CLICO ripples touch region

06.FEB.09

Reality is fast catching up with the Caribbean, as far as the global economic crisis is concerned. Those of us who may have been harbouring illusions about our supposed insulation from the shocks of the financial meltdown in the major financial centres and the consequent negative impact on economies worldwide, large and small alike, can no longer live in our fools’ paradise. The rude awakening is here, particularly telling due to our open economies and reliance on the service sectors.{{more}}

Reduced tourist arrivals have been causing not only consternation among hoteliers and those in the tourism sector, but have led to significant lay-off of workers in that sector in several islands. Other service-based industries have been similarly affected with resultant severance of employees. Governments and labour unions, like employers, are desperately seeking solutions.

When the financial meltdown became evident late last year, there was still much confidence expressed that the Caribbean economies, though affected to some extent, would be largely safe. But within the space of the past week, seismic shocks have reverberated throughout the financial sector in the region. The cause of the alarm was the shocking news that one of the Caribbean’s largest conglomerates, CL Financial, a regional giant controlling over TT $100 billion in assets in almost 30 countries, had requested a bailout from the government of Trinidad and Tobago to shore up the company. CL Financial owns the CLICO group, British American Insurance and Angostura Bitters, among others.

CLICO and British American hold substantial deposits in pension funds, retirement benefits, as well as the traditional insurance policy holders. Fortunately, there has been swift and positive response by the T&T government to bail out the company by providing guarantees, not just for those affected in that country (necessary since it is estimated that the CL Financial group’s assets amount to some 15 percent plus of the Gross Domestic Product of Trinidad and Tobago), but also for the Eastern Caribbean as well. Sadly, its attempts at obtaining Parliamentary approval for the confidence-boosting measures were temporarily stymied by petty politicking earlier this week.

In the case of St. Vincent and the Grenadines, our government has been laudably proactive. Prime Minister and Minister of Finance Dr. Ralph Gonslaves has not only been in contact with the Prime Minister of Trinidad and Tobago, but also its Central Bank Governor. He has engaged in extensive sub-regional discussions with Eastern Caribbean Central Bank Governor, Sir Dwight Venner, and regional governments in the Eastern Caribbean. To his credit, he has consulted his Opposition Leader, Mr. Arnhim Eustace, a move which ensured cross-party support for a Bill introduced in Parliament on Tuesday, to extend financial regulatory provisions to the Building Societies sub-sector.

For the time being, the swift action has had the effect of instilling some confidence and soothing nerves. Yet such are CL Financial’s tentacles and such the intertwining nature of the finance sector that it may well be that huge icebergs are still below the surface. It is a reminder that we cannot afford to be complacent. The eggs spawned in the years of high-risk, high-return investments may well be hatching. Prudence, vigilance and commonsense are prerequisites for our survival.