BASSETERRE, St. Kitts – IN light of the recent liquidity problems experienced by Trinidad-based CL Financial Group, Executive Director at the Caribbean Centre for Money and Finance (CCMF), Dr. De Lisle Worrell has asserted that the region is experiencing a “failure of financial systems”.
CL Financial’s troubles could have dire implications for depositors, pensioners and policy holders of its regional subsidiaries, CLICO and British American insurance companies.
Worrell, who is based in the University of the West Indies (UWI) Trinidad, is a Professor of Economics at the Sir Arthur Lewis Institute of Social and Economic Studies. He is a former senior economist with the International Monetary Fund, and former Deputy Governor of the Central Bank of Barbados.
The learned economist concluded that the unfolding problem is not entirely the fault of regional insurance companies.
“The real issue is not about the insurance companies; we have a failure of financial systems and the basic problem was in measuring risk exposure for private companies in the region. The guidelines for regulation that the region has been using involves taking the market value of the assets. Now, in normal times, that is not a problem, but because the stock exchange has contracted so significantly, what [one may have] thought was worth 10 million would now be worth 5 million, so you may have a 5 million loss overnight. There is no financial management that is able to manage such a loss.
“We now have a threat to all our financial systems on a whole, because of apprehension that all financial institutions may be at risk and governments [of the region] have to do as much as possible to protect all policy holders. Irrespective of the nature of contract, investors must be reassured that their investments are not at risk. It is clear that we need to improve on our regulatory structure and our methodology to assess risk. The methods used to measure the extent of risk exposure are clearly inadequate as it has failed not only here in the region but also around the world.”
Dr. Worrell indicated that the limited information available has made the region unable to definitively predict the impact of the CL Financial meltdown on the region. He added that the financial difficulty “took the region by surprise” because the public had no basis to “test the public assurances given to depositors”.
He said although there is “no great need to be concerned, it is clear that we need better financial structure” adding that there is a need for the public to made aware of the interconnections between private financial institutions on a regular basis.
Worrell said the fundamental problem the region would face depends on the US and UK markets.
He stressed, “We are in what we call ‘market failure’ and we do not know what to do about it. The Caribbean almost entirely depends on the recovery of the US and UK economies and there is nothing much we can do to rectify our situation until they begin to stabilize and grow again.”
The issue is expected to be addressed in full detail at the 64th Meeting of the Eastern Caribbean Central Bank (ECCB) Monetary Union to be held in St. Kitts today (Feb. 13) .
