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Come January 2006, Jamaican investors and by extension the financial sector, will have a significantly wider market for investment, trade and to pursue most financial activities.
This, as the CARICOM capital markets will become fully integrated under the CARICOM Single Market (CSM), even while region-wide cross listing, cross border trading and the formation of regional financial conglomerates are already happening.
The benefits of this wider capital market are varied and include: increased market depth to involve a pool of more than 15 million people across the region; more and easier access to financing; more amalgamation opportunities thus increased prospects of benefiting from economies of scale; lower liquidity risks; lower transaction costs; increased investment opportunities and national treatment for CARICOM financial institutions wishing to do business in neighbouring member states.
The process to provide deeper access to financial services however, needs some level of standardization to be effective, thus the CARICOM Financial Services Agreement (CFSA) was created to ensure that there existed a balance between national and regional policies and that there is a region-wide set of procedural rules.
“This harmonization, when achieved, will be historical, since the CARICOM Single Market will be the only regional grouping for developing nations that has a fully integrated financial services sector,” said Andrea Symmonds, Chief Research Officer and CSME Focal Point in the Office of the Barbadian Prime Minister.
Ms. Symmonds, who was speaking at the recent conference of the Association of Caribbean Securities Regulators at the Jamaica Conference Centre, noted that while the South African Development Community and Eastern Africa had very loose frameworks, what the region was attempting was the integration of the capital markets and as such, the financial services market went further.
One crucial area demanding strategic harmonization is that of government securities, especially since some operate on a fixed exchange rate regime whilst others choose a floating regime.
In light of this, Ms. Symmonds highlighted Barbados’ concerns: “What if there is an offer in the Organisation of Eastern Caribbean States (OECS) market for example, of US$250 million and there are investors, who want to take up that offer can the Barbados Central Bank, which operates a fixed exchange rate regime, one which it is mandated to protect, therefore allow these investors to take this sum out of our reserves?”
This possibility of a seeming conflict of interest between state sovereignty and supranationalism, Ms. Symmonds said, was common to all regional blocs and as such she underscored the importance of convergence between government macro economic policies, market regulators and participants.
Explaining, she recommended more formal cooperation between government and its agencies and private financial sector players in the region-wide integration process.
“One of the issues that has to be discussed is the convergence of regulators, market participants and macro economic policy, with the objective of arriving at a collaborative strategy that implements legislation on both regional and national levels,” she said.
Enid Bissember, Senior Project Officer in the Economic Intelligence and Policy Unit at the CARICOM Secretariat, pointed out that under the Single Market, the market in which to do business was extremely intricate since it includes: two exchange rate regimes (fixed and floating); 14 ministers of finance; seven stock exchanges; 51 foreign banks; 32 domestic banks; eight central banks; 95 mortgage dealers including brokers, actors and traders; 14 insurance regulators; regulated and unregulated credit unions and other financial services institutions.
She also noted that whilst harmonization efforts within the region’s financial services sector started back in 1989, investment then was mostly home-centered, not regional.
So whilst a relatively loose integration framework could have worked in the 1980s, for CARICOM, not yet faced with the demands of cutting preferential trade agreements and eroding tariff barriers, the faster pace of globalization especially since the 1990s, demands more efficiency in order to exist in the new market.
Regional trading blocs and communities as well as bilateral agreements between states have therefore become necessary for better market capability and with the formation of these blocs and communities come the integration of at least all trade, and financial sectors in these groupings.