Co-ordinating Financial Services Across the Region (Part 1)
The co-ordination of financial services throughout the Caribbean has been a matter engaging the attention of the Chamber as the region makes strides to full integration under the CSME. This two part series, which was produced in collaboration with the Bankers Association of Trinidad and Tobago, explores the challenges faced in reaching this goal.
Co-ordinating Financial Services Across the Region (Part 1)
Over the last decade most of the Caribbean Islands have experienced increases within the financial services sector as the level of activity in this sector grew. The islands experienced positive growth overall, especially with the incorporation of international business companies and increases in foreign direct investment. The performance of the financial services was also enhanced with the registration of mutual funds, and the formation of international trusts also increased. The numbers of players within the sector mushroomed, showing increases in the number of commercial banks, insurance companies, credit unions, the securities market and venture capital market.
The positive rise in the financial sector contributed tremendously to government revenues, with economic activity increasing more than 3.4% during 2006. Growth was steady and future prospects looked bright. But in 2007 the global recession started and got progressively worse, squeezing the sector until it bottomed in 2009 due to failures in financial markets and the regulatory system, further compounded by CLICO and Government’s bail-out.
By 2009 the Caribbean and global economy recorded declines in output of 2.8% and 0.6% respectively. Global recovery was hinged to the management of large debt levels and ratios resulting from various stimulus packages. In 2010 the Caribbean economies showed signs reflecting both the positives and negatives of advanced industrial economies. We were able to partially weather the storm due to our more prudential practices and credible monetary policies with low inflation rates. However, it also exposed certain structural deficiencies and institutional vulnerabilities within the regulatory frameworks; inefficient and under diversified markets and conglomerates with intra-group exposure.
The Caribbean Single Market and Economy (CSME) Treaty came about due to the small, open nature of the Caribbean islands rendering less competitive in comparison to larger, more developed economies, where there was more ready availability of economies of scale and other benefits hinged on size and accessibility of factors of production. In effect, the CSME is an attempt to create a larger, unified economic space within which greater productive efficiency and competitiveness could be achieved and regional economic growth accelerated.
The role of the CSME Treaty found its origins in the nine Protocols (1989/1992) to the Treaty of Chaguaramas establishing the Caribbean Community in 1973. The mandate of CSME may be broken down into the following four areas: the institutional and legal framework; market access; the macroeconomic framework; and sectoral policies. This mandate would be fulfilled particularly through the expansion of exports to increasingly liberalised hemispheric and world markets. However the Caribbean was not progressing as quickly as needed to in order to be competitive in the rapidly evolving global markets.
One thing for certain, the global financial crisis has given rise to a push to harmonize the Caribbean capital market, due to both the rise in mergers and acquisitions as well as the need for a harmonised regional capital market to successfully implement the CSME.
One element in the CSME process involves the signature of a CARICOM Agreement on Financial Services (CFSA) by all Member States. The draft has been making the regional consultation rounds for years now. In the creation of the region’s single market and economy, the CFSA is supposed to address the need for efficiency in the regional cross-border financial services market and “facilitate the strategic positioning of the region’s financial services sector in the increasingly competitive global environment. All economic actors will be expected to abide by similar rules, standards and conditions across the Community. In this way, it is anticipated that the CFSA will complement the removal of restrictions to the movement of people, services and capital which is also required in order to fully establish the region’s single economic space. The harmonization of financial services sector legislation covers banking, insurance and securities. This agreement takes into account principals incorporated in the provisions of International Agreements, such as The Basel Core Principles of Effective Banking Supervision and the International Association of Insurance Supervisors Best Practices. It has been stated by the experts that this is a good place to start as it will to guarantee true harmonization of Legislation for the growth of financial services.
