CSME

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CSME The Platform for Growth and Expansion of
the Regional Financial Services Industry

• Presentation to CAIB 2007 Conference, Guyana
• November 2007
• By
• Claremont Kirton

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(No Transcript)
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CSME an overview

• A single market and single economy
• Single market almost completed
• Single economy currently being implemented

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CSME Mission statement

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• We envision a Caribbean Community
• in which every citizen has the opportunity to
  realise his or her human potential and is
  guaranteed the full enjoyment of their human
  rights in every sphere
• in which social and economic justice is
  enshrined in law and embedded in practice
• a Community from which poverty, unemployment and
  social exclusion have been banished
• in which all citizens willingly accept a
  responsibility to contribute to the welfare of
  their fellow citizens and to the common good
• and one which serves as a vehicle for the
  exercise of the collective strength of the
  Caribbean region, and the affirmation of the
  collective identity of the Caribbean people, in
  the world community.

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CSME Development Vision

• ECONOMIC 
• Self-sustaining economic growth based on strong
  international competitiveness, innovation,
  productivity, and flexibility of resource use
• A full-employment economy that provides a decent
  standard of living and quality of life for all
  citizens elimination of poverty and provision
  of adequate opportunities for young people,
  constituting an alternative to emigration
• Spatially equitable economic growth within the
  Community, having regard to the high growth
  potential of member states with relatively low
  per capita incomes and large resources of
  under-utilised land and labour
• NON-ECONOMIC
• Social equity, social justice, social cohesion
  and personal security
• Environmental protection and ecological
  sustainability
• Democratic, transparent and participatory
  governance.

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Development vision economic dimension

• Accelerated economic growth via adjustment and
  transformation of regional economies, improved
  international competitiveness, sustained
  innovation and productivity growth.
• Economies with lower per capita incomes to grow
  at fastest rates, so as to induce some
  convergence.
• Policy implementation involves partnership
  between government, private sector , labour and
  civil society.
• Private sector lead role in investment as well
  as ownership/management of economic activities.

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CSME main economic drivers

• Energy
• Agriculture
• Sustainable Tourism and Agro-tourism
• Manufacturing
• New export services

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CSME enabling policies

• Common sectoral policies will be complemented by
  common regimes or harmonised policies in
• Human resource utilisation
• Fiscal, monetary and incentives policies
• Transport
• Investment
• Financial services
• Capital market integration
• Competition
• Regional quality infrastructure
• Small and medium enterprises
• Corporate governance

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CSME enabling policies

• These will require
• Institutional arrangements, including human
  resources to support policy implementation
• A Regional Development Strategy and related Plan
  which will include quantitative targets and
  indicators

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MACRO-ECONOMIC ENVIRONMENT CSME

• Region divided into
• i) OECS countries very small, open, dependent
  on tourism, agriculture, remittances and foreign
  assistance. Monetary union, Central Bank -- ECCB.
• ii) Bahamas, Belize, Barbados fixed exchange
  rate, own Central Bank.
• iii) Guyana, Haiti, Suriname, Jamaica, Trinidad
  Tobago own Central Banks flexible, floating
  exchange rates attempts at economic
  stabilization.

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FINANCIAL SECTOR OVERVIE W

• Financial depth (credit or money/GDP) greater
  than average L AC.
• Barbados, Jamaica, Trinidad have fairly active
  stock exchanges.
• Commercial banks dominate financial sector
  dominance even greater than explicit share
  indicates as many near banks are subsidiaries
  of commercial banks.
• Share of commercial bank assets in total
  financial sector assets declining. Increasing
  role for NBFI s.

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CARICOM Financial Services Agreement (CFSA)

• CFSA will establish the legal framework for the
  unrestricted movement of capital and financial
  resources across the regional economic space.
• Revised Treaty sets the broad policy framework.
• CFSA expands Treaty provisions.

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Financial services integration direct benefits I

• Regional pooling of liquidity and regionalization
  of supply and demand for financial instruments
• Finance domestic investments over and beyond
  domestic savings
• Improved operation of financial markets in
  fairness, efficiency, transparency and degree of
  competition
• Product innovation, wider range of financial
  products and improvements in service quality.

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Financial services integration direct benefits
II

• Lower transactions costs for financial service
  firms and their customers
• Lower liquidity risk for financial service firms
• Tendency towards the convergence of interest
  rates
• Larger and more efficient financial institutions
• Increased investment, production and employment.
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Financial services integration indirect
benefits

• Stimulate domestic financial development
• Impose discipline on domestic macroeconomic
  policies
• Improve operations of domestic institutions,
  based on implementation of best practices.

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Capital market integration

• Cross listing of regional firms only 13 out of
  132 firms trading in CARICOM countries are cross
  listed
• Financial sector leading in terms of sectoral
  distribution
• Regional bond market TT centred

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Capital market integration Key issues

• Removal of multiple listing fees and other
  constraints to cross listing
• Harmonization of securities/company laws
• Harmonization of listing rules, trading
  requirements and procedures
• Updating trading technology establishing
  regional electronic business policy
• Incentives for firms to become publicly listed.
• Regional stock exchange

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Monetary integration

• Plans for Monetary Union
• CMU to serve as catalyst for monetary integration
• Full implementation of Rights of Establishment
• Harmonization of legal, regulatory and policy
  environment
• CARICOM Investment Code and CFSA

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CSME roadmap for financial services integration I

• Phase I 2006-2008
• Political approval of Development Vision and
  Regional Development Strategy
• Full implementation of free movement of service
  providers
• Political approval of CFSA and Caricom Investment
  Regime
• Establishment of the Regional Stock Exchange
• Harmonization of financial regulatory environment

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CSME roadmap for financial services integration
I Monetary issues

• Phase I 2006-2008
• (i) Adoption of a Protocol on Monetary
  Integration to the Revised Treaty setting out the
  framework for the completion of the CMU
• (ii) Agreement on the adoption of a numeraire
  CARICOM Currency Unit as a further step towards
  full Monetary Union and
• (iii) Initiation of the Caribbean Monetary
  Union with Category 1 countries as the
  corei.e. Member States that already satisfy the
  convergence criteria for the CMU

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CSME roadmap for financial services integration II

• Phase 2 2009 - 2015
• Expansion of the CMU to encompass Category 2 and
  Category 3 countries.
• Issues to be addressed by the Protocol are
• (i) the nature and scope of a common monetary
  policy
• (ii) the relationship between national central
  banks and a regional monetary authority,
• (iii) legislative arrangements required to give
  effect to monetary integration, and
• (iv) the operational requirements of monetary
  integration.

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Brewster Multivariate Prioritization Analysis I

• Examined CSME policies using multivariate
  analysis
• Variables used
• urgency
• short-term economic impact
• long term economic impact
• logical dependence (building blocks)
• opportunity cost
• probability of attaining objective (risk)

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Brewster Multivariate Prioritization Analysis II

• 18 out of 30 policy areas fall into high risk
  low probability of attainment in the foreseeable
  future.
• All macroeconomic policy areas fall into this
  category macroeconomic policy coordination
  Monetary Integration/Union Community Investment
  Policy Fiscal Policy Harmonization.
• Low risk areas high probability of attainment
  in the foreseeable future include trade in
  goods, trade in services free circulation.

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Brewster Multivariate Prioritization Analysis III

• Medium category
• banking and securities legislation
• regional development fund
• regional agricultural policy
• government procurement
• transportation
• other services

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European Union financial integration its
experience

• Some studies have attributed as much as 25 of EU
  GDP from single market to liberalization of
  financial services across borders.
• Gains include reduced intermediation margins,
  lowering cost of capital to investors
• procurement of services from other member states
  
• lower regulatory costs
• impetus for financial innovation.

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European Union financial integration its
experience

• Pre euro, significant intra-euro trade.
• With euro, significant increases in intra-euro
  and extra euro area trade promotion of cross
  border trade.
• Increases in Foreign Direct Investment (FDI) and
  mergers and acquisitions.
• Euro is a catalyst for developing the single
  market in financial services.
• Euro area corporations maximising possibilities
  of appealing to broader group of investors to
  raise funds

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European Union financial integration its
experience

• Between 1997 and 2005, euro area residents
  doubled their holdings of equity issued in
  another euro area country.
• Share of long term debt securities issued in euro
  area and held by other euro area residents has
  increased over the last decade.
• Note, however, that integration in retail banking
  has not increased by much cross border banking
  activity limited.

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European Union financial integration its
applicability

• Careful about using EU experience as blueprint
  for financial integration motivation different
  objective preconditions different also.
• Pre euro, significant intra EU trade high levels
  of institutional development very complementary
  production structures driven mainly by political
  versus economic motives.

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European Union financial integration its
applicability

• Caribbean trade mainly extra regional rather than
  intra-regional.
• Invisible extra-regional exports via tourism and
  services key
• Initial drivers of Caribbean regional integration
  were economic not political.
• Role of remittances via transfers from Diaspora
• Role of marine borders unlike EU mainly land
  borders

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Organization of Eastern Caribbean States (OECS)

• Common currency
• Central bank and stock exchange
• Common court
• Joint diplomatic representation
• Directorate of civil aviation
• Joint regulation of telecommunications
• Joint pharmaceutical procurement system

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Eastern Caribbean Central Bank

• Establishing markets and institutions
• Implementing regulatory framework
• Removing legal and administrative barriers to
  creating single financial space.
• Currently, there exists
• Common market for EC dollar and foreign
  currencies
• Interbank market to provide liquidity for
  banks

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ECCB

• A regional government securities market (Regional
  Government Securities market)
• A securities market for shares
• A secondary market for primary mortgages
• Institutions include Eastern Caribbean
  Securities Exchange, EC Central Securities
  Depository and EC Central Securities Registry
• Eastern Caribbean Home Mortgage Bank
• EC Institute of Banking and Financial Services

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Eastern Caribbean Currency Union (ECCU)

• Three key institutional arrangements for
  financing development
• commercial banking sector
• development finance institutions
• capital markets.
• EC Enterprise Fund and EC Unit Trust
• Integrated regulatory framework

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• THANKS