US financial crisis will affect Caribbean

It is said that when America sneezes, the rest of the world catches a cold and contagious sub-prime mortgage crisis in America, which spells trouble for the Caribbean is proving this right. Caribbean bankers were yesterday urged to lobby for protective legislation for their industry.

Corporations and banks could also see a possible downturn in tourist arrivals and growth next year, as a result of the current credit crunch in the United States, participants at the Caribbean Association of Indigenous Bankers (CAIB) Conference were told. The conference is being held under the theme: ‘Defining Market Space’, at the Guyana International Conference Centre at Liliendaal.

Keynote speaker, Senior Advisor of Credit Suisse First Boston Wendell Mottley speaking on the sub-theme ‘Banking in the Single Space – Making the Vision a Reality’ said the 225,000 per month defaults in the US will have implications for the Caribbean. Credit Suisse is a Switzerland based investment-banking business that offers services to corporations, governments and institutional investors, with operations in 57 locations in 26 countries.

The sub-prime mortgage financial crisis in the US, which Mottley called “extremely contagious” has already seen the write-off of billions of US dollars, by major investment bankers like Citigroup Incorporated and Merrill Lynch.

According to Mottley, the opinion now on the streets was that the US was headed for a recession in the first quarter of 2008, dragging Japan and Europe with it. If this happened, he said, the Caribbean could face a very serious slow down in tourist arrivals from North America and Europe, as there would be reduced consumer spending in those countries. In addition, access to finance would be more difficult as a result of a credit squeeze, where credit would not be available on the same terms, meaning people would pay more for loans and have shorter repayment durations than in the past.

The sub-prime crisis was far from over, he said, since the demand for housing continued to weaken, even as the housing inventory rose in Britain and the US, which means “this is pulling down prices of houses”.

He said the current rate of sale with the present inventory meant it would take five years to clear the housing backlog in the US, for example.

Even prime mortgages were said to be affected as repayment problems crop up.

So what can governments do?

In Mottley’s view there is very little that governments can do in the short term, except to look closely at revenues and spending. President Bharrat Jagdeo at the annual awards dinner of the Guyana Manufacturers’ Services Association (GMSA) earlier this month, had warned businesses of the re-pricing of risk in the US as a result of the sub-prime crisis and the credit crunch. This week, the President hinted as well at investing in other currencies in place of the weakening US dollar.

Mottley predicted, “slower growth for most Caribbean countries, corporations and banks”. Caribbean banks were encouraged to improve on project and asset management by attracting the “right people,” in the light of larger incentives abroad for qualified Caribbean nationals. Mottley said the best hope was to find and target Caribbean people abroad, nearing the end of their careers, to provide the type of skills in asset and project management. Banks such as Republic Bank, the National Commercial Bank of Jamaica, First Caribbean and Butterfield were called upon to move toward improving information technology in a relatively short period. These banks were also encouraged to break out and grow in their operating environments and not to sit on their laurels in these changing economic times.

Partner for Economic Development Limited Attorney Christopher P Malcolm called on Caribbean bankers to seek to influence domestic and regional policies.

In an interview with Stabroek News, Malcolm said the integration of Caribbean financial services was the most important thing in the Caricom Single Market and Economy (CSME) because if it did not work “you can’t get any other movement in the economy.”

He believes that the CAIB and other such bodies need to sit down as a group and determine their needs as an industry. The industry should also advance position papers and draft legislation, instead of everything starting with the governments, Malcolm said.

Asked if politicians would listen to the industry, the attorney said that if the industry dealt with the micro-issues politicians would have to respond. But he criticized the attitude of protectionism where nobody was prepared to challenge.

Asked for his view on Malcolm’s position, CAIB Chairman Michael Archibald agreed that bodies like his needed to improve their lobbying. He said lobbying initiatives were also discussed at the CAIB Directors meeting in Barbados last month.

Archibald admitted that the CAIB had not lobbied in a “focused and organized way in the past”, but said the association has recognized this and was seeking to improve.

He added, “we need to go to government and say this is what we want done,” and to keep at the authorities until it was done.

The 34th Annual General Meeting of CAIB was held on Monday afternoon and the opening ceremony of the two-day conference at Le Meridien Pegasus on Monday night. The conference ends today.

The CAIB has 50 members with three honorary members with combined assets of US$17.5 billion. The CAIB AGM was last held in Guyana in 1998.

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