by STAFF WRITER
Owen Arthur
KINGSTON, Jamaica, Jan 19, CMC – Former Barbados prime minister Owen Arthur Tuesday said Caribbean countries need to have in place mechanisms that can allow them to respond to issues on Correspondent Banking.
He said these measures must be “in a coherent and sustained manner, rather than in a spasmodic way, to the challenges which will continuously come our way from having to function as the world’s smallest and most vulnerable economy in a turbulent and unforgiving global economic arena”.
Arthur, addressing a round table discussion on “Correspondence Banking” said that the Caribbean countries now find themselves in a more vulnerable condition than they have ever been in their post-independent existence.
Arthur said regional countries are constantly having to make adjustments to accommodate far reaching changes in the environment within which their development takes place.
“This has placed on them the responsibility of having to manage more complex transitions and transformations than any other group of nations. They have had, and will continue to have to institute new arrangements by which to order their domestic affairs, central to which is the sustained and coherent implementation of fiscal consolidation programmes to restore order to their public finances.”
But Arthur, an economist, said the challenges for Caribbean countries surrounding the management of their fiscal consolidation programmes are modest relative to the difficult new circumstances that have, over the past two decades, affected their ability to successfully carry out cross border transactions.
“To begin with, all Caribbean societies have been significantly and adversely affected by changes in International Trade Law, which have stripped them of the means by which they have traditionally protected domestic enterprises, and have required them to enter new reciprocal trade arrangements even with developed economies. The toll taken on traditional industries in agriculture and manufacturing has been severe.”
He said in addition, the “sunrise industries” which have been designated to be the engines to generate a substantial part of the growth for the future have themselves had to operate in an atmosphere of uncertainty by having to respond to extra regional initiatives such as the OECD Harmful Tax Competition Initiative, and more recently, the provisions contained in the USA Foreign Account Tax Compliance Act, and the OECD Base Erosion and Profit Shifting Project.
Arthur said that a 2014 World Bank report revealed that in respect of every critical determinant of trade performance, the Caribbean reflects the worst indices of any region in the world.
“In addition, the region’s circumstances have not been assisted by the fact that in an era when so much of global economic activity is being driven by the provisions in bilateral trade pacts, the Caribbean had entered the fewest of any group of nations.”
He said that the region also stands, for the future, to be overwhelmed by new trade arrangements, such as the Trans Pacific Trade Pact, and new global supply and value chain arrangements by global enterprises that are bypassing the Caribbean.
“For the Caribbean to attain and stay on a viable path to growth and development, a concerted effort has to be made to transform its economies from being trade-preference dependent economies which they have been traditionally, and debt-propelled economies which they have recently become, to being investment-driven economies, marked by a very high component of private foreign capital, and eventually, genuine export-propelled economies.
“Indeed, over the immediate future, to create the conditions to generate strong growth, the Caribbean has to increase the ratio of private capital inflows to GDP (gross domestic product), and to use such resource flows to help build new productive capacity which is capable of being competitive in a liberalized global economy.”
Arthur said as such, any new measure that stands in the way of enabling the Caribbean to significantly improve its cross border economic and financial transactions must be deemed to be a serious threat to the development of the region.
“It is in such a context that the Corresponding Banking Challenge looms as the most recent, but perhaps the potentially most devastating threat to the stable and successful development of the region. It is therefore important that the Caribbean does not allow itself to become the real but unintended victim of a global effort to reduce financial crimes, to fight against terrorism by reducing its sources of finance, and quite frankly, the efforts of major banking enterprises to enhance their profitability.”
“o begin with, unaddressed, the derisking that is at the centre of the Correspondent Banking issue, could serve to delink Caribbean economies from access to global finance at a juncture where they need to increase the ratio of capital inflows to GDP,” Arthur warned, noting that it can also increase the cost of access to such finance or force economic agents in the region to resort to illicit means, further damaging the image of the region.
“It can also do untold damage to the financial sector in the Caribbean. For it has been well observed that the Caribbean financial sector is characterized by features such as shallow banking systems, undeveloped and highly concentrated financial markets and domestic currencies that are not internationally traded,” the former Barbados prime minister added.
He said that there is much therefore that the Caribbean can and must do to fend off this existential threat. “First the Correspondent Banking crisis is one that does not apply only nor uniquely to the Caribbean but is one that has far flung implications for many countries across the globe. There is therefore no requirement for the Caribbean to feel that it must fight this on its own.”
He said the Caribbean must form strategic alliances and commit the resources to join the other many countries and institutions which have embraced this as being a legitimate cause to be fought for in every conceivable forum.
He said it was also important for the region to strain every sinew to ensure that its own rules, standards and enforcement mechanisms consistently meet global requirements in the fight against financial crimes and the fight against terrorism.
Arthur said ideally, this ought to be a well co-ordinated regional effort and that it can be made to be such if the Caribbean revisits and reenergizes its own efforts to integrate the regional economy.
“In this regard, the creation of a single regional market, involving the removal of barriers to the movement within the region of the flow of goods, services, capital and labour, and the creation of new rights for the establishment of enterprise, was intended to be but the first phase of the CSME (CARICOM Single Market and Economy).”
He said the second, involving the creation of a virtual single economy, as set out in the Girvan Plan of 2007, envisioned harmonized and coordinated regional actions and programmes, including regulatory and supervisory systems, that could significantly enhance the region’s ability to strengthen the economic and financial infrastructure on which its economy rests.
“Indeed, the Plan to move to a Single Economy called for the putting in place, for example, of a Regional Financial Services Agreement and a Regional Investment Code, which, if brought into existence, would have been designed to govern and bring order to the operation of the regional financial sector, and set out clear guidelines concerning that sector’s relationship with the global economy.
“The issue now being grappled with concerning Correspondent Banking surely must accentuate the need for the Caribbean to have in place mechanisms that can allow it to respond on this matter, as on all others in a coherent and sustained manner, rather than in a spasmodic way, to the challenges which will continuously come our way from having to function as the world’s smallest and most vulnerable economy in a turbulent and unforgiving global economic arena.”
