February 6, 2009
Time for caribbean aggression

by Sir Ronald Saunders 06.FEB.09

For over a decade the Treasury Departments of the countries of the Organisation for Economic Cooperation and Development (OECD) and the OECD itself have imposed rules on developing countries that they have themselves ignored. The financial services sector of the Caribbean has been a victim of the OECD’s unilaterally made rules that have been administered through the International Monetary Fund (IMF) and other OECD controlled international bodies.{{more}}

The present global financial crisis, which has its origins in extremely poor regulation in the United States and European Union countries, including the United Kingdom, provides a golden opportunity for Caribbean countries and other developing nations to fight back. Further, they have the chance to demand a seat at the table of international decision-making on financial issues that they have long been denied.

But, they cannot be timid about it. Representatives of developing countries have to be bold in telling the OECD governments that they want major change in the international financial architecture. Caribbean countries which operate offshore financial services, should be very vocal, and so too should the governments of Jamaica, Guyana and Trinidad and Tobago who have recently introduced legislation to offer financial services globally.

The governments of Caribbean countries have been kind to the US authorities in not heavily criticizing them for the extremely poor regulation that led to the collapse of the financial giants, and to the eventual financial meltdown in the world. If the shoe were on the other foot, Caribbean countries would have been lambasted and coercive institutions such as the IMF, the OECD and the Financial Stability Forum (FSF) would have lost no time in clamping down on them.

The IMF has shown that its control by OECD countries, and especially the Treasury Department of the United Sates, makes it one-sided and incapable of fair and equitable oversight of global economies.

As Praveen Tiwari, the accountant general in the area of West Bengal in India, has pointed out there is evidence to suggest that the downside risks of the policies, practices and instrumentalities by US financial institutions, including ones owned by the US government, “were known to US regulators and the IMF (which has the responsibility of surveillance of the countries’ financial sectors), though both had been rather sanguine about the possible consequences”.

It is significant that in trying to close the stable door on poor regulation after the toxic horse had bolted, the British Finance Minister, Alister Darling, in his pre-budget speech last November drew the British Overseas Territories (BOTs) into his corral.

He said “severe financial turbulence has raised questions for all jurisdictions, while there is growing international pressure to line up standards of financial regulation and meet international norms with regards to taxation”. Yet, the operations of these sectors and their regulation played no part in the current global financial crisis.

Nonetheless, he said that the British government “will shortly commission an independent review of British offshore financial centres; their role in the global economy; and their long-term business strategies”.

It is very unlikely that the “review” will be benign given the history of the European Union (EU) and the OECD issuing directives to the BOTs and placing them on blacklists.

No independent Caribbean country should linger under the impression that if new demands are made of the BOTs efforts will not be made to extend those demands to the entire Caribbean area through organisations such as the IMF and FSF. It is a coming event for which Caribbean States should prepare now – individually and collectively.

Darling and others from the OECD countries have said “given the global nature of the disruptions in financial markets, and the interconnectedness of the international financial system, it is vital for countries to coordinate their actions and to take account of the potential cross-border effects of national decisions”. No one would disagree with that statement, except that the OECD governments acknowledge no need to change the machinery for decision-making or to include in the process small countries, such as those in the Caribbean, even though they offer global financial services and their economies are deeply affected by events in G7 countries.

And, for Caribbean countries while the economic meltdown has reduced the numbers of their tourists, brought a halt to many investment projects, and substantially increased their levels of unemployment, many of their banks have been put under additional pressure by demands from US banks, on whom they depend for US dollar transactions, to retain substantial deposits at low interest rates.

In November 2007, ahead of the current global financial crisis but mindful that the world’s financial architecture should not remain the handmaiden of the G7 countries, heads of government of Commonwealth countries “expressed concern that the current architecture of international institutions, which was largely designed in the immediate aftermath of the Second World War does not reflect the challenges in the world of the 21st century” and that “this undermines the legitimacy, effectiveness and credibility of the whole international system”.

Included in the Committee were Bharat Jagdeo and Patrick Manning the heads of Government of Guyana and Trinidad and Tobago respectively, and so too was the British Prime Minister Gordon Brown. The committee met in June 2008 at the headquarters of the Commonwealth Secretariat in London and said of the existing international institutions: “The majority of independent sovereign states today are politically subordinate and inadequately represented in these institutions. It is unacceptable, and indeed weakens these institutions that the greater part of the world community of states participates and benefits less than fully in them”.

Caribbean countries should seize the opportunity of the hosting of both the Summit of the Americas in April and the Commonwealth Heads of Government Conference in October in Trinidad and Tobago to advance their arguments for reform of the international financial architecture and for seats at the table of decision-making. They should start the process even now in the councils of the IMF and World Bank. It is no longer acceptable to be spectator to, and victims of, decisions made by others.

(The writer is a business consultant and former Caribbean diplomat)

(responses to: [email protected])