Warning that reducing risk could lead to foreign exchange losses
by Marlon Madden
The decision of some international financial institutions not to provide correspondent banking services to certain segments of the Caribbean Community (CARICOM) could drive legitimate businesses underground.
This is the opinion of the Secretary General of CARICOM, Dr Carla Barnett, who proposes that a study be carried out to determine the real impact of risk reduction on regional economies.
She argued that the loss of international banking relationships could lead to a significant loss of valuable foreign currency for states in the region, which would erode progress in socio-economic development.
Barnett made the comments during the opening of the 2022 Caribbean Regional Risk Conference on Wednesday.
She explained that the reputational risk that CARICOM Member States have had to endure in recent times is closely linked to economic risks due to “the intensification of regulatory measures on the landscape of anti-money laundering and financing of terrorism (AML/CFT), and global tax governance initiatives that fall under the unilateral action of various developing countries”.
“Changes in international regulatory standards for global taxation and the AML/CFT regime have led to the blacklisting of several Member States deemed non-compliant from time to time, and resulted in financial marginalization and aversion to risk of international investors,” the CARICOM SG explained.
“I believe that the full impact of the risk management practices of international regulators, the so-called risk reduction practices, must be studied continuously. Uncertainties and the actual loss of correspondent banking relationships are likely to drive legitimate business underground.
She further explained that this would result in a reduction in the flow of export earnings to the region.
“When formal financial markets cannot function, businesses resort to informal markets to survive. In addition, the threat of loss of access to the international banking system may lead exporters of goods and services to keep as much of their foreign exchange earnings as possible abroad in order to be able to secure rapid access to foreign exchange when they need it.
“These two outcomes of international risk reduction practices may therefore well lead to the expansion of the informal sector and increase the likelihood of macroeconomic instability, thereby increasing some of the very risks we seek to mitigate. In short, current economic risks, whether global, regional or national, could lead to a further erosion of the socio-economic progress that CARICOM member states have made over time,” Barnett said.
She identified energy price volatility, supply chain disruption, the ongoing Russian-Ukrainian war, rising global interest rates and inflation rates, rising commodity prices raw materials, coupled with the impact of natural disasters and climate change, as major risks that were eroding the fiscal space of regional economies.
The senior CARICOM official stressed the need for an integrated approach to country risk management, adding that “this will require all of us – member states, development finance institutions, regulators, academia, the private sector and civil society – to carefully consider the central relationship of risk factors”.
“The operationalization of an integrated country risk management framework robust enough to strengthen social safety nets, and with the ability to adapt to shocks, will allow us to build back better and is most welcome,” he said. she declared.
“Now is the time for country risk management to be a key imperative for the Caribbean as we chart a path to resilience and sustainable post-COVID recovery, and prepare for the other crises that are sure to arise. .”