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Caribbean island debates how to lure investors who will build up, not drain, the local economy

From high above, Castries - with its vistas of green hills and blue waters - looks like a stage set especially designed to fulfill every tourist's fantasy of a Caribbean idyll.

But the observant tourist has only to walk through the streets here to see the groups of idle young men on every other corner. Castries, in fact, is no Fantasy Island - but a city whose inhabitants, like those of most cities in the region, cannot take for granted steady employment or decent housing - or even an adequate diet.

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St. Lucia, like most other English-speaking countries in the eastern Caribbean, is a small island, with limited resources and a growing population that consumes more than it produces. The island's prime minister, Charles Compton, has long believed the solution to its problems lies in attracting large-scale foreign investment.

During Mr. Compton's years in power (1964-1979 and May 1982 to the present) foreigners, most of them from the United States and France, have opened several large hotels and a score of small electronic equipment, textile, and garment factories.

One of the debates dominating St. Lucian politics since the 1970s has been the question of the benefits of such investments for the nation's economy and the extent to which they improve the life of the average islander. Those opposing Compton wanted greater controls over the type of foreign investment that is allowed, as well as better wages, more emphasis on agro-industry, and a general stress on community-based, small-scale development projects.

This controversy is bubbling not only in St. Lucia, but also in the rest of the English-speaking Caribbean. It has acquired new significance since the proclamation of the Reagan administration's Caribbean Basin Initiative, which has as one of its goals the promotion of private foreign investment.

For Compton, private investment is both a long-term solution for St. Lucia and an immediate way to reduce the nation's unemployment rate (between 30 and 35 percent). According to most local observers, unemployment was partially responsible for Compton's defeat in 1979 by a left-wing coalition. The coalition itself then plunged the country into chaos and paved the way for Compton's return to government.

However, lack of controls over foreign investment was then, and remains, one of the opposition's principal themes. Their critiques of Compton's investment policies are shared by numerous foreign observers, including an economist attached to a regional development organization and two American researchers who have spent the last few months in St. Lucia studying the question.

The analysts conclude that:

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* Most foreign companies with investments in St. Lucia bring very little money into the country and keep little there. These experts share the view of opposition leader Charles Odlam, who says, ''Most of the foreign companies export back to the US their principal, their profits, and the interest on their principal.''

These analysts stress that the only financial benefits the island receives from the outside companies are the low wages paid to the workers, since the firms send almost every penny they make back to their own countries.

* Workers receive too little training. Proponents of the kind of foreign investment favored by Compton stress that companies have offered some training that upgraded the work force, but most are quick to add that the overwhelming majority of the jobs created thus far are very low skill and teach the workers few transferable skills. A typical job, observers say, is that of the winding of wire to make electrical cords.

* Foreign companies import most of the raw materials they use, rather than tapping and developing island resources. Observers stress that agro-industry would be more beneficial because it would create more benefits for the island. For example, they recommend an industry that would make banana chips out of St. Lucia's main crop.

* Wages are too low. As opposition leader Odlam has said, ''No conditions for the good of the workers are built into the arrangements between the government and the foreign companies.'' Island governments compete for the same kind of foreign investment and the foreign companies can pit the benefits of one island (low wages, for example) against others.

The US researchers cited the example of an electronics firm that has factories in St. Lucia and in St. Vincent. The St. Lucia factory is unionized; the St. Vincent one is not. When new contracts come in, the company gives most of them to St. Vincent. Workers in St. Lucia then are laid off. Most of those fired from St. Lucia are ardent union supporters. The American researchers say that 95 percent of factory employees are women and that the average salary is $ 23 a week.

* Tax breaks and customs concessions given to the companies are too generous. This occurs because the islands are competing for business. St. Lucia, for example, has given companies 15-year tax holidays.

* Better monitoring is needed. The analysts say it is difficult to keep tabs on whether a company keeps its promises to an island. Opposition figures cite the case of a firm that said it would employ 500 workers in return for substantial tax concessions. The company received the concessions but employed nowhere near the number of workers promised.

St. Lucia's government often spends considerable sums of money on infrastructure, such as water and electricity, for the foreign firms. Although this might have certain benefits, analysts say the benefits are measured because firms generally bring little foreign exchange into the country. Often the foreign companies don't even buy the land on which they set up shop or build the factories.

Opposition leaders emphasize they do not want to see much foreign investment in ventures that do not require a lot of money. For example, they advise against restaurants, taxi and tour services, and small hotels. They think such ventures should be left to locals, who too often are put out of business by foreign competition. These leaders also criticize the package tours that have been pre-paid, down to meals and transport, thus leaving local vendors with little to gain in tourist dollars.

Observers stress that laissez-faire economic and industrial policies can be very harmful to the fragile ecologies and general attractiveness of these islands, which are dependent on tourism. Pollution, careless building, and badly conceived tourist projects can kill the goose that lays the golden egg.

The strongest argument for foreign investments is, of course, the jobs they provide. Critics, however, stress that the jobs are often provided at too great a cost with too few benefits. The analysts say they do not oppose foreign investment, but as opposition leader Odlam suggests, ''You have to identify areas of the economy in which you need foreign investment and then specify clearly an investment code which would protect both investors and the local community. This should not be left to private negotiations with government ministers, which is a continuous source of corruption.''

Those pushing for alternate types of development want, first, a greater emphasis on agricultural diversification, with an attempt to produce more of the basic foodstuffs consumed on the islands. Most of these foodstuffs now are imported.

They also suggest development of agro-industry using local materials. Such industries employ more people, provide more useful training, and are less expensive than the existing industries.

In tourism, the analysts say greater emphasis should be placed on smaller projects run by locals which would keep more foreign currency in the country. Greater development of handicrafts is also stressed.

In general, critics would place more emphasis on small projects that have the potential for increasing productivity in agriculture, fisheries, and artisanry. For them, a useful, inexpensive project would be to help a group of fishermen organize themselves to buy a boat.

These are the tough choices US officials have to weigh in designing the Caribbean Basin Initiative.

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