Transcript CSME – The Platform for Growth and Expansion of the

Presentation to CAIB 2007 Conference,
Guyana
November 2007
By
Claremont Kirton
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CSME – an overview
 A single market and single economy
 Single market almost completed
 Single economy currently being implemented
CSME – Mission statement
• We envision a Caribbean Community :
• in which every citizen has the opportunity to realise his or her
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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.
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.
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.
CSME – main economic drivers
 Energy
 Agriculture
 Sustainable Tourism and Agro-tourism
 Manufacturing
 New export services
CSME – enabling policies
• Common sectoral policies will be complemented by
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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
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
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.
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.
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.
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.
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.
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”.
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
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
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
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
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 core—i.e. Member States
that already satisfy the convergence criteria for the CMU
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.
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)
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.
Brewster: Multivariate
Prioritization Analysis III
 Medium category:
banking and securities legislation
regional development fund
regional agricultural policy
government procurement
transportation
other services
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.
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
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.
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.
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
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
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
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
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
THANKS