent to the consultant that managers anddepartment heads in the public sector today are primarily concerned with the business ofsurvival. To them, proposals that have a heavy development concern seem to be quite outof tune with the reality they have to live with on a day to day basis. Since the objective ofthe present exercise is to arrive at proposals which would be meaningful to those who haveresponsibility for managing the affairs of the public sector the discussion has to begin usinga language which does not turn them off.

Although at first sight this approach might seem to be very drastic it is important thatCARICAD should seek to bring about a shift in the weights attached to the severalevaluation criteria - in some cases, implicit - which serve to shape public policy. For whatis really being suggested is that during this period of structural adjustment the publicsector is being called upon to come up with a new set of instruments to deal with itsdevelopment concerns. State Enterprises, Local Government Bodies, Public Utilities andeven some Central Government Ministries and Departments will not be expected toperform the developmental roles previously regarded as germane to their very existence.If this principle is not accepted as being basic, the tension in public policy will neutralizewhat is most required during the adjustment period, namely the ability of these agencies tocontribute significantly to the country's Gross National Product (GNP).

For the remainder of this section an attempt will be made to clarify the nature of thebalance that needs to be struck between solvency and development. The point is that webegin with the historical situation where governments in the Caribbean have been veryconcerned about development. They have therefore been making use of their public sectorrevenues in an effort to deal with the chronic unemployment problem, chronic povertyproblem, and the chronic income distribution problem. These are major developmentalproblems and the public sector has been in the forefront of dealing with them. In the pastdiscussions on reform and considerations of upgrading the public sector usually had to passthe test of contributing to the development of the country concerned.

What this has meant is that the criteria used for evaluating performance weregenerally heavily weighted in the favour of development. What has happened since the1980s, is that with the severe financial difficulties in which countries have found themselves,

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and because of the reality of a reduction in development finance from external sources aswe indicated earlier, adjustment became the name of the game.

Now in one sense it would seem that in the very short run, what is happening is thatwe are being called upon to put development on the back burner, deal with the adjustmentissues, get the economy stabilized and back on a track where we can talk about developmentagain. In other words, this is a period of adjustment where we probably cannot put a lot ofweight on development. However, in the context of the Caribbean, where on a day to daybasis people are still faced with the reality of unemployment,or low incomes, or even starkpoverty, it is really not correct to suggest that we simply switch over from what weredevelopment criteria to what are now adjustment criteria.

This Report would like to suggest that whereas in the past we were mainly concernedwith one overriding objective for government policy, we now have to be concerned with twoobjectives. It is almost axiomatic to say that we cannot but be concerned with our survivaland this means that adjustment to the new world order is inescapable. However, it is alsotrue that we simply cannot put development on the back burner. What we need to do is tofind a way to move forward on two wheels, as it were - the development wheel and theadjustment wheel. It is in this context, that the Report is suggesting that on the adjustmentside, the clearest and most cohesive criterion that should guide our decision should besolvency and that the Ministry of Finance then has to see all its major concerns in the contextof this criterion.

Having said that however, and remembering that the adjustment process requires usto transform the public sector, including the role of the Ministry of Finance. What is beingsuggested is that we have probably reached the stage where the institutions which werecritical in the past to addressing the development problems, the institutions like our stateenterprises, our public utilities, these institutions will probably not be able to be used in thesame way as they were used in the past. Because these institutions have to be moreconcerned with the question of solvency.

The indication is not that we put a halt to development as such, but that we seek toidentify new institutions or a new regional framework for dealing with the developmentproblem. And in particular, the Report will support the view when non-governmentalagencies are to be called upon to do much more than they have been doing in the past. It isnot simply a question of the government not having the quantum of resources that it ispreviously used to but that the whole approach to delivering development goods andservices, the whole approach is being changed now because as part of the need to survive,the public sector itself has to be reduced in size and to some extent in scope.

To put the matter differently, what is being suggested is that on the quantitative level,we are in the business of reducing the size of the public sector. However, there seems to bean equally pressing need on the qualitative level to improve and upgrade that sector.Moreover this upgrading will have to be done in a way that the sector will be able to domuch more with fewer resources. This is what is meant by accomplishing public sectorobjectives in a more efficient way - changing its approach and involving a set of new playerson the development scene.

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The Report is therefore recommending that the Ministries of Finance be substantiallyrelieved of the need to concern themselves with development issues. It is interesting to notethat in Trinidad and Tobago there has been a new division of labour between the Ministryof Finance and the Ministry of Planning and Development. The Finance Ministry has beenrelieved of responsibility for the capital budget, and hence even for the government's annualinvestment programme. This is a move that other countries in the region should monitorclosely.

What is important is the recognition that there are other agencies of governmentprobably the Ministry of Planning and Development and the other line ministries which areconcerned with the delivery of development of goods and services. Here we refer, forexample, to the case of the Health and Education Ministries.

One major question raised by the primacy-of-solvency principle would alwaysconcern the development role of the government. There is no question that inacknowledging the link between employment and the level of living of vast sections of thepopulation, governments of the Region have sought via their Ministries of Finance, to usethe institutions under their control as instruments for keeping unemployment at bay. Giventhat unemployment rates in the Region are much higher now than they were when theindustrialization process was initiated, we cannot claim that this policy was successful. Thisis not to say that it brought no benefits to the countries concerned. What is probably true isthat the policy proved to be expensive and eventually unsustainable.

In the case of Health for example, in Trinidad and Tobago, we are moving into thestate where the financing of the health services of the country will be done substantiallythrough a National Insurance mechanism. This in a sense would relieved the Ministry ofFinance of pressures to be delivered to the Ministry of Health, certain levels of resources tomaintain the health level of the country.

Another example, in the case of the delivery of some of the social services there isnow a move afoot to make direct use of some of more organized NGOs - for example CreditUnions - to facilitate the addressing of certain specific problems. In the case of CreditUnions, the problem of housing of low income groups. Whereas in the past, such a concernwill be mainly that of the National Housing Authority (NHA) directly, and of courseindirectly a concern of the Ministry of Finance, we are now seeing the development of newmechanisms to deal with the problem while relieving Finance of certain pressures thereforemaking it slightly easier for Finance to concentrate on the question of solvency.

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7. INFORMATION AND COMMUNICATION SYSTEMS FOR IMPROVED GOVERNANCE

Introduction

As this rather topical and current issue did not benefit from a consultant led analysis,it was necessary to draw heavily on the experiences of Trinidad & Tobago, Grenada, St.Lucia and Jamaica in order to assess and make recommendations for the regional publicsector. In addition the March meeting of the Regional Working Group in Guyana benefitedfrom a small group discussion which was able to highlight the central issues and problemsaffecting the Caribbean Public Sector. These are presented below.

Issues and Problems

A major conclusion reached was that good governance was impacted on negativelyby the failure of governments and their administration to keep pace with the developmentsin Information Systems Technology (IST) and to institutionalise the use of such technologiesin the establishment of management and decision support systems. This rampant neglect hasaffected four major roles of IST in the public service:-

- The provision of critical support for public policy, decision-making andgeneral management by facilitating the collection, collation, retrieval,accessibility, dissemination and analysis of relevant and reliable informationon a timely basis.

- The availability of a modern mechanism for the creation of a Public SectorManagement information culture.

- The provision of the means encouraging and facilitating communication andnetworking among public officials and the political directorate at the local andregional levels.

- The increase of productivity, efficiency and effectiveness through theutilisation of computer technology and various automated systems in thepractice of public management.

Because these roles have been performed only in very minimal ways and thereforewith limited impact the following problems exist in some degree throughout the region.

- Lack of co-ordination and/or competition among various ministries and publicagencies.

- The existence of dual systems i.e. outdated manual systems and highlyautomated modern systems which in many instances do not support orcomplement each other.

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- An ad-hoc approach to the utilisation of IST as Ministries, departments andagencies adhering to no particular policy, pursue their own interests.

- Negative external influences such as low quality vendor service as well asdonor driven technology transfer.

- A general resistance and slow reaction to IST on the part of managementpartly owing to fear and lack of knowledge, and partly owing to the tensionbetween technical staff and administrative/managerial staff.

- Financial and other resource constraints are ever present, making it difficultbut requiring creativity to bear the high cost of hardware and software and tofrequently upgrade in keeping with the rapidly changing technology.

- Underutilisation of IST as indicated by limited knowledge of systemscapability, unused capacities, lack of systems integration, inadequate databasesystems.

- Inadequate infrastructure for Human Resource Management andDevelopment. Consequently the Public Service needs to attract and retainprofessionals in the field, and to train and retrain at all levels.

- National Data Processing centres are not fulfilling their missions anddelivering mandates as is required of them in most cases where they exist.

Some Analytical Considerations

IST in the Public Service must be addressed strategically and systematically with theexpress purpose of achieving goals and milestones in an area that has hitherto suffered fromlack of goal-directedness. The region must critically analyse its IST environment to servethe following purposes.

- To develop an understanding of the current IST environment and anappreciation of future requirements.

- To assess the technology in use; these to include, hardware, software,telecommunications, productivity tools, security software.

- To appraise and audit current management infrastructure, thus answeringconcerns about what services are provided, what are the duties andresponsibilities of IST personnel, what management control processes havebeen implemented and need to be implemented.

- To develop an understanding of the business of the various Public Serviceagencies, and in so doing to understand their mission, objectives, criticalsuccess factors, their information needs, their performance problems, and theways in which IST could enhance and assist.

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- To identify other significant areas where advantages and opportunities couldbe gained and efficiency and effectiveness levels increased through the useof IST.

- To define the objectives, functions and requirements of desirable target ISTapplications to be developed out of these advantages/opportunities.

- To recommend an IST strategy designed to institute specific approaches to befollowed for the applications, hardware and required technology, and topresent and implement recommendations for the management infrastructureneeded to support the IST environment.

- To develop a master implementation plan for the establishment of the ISTenvironment. Such a plan should include widest participation through theformation of teams of people with specific roles and responsibilities for theestablishment of IST environment.

Benefits of Information Systems

Opportunities for IST abound in our regional Public Sector and include the following:

Human Resource Management

Adequately provided for, this facility could make available in much more efficientand effective ways, information on payroll, performance management, humanresource development and training, leave processing, skills and further education,career planning, benefits recording and planning etc.

Financial Management

This facility could improve drastically the way the Public Service utilises informationfor decision making and reporting in the following areas; budget management,income and expenditure management and control, cheque preparation,reconciliations, debt servicing, etc.

Record Management

Opportunities in this area will address the serious overload of paper, and issuesrelating to the storage, indexing, retrieval and follow-up of documents,correspondence, printed and other instructions e.g. Cabinet decisions and directives.

Inventory Management

In this aspect opportunities exist to address the various activities and processesinvolved in managing the governments' stocks of equipment, facilities, real estate andsupplies.

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Electronic Mail

Here too IST would increase efficiency and effectiveness by reducing the paperoverload and paper pushing and encouraging faster and more personalisednetworking among employees especially at managerial levels.

Databases

This is an area for opportunity where effective database designs, with well-thoughtout structured data query facilities would provide solutions to the many problems ofavailability, analysis and reporting on information that is now stored on paper in filesstacked to ceilings.

Packages

Spreadsheets, desktop publishing, statistical analyses, research, and other specificand general end-user packages are also areas of opportunity for cost effectiveness,efficiency and the ability to manipulate and extrapolate information more easily andrapidly.

Recommendations for Action

All indications are that IST in the Public Sector is expected to be significantly moreembraced and entrenched than is the current reality, financial constraints notwithstanding. However some critical and urgent actions are necessary and includethe following:

- Developing strategic master plans both at the country level and regional levelsfor the co-ordination of information technology and the improvement ofcommunication systems. Plans should focus on;

- restructuring and infrastructure - analysing and dissemination information especially on capital and

development projects and programmes in all sectors.- marketing of government services and products- restructuring of government information services agencies so that they

can be more proactive and investigative in their approaches to publicinformation.

- Comprehensively introduce IST into the Public Sector planning andmanagement processes. This should be assigned to National ComputerCentres and similar bodies, as one of their key functions and responsibilities.

- Establish proper archives and documentation centres with modernmanagement information systems to serve appropriate purposes including thepreservation of national culture and history.

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- Establish computerised Management Information Systems with appropriatedatabases in line ministries, departments and key central agencies as the firststep to effective use of information technology as a management tool.

- Undertake (CARICAD recommended) an indepth inventory and assessmentof existing communications and information systems in the Public Sector byexamining the auditing existing policy, plans infrastructure, processes andmanagement and with a view to introducing improvement specificy of an ISTnature where there don't exist.

- Implement, facilitate and strengthen regional networking on Public Sectorissues where IST have the potential for tremendous impact such as;

- information exchanges on IST and other professional services- sector performances- information technology developments or best practices- public sector reform and Improvement- structural adjustment programmes- current issues such as privatisation sustainable development, the

environment.

- Provide case studies, comparative analyses and shared experiences onsuccessful as well as failed IST efforts.

- Undertake continuous auditing and evaluation of the state of informationtechnology and communication systems with a view to sustainability,adaptation and currency.

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CHAPTER 8: CONCLUDING REMARKS: A FOCUS ON THE FUTURE

Throughout the months of deliberations, workshops and consultations, the underlyingquestion has been, how do we achieve real and lasting changes in the management of the"people's business"? The experiences and insights of the past have been distilled from awide cross-section of persons, undoubtedly with intimate knowledge of the systems, policiesand procedures obtaining in the public sectors of the Caribbean Community.

The prevailing circumstances in the world at large are significantly characterized byvigorous ideological forces opposed to a prominent role for the state and the public sectoras a whole. The need to replace bloated bureaucracies and waste of public resources hasbecome an excuse to denigrate the complex and essential tasks performed by public servantsand public administration.

The quest for more efficient, highly productive, transparent and accountable policy-making and implementation in the interest of the common good presents a challenge forwhich our knowledge and experience must be brought to bear. Already there is a growingawareness in the ranks of the public service, among senior managers, technical specialists,union leaders and workers in academic institutions, that "the old ways of doing things" canno longer be continued.

The 21st century will demand change in policies, systems, structures, attitudes andhabits in the organizational cultures that now embrace and permeate the administrativemechanisms inherited from former eras. Institutions, as means by which humans satisfytheir needs, are meant to change. They are to be transformed as circumstances, goals, theways of seeing and doing things demand our values and purpose of life be realised indifferent ways and forms.

The challenges for improved management of the public sector can not be adequatelyaddressed without a vision and clearly-defined purpose of what must be the essential featuresof the state, its organs, its scope and function in serving the interest of the great majority.These features derive from a fundamental understanding of the state as an instrument bywhich democracy, equity and the satisfaction of material needs are realised for all humanbeings, without prejudice and detriment to future generations.

In projecting our views on the future, one can turn to insights that have been gleanedby a retrospective assessment of initiatives undertaken across the Caribbean Community.Seven key elements can be briefly noted:

(i) the primacy of a clearly-articulated vision that captures the purpose, goal andsignificance of the changes that will be pursued;

(ii) the communication of benefits that can or have been derived from reformefforts;

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(iii) the fundamental importance that reform be understand as a process that isinternally-driven and not primarily imposed by external forces or agencies;

(iv) the process of reform must be informed by content and substantive issueswhich are felt needs of the actors and stakeholders

(v) as much as political will and support of the highest level of the politicaldirectorate is a prerequisite to success, administrative will across all levels ofthe public service is equally important;

(vi) delegation of authority, whereby participatory management and a teamapproach to the discharge of responsibilities to accomplish stated goals andoutcomes, must be a guiding principles for improved organizationalperformance.

(vii) milestones and achievements are to be recognized publicly as a means tofacilitate the cumulative impact of district activities.

Real advances in the quality of service by the public sector and greater satisfactionfor public services workers require renewed attention to (a) revision/modification andadaptation of the legislative framework; (b) human resource management; (c) applicationsof information technologies and (d) strategic interventions and organisational restructuringfor increased productivity. These issues were recently addressed in a review of PublicSector Management Reform experiences of the Caribbean during the recent past. In keepingwith that review, one can indicate the importance of these concerns as follows:

Human Resource Management

The management of human resources must take on new meaning and dimensions inthe public sector of the future. Most importantly future approaches in this area must bestrategic, taking fully into consideration large societal and community needs, executiveneeds, managerial and professional needs and the broad band of operational needs. H.R ascost and investment must be creatively planned. In terms of the ability of existing personnelto undertake the tasks involved in the reform process, their skill-sets should receive greaterscrutiny. Greater emphasis on core management systems and processes rather than onfunctional control should bring about a more holistic and creative approach, economies ofscale and the creation of a climate of ownership of processes, especially in the line agencies.There will have to be however, clear guidelines regarding those systems and processes.Additionally, H.R.M functions should be integrated.

Management of the human resources within line agencies should have a corporateidentity and focus as in the case of the Permanent Secretaries Board in Jamaica, toincorporate a quasi-matrix organizational structure to deal with human resource problemswithin the various line agencies. The existence of what one may call "functional silos," asrepresented by various line agencies in the bureaucracies, allow for duplication, poorcommunication and a lack of coordination, reenforced by the shortcomings of suchcommunication instruments as the "formal memorandum." Permanent Secretaries and other

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managers will have to take on new roles; motivating, coaching and assuming responsibilityfor restructuring of relations by which a more corporate and team approach should replacehierarchical layers of bureaucracy.

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Information TechnologyIn terms of efficiency and effectiveness, the public sector continues to be

handicapped by the lack of a clear and stated policy regarding the use of informationtechnology. Meaningful administrative reform in the 1990s is not possible without theintroduction and full utilization of information technology (IT). A comprehensive andtightly coordinated plan can reduce the dysfunctional effects associated with the use ofinformation technology and computerization. In addition, training at all levels will becomenecessary. The payoff can be positive in terms of efficiency and productivity improvements-- even in cases where misguided introduction of IT has been limited to automation ormechanization of existing systems or processes.

Information technology will be of particular benefit to the management of humanresources, especially in the areas of recruitment, appraisal and promotion. Many job-relatedexercises can be undertaken more speedily and accurately with the introduction of IT,particularly with regards to the personnel management function. There are enough high-density jobs (those with many incumbents) in the public service to make cost-effective, thedevelopment and use of computerized questionnaires, and data acquisition and disseminationtools.

At a joint COMSEC/Commonwealth Records Association/CARICAD Seminar forDirectors of National Archives and Senior Administrators on "The Challenges of StrategicInformation Management" in Trinidad on 4 & 5 April, 1995, a resolution was adopted byparticipants as follows:

Recognising: (1) that information in the public services is a key national and regionalresource which must be managed efficiently and economically;

(2) that recorded information created in the conduct of governmenttransaction is essential to meet growing demand for accountability andtransparency on the part of governments;

(3) that citizens should be provided with services of the highest quality;

the participants in the Port-of-Spain Seminar on Public Service Reform and StrategicInformation Management affirm the joint responsibility of National Archivists and SeniorGovernment Administrators to manage official records throughout their life cycle, whatevertheir medium (electornic, paper etc.) in order to facilitate national and regional development.

Further, recognising:

(1) that effective information and records management systems areessential components of any Public Sector Administrative ReformProgramme in the Caribbean;

(2) and that this has implications for the formulation of nationalcommunication and information policies within the region;

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the participants of the Seminar also recommended that the following be given urgentconsideration and attention:

(a) Information - A National Strategic Asset

Caribbean governments should acknowledge the leading role played by NationalArchives in the management of information as a national strategic asset, by ensuiringthat enabling legislation is put in place to strengthen the capacity of NationalArchives for the management of government records throughout the entire life cycle.

(b) Human, Financial and Physical Resources

Given the responsibility of the National Archives as the institution to managegovernment recorded information, (which is national strategic resource) Caribbeangovernments, mindful fo the implied inter-ministerial responsibility of the Archives,should ensure that its position within government's organisational structure iscommensurate with its responsibility and that adequate human, physical and financialresources are provided to enable effective and efficient operations.

(c) Staffing and Career Structure

In order to enable the National Archives to discharge its responsibilities effectively,Caribbean governments should recognise the pivotal role of the archivist in ensuringthe design, development and management of effective Records Management Systemsand provide adequate highly trained support staff which can be motivated through awell defined career path in public sector records management.

(d) Education and Training

This Seminar notes with concern the lack of formal education and trainingopportunities for Archivists and Records Managers at the regional level and the needfor continuing education and training programmes at the national level. Caribbeangovernments are therefore urged to exploit the existing faciliteis for the training ofinformation professionals at the University of the West Indies, Mona, and tovigorously explore all possibilities for offering continuing education and trainingprogrammes at regional and national levels as appropriate, for all categories of staffinvolved in the management of public sector records.

(e) Promoting Awareness of the Importance of Information and Records Managementin the Public Sector.

The Seminar further recommends that programmes aimed at sensitising public sectormanagers and staff to the value and importance of effective information and recordsmanagement systems be developed and mounted throughout the region.

Productivity

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The public sector in the English-speaking Caribbean has to address, as a priority, theissue of strategic planning and management. A most effective way of doing so in the futurewould be to promote a culture of productivity. Interestingly during the late 70s and up untilthe mid 80s, Governments had in fact begun to set up Productivity Boards as in the case ofTrinidad and Tobago. There was also a focus on training for productivity improvement.These efforts coincided with the western world's enthusiasm for the Japanese phenomenonof "quality circles." We have come full circle since the 90s. Some countries, for exampleBarbados with the creation of a National Productivity Board, have undertaken definite stepsin this direction. The adoption of strategic management through productivity, calls for thedevelopment of compensation packages which reward the productive efforts of humanresources within the sector. The use of computers can facilitate the linking of productivitygains to teams and organizations.

Irrespective of the approach, quality improvement, output increase, or better use ofresources, it is employees' performance in the last analysis that determines the productivityof organizations. This points to the need for greater accountability, communication,involvement and a more active performance management system. The resultingorganizational culture must be such that civil and public servants will be committed toworking productively yet flexibly in periods of low and high activity.

Downsizing and early retirement programmes, such as have attended past, andprobably will attend future, structural adjustment programmes will have to be carefullyscrutinized and dissociated with ARPs. It is incongruous to expect public or civil servantsto be committed to, or participate in a productivity drive which forms part of a larger PSRprocess, but which does not take them fully into account in the future, because of a threatthat they will be cut out off, leaving them without the hope of sharing the benefits, intrinsicor otherwise. The complexity and the variety of organizational activities found in the publicsector suggest the need for a dynamic system, or family of measures for productivitymeasurement in this sector. The need for an understandable and effective system ofmeasures, and the participation of all stakeholders in its creation cannot be overemphasized.(see CARICAD/COMSEC Symposium and Ministerial Consultation on Productivity andImproved Management of the Public Sector, Guyana, 1994).

In conclusion, attention is directed to a workshop on Policies, Systems andProcedures for Improved Human Resource Management in Service Commissions of theCaribbean Community (CARICOM), which was held in Jamaica in June 1994. Among therecommendations were the following: legislative changes to address the general orders andthe regulatory framework for public enterprises; continuation of the philosophical debate onthe role of the state in economic and social development; human resource management andhuman resource development with respect to the creation of a computerized database forgeneration of skills inventories; greater use of information technology to modernize servicesacross the public sector; the design of case studies in innovative management education toillustrate and train employees as regards "best practice" in specific organizations.

While considerable gains have been made in the pursuit of PSR for CARICOM,much remains to be done. The heightened awareness and conducive environment now

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prevalent among employees, management and unions should be utilised to ensure that acumulative impact can be sustained over the longer-term.