BASSETERRE, St. Kitts – THE financial and economic crisis has precipitated the need for countries to construct a more stable and secure financial system that can withstand the economic woes and uncertainly of any future meltdown, according to the International Monetary Fund (IMF).
Increasing signs of recovery have led to discussions on appropriate exit strategies and reform for key sectors of individual countries. In a statement made yesterday by Murilo Portugal, IMF Deputy Managing Director, reforming the financial sector is critical but must be dealt with in the context of an appropriate exit.
He explained that in all economies, the key challenge remains to exit at the right time, pace and sequencing, adding that regulation of financial institutions are critical thereafter.
“The new regulatory framework should put more weight on financial stability. But avoiding excessive regulation that could stifle innovation and the benefits of a more globally integrated financial system is important,” Portugal noted.
Such increased regulation, according the IMF official, is likely to lower returns, increase the cost of capital, and restrain risk-taking. Also noted in Portugal’s presentation was the extension of regulation to cover risks in the non-banking financial sector.
Portugal added, “One point is clear. We cannot return to the financial system of yesterday. We must move forward to set up a financial system where macro and micro regulations complement each other and help to reduce systemic risks.”
Similar concerns were addressed by the Eastern Caribbean Currency Union (ECCU) when the body proposed its Eight-Point Stabilization Programme to return the region to sustained growth.
The programme addressed issues of financial programming, fiscal reform, debt management, public sector investment programmes and social protection programmes, with a special focus on the regulation of non-banking institutions.
The upcoming 66th Meeting of the Eastern Caribbean Central Bank (ECCB) Monetary Council is expected to give an update on the implementation and success of the stabilization programme, as well as a plan for the way forward in the economic union.
