May 2009 Financial News

Caribbean countries look to the IMF for financial relief

May 15, 2009

Caribbean nations have already begun to tap International Monetary Fund (IMF) aid as they respond to reduced revenues.

The international economic downturn has hit the Caribbean tourism industry particularly hard, with the IMF predicting that revenues could fall by an average 15 per cent this year.

In its latest Caribbean economic outlook, the IMF said St Vincent and the Grenadines had become the first country in the Americas to request financial assistance under its Exogenous Shocks Facility (ESF).

This provides policy support and financial assistance to low-income countries battling tough economic events out of their control.

The arrangement provides funding on terms more concessional than under other IMF emergency lending facilities.

The Fund said that St Vincent made the request because of the downturn in tourism income and was followed shortly afterward by Dominica and St Lucia under the same programme.

Tourism-dependent

Lower visitor receipts were also cited by Grenada, which has requested additional funding under its ongoing IMF poverty reduction facility.

Belize has received assistance through the Fund's emergency assistance for natural disasters to mitigate the adverse effects of this year's flooding on international reserves.

St Kitts and Nevis has also requested assistance under the same programme.

The IMF report highlighted the importance of tourism to Caribbean, noting that of the top 20 tourism-dependent countries in the world, 10 are from the Caribbean region.

Tourism receipts in Antigua and Barbuda, the most tourism-dependent country, have averaged almost 50 per cent of GDP over the past three decades, it said.

The Caribbean tourism decline began in the second half of 2008 - of about five per cent - after growing by a cumulative 8.6 per cent in the first half.

Tax relief

The IMF said the fall, which was about five per cent, may be slowed this year because hotels are offering cut-price rates.

But this in itself could lead to receipts falling by an average 15 per cent in 2009.

Some Caribbean countries have provided short-term emergency aid to the hospitality sector, among them Jamaica, Barbados and St Vincent.

Measures have included tax relief to hotels, subsidised utility rates, and more money for marketing.

Jamaica's advertising campaign appears to have been particularly successful, the IMF noted, as stay-over arrivals have been up in the early months of the year.

With revenues dipping and the Caribbean having high debt levels, the region's ability to implement expansive fiscal stimulus programmes has been limited.

The IMF said the region had initially weathered the global financial shocks but the problems with the C L Financial conglomerate the Allen Stanford group meant that governments had to be on their guard.

The bank said earlier that Latin America and the Caribbean were likely to recover more quickly from the global crisis than developed country economies because they are less exposed to systematic banking problems.

Risky investments

Part of that may be due to the conservatism of Canadian banks that dominate the landscape in many Caribbean countries, alongside local government policies.

"We used to criticise authorities for the archaic (banking) regulation. Now we realise it has saved us," said Suresh Sookoo, CEO of RBTT Financial Holdings, the second largest banking group in the Caribbean.

For example, the London-based Banker magazine, to whom he was speaking, said that, because of regulatory restrictions, the amount of money that local pension funds and insurance firms are allowed to invest outside the Caribbean prevented these institutional investors, and the Caribbean banks that own them, from getting involved in those risky US mortgage investments.

Courtesy of BBC Caribbean


Source:
Friday, May 15, 2009
Jamaica Oberver

http://www.jamaicaobserver.com/magazines/Business/html/20090514T190000-0500_151448_OBS_CARIBBEAN_COUNTRIES_LOOK_TO_THE_IMF_FOR_FINANCIAL_RELIEF_.asp