As I have tried to show in recent columns the meltdown of the CL Financial and Stanford Financial Groups has had serious damaging effects on the financial sector of most Caricom member states. In one way or another all states with the possible exceptions of Haiti and Jamaica have suffered from the meltdown. Indeed, it would be fair to say the meltdown constitutes a tipping point in the evolution of the negative impacts of the global financial crisis, credit crunch and economic recession on Caricom.
In last week’s column I began my reply to readers’ queries as to whether Caricom-wide responses to the meltdown were “too little too late.” In that column I deliberately concentrated on responses from the seven member sub-grouping – the Organization of Eastern Caribbean States (OECS) to the meltdown. Although some critics consider their responses as representing the case of locking the stable door after the horses had bolted, on the whole my considered view is that the OECS responses have been far more in keeping with the challenges posed by the global economic situation than those of the parent body, Caricom, to date.
Without the shadow of a doubt the level of responses to the global financial crisis, credit crunch and economic recession within the Caricom hierarchy has not been commensurate with either the urgency or gravity of the economic situation which emerged at the end of August last year. Regrettably, it was not until March 20 of this year that the Conference of Caricom Heads of Government met in Belize on the occasion of the 20th Inter-Sessional Meeting of the conference that these matters were formally addressed at the level of what is Caricom’s highest deliberative body.
Prior interventions
Prior to the summit there were three interventions of note. First, the Bureau of the Conference of Heads of Government received submissions from the Caricom Secretariat and the Caricom Committee of Central Bank Governors at the end of November 2008 on the global economic crisis and its implications for Caricom. These submissions were deliberated upon and the bureau endorsed and encouraged further study, monitoring, and contingency planning.
Second, shortly after that, on December 3, 2008, the Caribbean Development Bank convened a seminar to further study the economic and social implications of the crisis for the region. At that seminar there were officials from the international financial institutions (IFI) as well as regional officials.
Thirdly, on January 29, 2009, the Caricom Council for Finance and Planning met and among other matters reviewed the actions taken to that date by regional organizations and member states. The key decision was then taken to establish a Regional Financial Task Force to map the way forward for the region.
The task force was tasked with reporting by the end of March or early April 2009. It included, among others, the Caribbean Development Bank, the Caribbean Regional Negotiating Machinery, the University of the West Indies, regional labour and employers’ organizations, the Caricom Committee of Central Bank Governors and of course the Caricom Secretariat.
As can be seen from this brief description none of these three interventions reflect the urgency and intensity of the challenges which were emerging in the region as the global economic crisis worsened. I believe that it took the dramatic meltdown of the CL Financial and Stanford Financial Groups to bring home the full scope of the negative impacts the crisis could have on the region, if coordinated and deliberate actions were not taken at the highest level of authority within Caricom.
What was agreed on in Belize?
Logically, it must be conceded that responses at the region-wide Caricom level cannot be truly separated from responses at the level of individual member states. Yet, for the purposes of this column these different levels of responses are treated as separate initiatives.
At the heads of government summit in Belize four broad regional responses emerged in relation to the financial meltdown of the CL Financial and Stanford Financial Groups. The most important of these has been agreement on regulatory reforms. A Collage of Regional Regulators has been formed and this was tasked with identifying the “full scope and location of the assets and liabilities of the CL Financial Group in Trinidad and Tobago.”
Alongside this, another initiative is to establish as early as possible a regional regulatory framework. This is expected to oversee the region’s non-banking financial institutions. The aim here is to rule out the scope for non-bank financial institutions to practise regulatory arbitrage by exploiting loopholes and weaknesses in regulatory jurisdictions across member states.
Thirdly, in order to reinforce this initiative, cross-border financial transactions among member states are to be prudently regulated. The existing free for all is to be terminated and replaced with strict prudential supervision.
The heavy focus on non-banking financial institutions reflects the confidence that the heads of government have in their central banks’ abilities to effectively regulate the commercial banking institutions. There is an on-going Caricom Committee of Central Bank Governors that meets and coordinates functions and responsibilities at that level across the region. The heads of government have expressed full confidence in this body and its operations. The summit did however request that the committee prepare contingency plans to cope with any eventualities.
From reports the committee is examining several important matters including 1) the pooling of foreign reserve holdings of member states 2) the creation of a regional stabilization fund and 3) putting together proposals Caricom would introduce in the global effort to reform the global financial architecture and the management of key international financial institutions like the International Monetary Fund and the World Bank.
Taken together with the failure of the summit to arrive at a regional financial services agreement which has been under negotiation for years, these responses to the global economic crisis, now seven months old, are anaemic. It is as if it is not recognized that the financial meltdown represents a tipping point in the evolution of Caricom integration.
