Caribbean Business Executive Seminar

Strategies to Cope with Global Uncertainty – Choices for Caribbean Business and Finance

Facing the Challenges of Global Uncertainty

The financial crisis which triggered the global recession was not caused by bad bankers, bad financial instruments or bad financial jurisdictions. True, it appears that some bankers cheated, and some regulators may have dropped the ball, but even if they hadn’t, the financial system would still have fallen into crisis. That was the assertion with which Professor Avinash Persaud opened the CCMF seminar “Strategies to cope with global uncertainty – choices for Caribbean business and finance”, held at the Jamaica Conference Centre in Kingston, on September 4, 2009. Professor Persaud pointed to the basic flaw in the Basel Accords by which banks are regulated internationally: they use market prices to value the capital which is the banks’ last line of defense. When markets fail, as they did when banks stopped lending among themselves eighteen months ago, much of the value of capital evaporates. The way to avoid a repeat of the crisis is to match the risks that financial institutions take to their capacity to bear risk. For example, institutions that have short term obligations should lend at short term, leaving those with long term commitments to lend at long term.

Mr Philippe Carrel joined Professor Persaud in criticising the Basel Accords for adding together the risks of loan default, fraud, a decline in share prices, a devaluation, etc. This one size fits all approach impedes specific action that needs to be taken in each case. Instead he advocates that all credit risks should be added, wherever they arise in the financial conglomerate, and that the same be done for all operational risk, market risk, etc. Mr Philippe Carrel’s presentation may be downloaded here.

Dr Arnold McIntyre of the IMF’s Western Hemisphere Department outlined reforms which the IMF has recently undertaken in response to the crisis. They include an increased allocation of Special Drawing Rights (SDRs) to each member country of the IMF, a move which adds to the foreign exchange reserves of all member countries. The IMF has also overhauled its concessionary facilities for the poorest countries, introduced a new flexible credit line and high access precautionary arrangements, and modernised the conditions attached to the use of existing lending facilities. An important change for Caribbean countries is that IMF borrowing may now be used to finance government expenditures, something which the Fund expressly forbade before the change in policy.Dr Arnold McIntyre’s presentation may be downloaded here.

Dr Badrul Haque summarised World Bank facilities for which Caribbean countries might be eligible. The Bank has fast tracked US$2 billion of funding via its subsidiary International Development Association, directed towards the poorest countries, including Haiti, Guyana and four OECS countries. World Bank lending has trebled to US$100 billion, including funding for well thought out development policy. In addition, another Bank subsidiary, the International Finance Corporation, has introduced new facilities for trade financing, for sustaining investment in infrastructure, to assist in the recapitalisation of banks, to help fund loan restructuring, and to refinance microenterprises. Dr Badrul Haque’s presentation may be downloaded here.

Mr Eric-Vincent Guichard confronted the attendees with the reality that the Caribbean needed large conglomerates, that were inevitably “too big to fail”, in the successful pursuit of global competitiveness. He offered examples drawn from Michael Porter’s The Competitive Advantage of Nations of Swiss and Japanese conglomerates which had led a successful thrust for international competitiveness in industries such as watch making and heavy industry. Such conglomerates need to be supported, but they must not be allowed to run amok. In exchange for accommodative policies they should be held publicly accountable and their operations should be transparent.

Mr Suresh Sookoo of RBTT Financial pointed out that although Caribbean banks did make some losses because of falling share prices, they were not seriously affected by the international financial crisis because they had not followed international banks into the market for derivatives and secondary instruments. Most bank assets in the Caribbean remain loans that they have themselves underwritten, and securities holdings were limited to some secondary mortgage paper. The main impact on the banks has been via the contraction in the real economies of the Caribbean, which has resulted in a noticeable increase in nonperforming loans. Mr Suresh Sookoo’s presentation may be downloaded here.

Mr Mark Linehan reported that Digicel had raised US$510 million on securities markets in 2009 in spite of the economic downturn. The downturn has had its impact on the growth of the company’s core cellphone business, but it was seeking to reduce costs, including by the use of electronic recharging of cellphones. Digicel was also looking to the future, and the possibility of making wireless broadband freely available in major urban centres.

Dr Auliana Poon, whose international tourism consultancy, Tourism Intelligence Intenational, has a worldwide clientele, offered insights based on experience with programmes in Abu Dhabi, South Africa and elsewhere. After the Gulf War, for example, it took twice as long for tourism from the US and Japan to recover, as it did for the UK and Germany. Dr Poon thought the most likely scenario was for a two to five year recovery period from the current slump, but the possibility of a longer or shorter recovery cannot be completely dismissed. Among the key strategies recommended by Dr Poon to beat the recession were the adoption of smart marketing techniques, offering value for money, targetting markets wisely, using technology wisely, carving special niches, and focusing on core business. She also recommended taking a long term perspective, and making strategic choices toward this end. Dr Poon’s presentation may be downloaded here.

Mr. Aaron Hou’s presentation may be downloaded here.

See the official conference site.