– Minister tells participants at Monetary Studies Conference
As countries around the world battle the effects of the global financial and economic crisis and seek to formulate and implement recovery plans and mechanisms to foster stability in economies, the Caribbean banking sector is urged to recognise the important lessons of the crisis.

Minister of Finance, Dr Ashni Singh, during his address at the opening of the 41st Annual Monetary Studies Conference on Tuesday at the Bank of Guyana, underscored the importance of building financial resilience in the Region.

“Financial resilience is one major component of the economic schema that will determine the magnitude of economic shocks that economies of the region can withstand. It will also determine the pace at which economies will recover,” the Minister said.

Early signs of impending difficulties should be detected through micro and macro prudential analysis and this process is expected to facilitate appropriate corrective actions to avert economic downturns. “There is undoubtedly a need for both better regulation and supervision in the financial sector and better prevention of the accumulation of large and unsustainable macroeconomic imbalances that give rise to crisis. Reforms to strengthen financial regulations should be pursued rigorously,” Minister Singh noted.

Five areas of priority have been identified on the global agenda, including:

* expanding the perimeter of prudential regulation by re-evaluating what constitutes a systemic institution, which would be subject to rigorous prudential regulation, supervision and oversight;

* making consolidated supervision more effective;

* adopting existing regulatory and institutional practices to reduce pro-cyclicality;

* strengthening public disclosure practices for systemic financial institutions and markets; and

* giving central banks a broader mandate for financial stability.

“Financial crisis will still happen, even with a better regulatory framework and improved financial governance. It is therefore imperative that CARICOM Central Banks agree on a strategy for a development of a Regional Financial Crisis Management for the Caribbean Banking Sector. This will help preserve the financial stability of the regional jurisdiction which faces contagion risks arising from the distress of a financial institution,” Minister Singh said.

Highlighting the ability of developed countries to extricate themselves out of the crisis, the Minister noted that in excess of US $3 trillion has been expended in bank bailouts and fiscal stimulus packages to ameliorate the impact of the crisis on those countries. He also noted that Regional Heads and technocrats have responded quickly, decisively and responsibly in stemming the effects of the financial crisis.

He noted that to avert further economic decline, Governments adopted both short-term to medium-term as well as long-term countercyclical measures which include fiscal stimulus policies as well as sectoral and social policies.

“Depressed fiscal revenues however are major constraints, allowing little or no fiscal space for spending on the gravely affected sectors. It is even more difficult or impossible in cases where some countries in the region are required to meet debt obligations to International Financial Institutions. A major drawback in their counter cyclical measures is the weakening of a country’s balance of payments and the likelihood of being unable to sustain it,” Minister Singh said.

Meanwhile, the Minister noted that the modest and selective response by the International Monetary Fund (IMF), the World Bank and the Inter-American Development Bank (IDB) with marginal reforms in their effort to render assistance is still inadequate in meeting the needs of affected economies.

“The classification of Caribbean states as middle-income countries by International Financial Institutions disqualifies them from concessionary financing without regard to their inherent vulnerabilities. No CARICOM state or the Region as a whole poses a systemic risk to the global economy, thus little attention is given to the urgency and effectiveness with which the region’s economic concerns need to be addressed,” Minister Singh posited.

He added that just over US$6 billion has been channelled by the IMF to cover the impact of low-income country’s reserves positions with a modest amount allotted to the region. These funds are being used to close the external payments gaps and are not injected into the real economy to boost growth and employment creation or to support safety nets for the most vulnerable.

A Regional Heads of Government Task Force on the Financial and Economic crisis was established which is being headed by Guyana, and the Minister noted that at a meeting in Jamaica in August this year, a series of interventions was formulated and approved. These interventions will be spearheaded by Heads of Governments at various international fora such as the United Nations and the recently held Annual Meetings of the IMF-World Bank.

The Minister highlighted Guyana’s advocacy for enhanced development assistance as well as debt relief for vulnerable Caribbean small states since these countries were hard hit by the crisis and need increased assistance and fiscal space to provide for macroeconomic stability and to minimise the impact on the poor.

“At other fora, Guyana argued that a new financial architecture is needed to reduce the vulnerability of developing countries to macroeconomic and financial shocks. For such architecture to be successful, it must involve developing countries’ governments in its design and implementation. Specifically, a new system of international financial governance is needed in which a mechanism is provided for hearing the voices of poor countries as well as larger and more important emerging countries. The G20 grouping, although broader than the G8, includes only one country from Africa, South Africa, and not a single low income country,” the Finance Minister said.

Additionally, he noted that in view of the fact that a new financial architecture will take some time to come into being, the Caribbean region must find alternative sources of funding for its development.

“All of us are aware that the vast majority of the region’s external reserves are held in US dollar dominated assets outside of the region. Recent developments provide us with the occasion to ask ourselves whether we are managing our external reserves in the most efficient manner, and to question the extent to which we should be more inward-looking from a regional perspective in our investment strategies without compromising the safety of our investment portfolios,” the Minister noted.

A CARICOM Development Fund was created and funded by contributions from the CARICOM states, with the aim of creating and building capacity to mobilise resources necessary to assist more vulnerable, smaller and embattled economies of the region that are affected by this and future economic crisis.

“It is envisaged that a Task Force will work with and garner the support of the international development community to further fortify the institution into a viable and successful mechanism which is supportive of the development of our CARICOM Region,” Minister Singh said.

The Conference which is being co-hosted by the Bank of Guyana and the Caribbean Centre for Money and Finance, will conclude on November 13. It is being held under the theme: “Building financial sector resilience in the Caribbean” with participants from Central Banks in the Caribbean. (GINA)