Latin Finance - September/October 2009 - 56

Caribbean macro outlook According to JPMorgan, exports have contracted 47% on average in Jamaica through the first quarter, ended March 31, largely owing to a slump in bauxite. In the Dominican Republic, exports have fallen 24.1% in the same period, it adds. In February, the central bank of Trinidad & Tobago announced that it would bail out financial services companies Clico Investment Bank (CIB), Clico Insurance Company, British American Insurance Company and Caribbean Money Market Brokers (CMMB), all of which are within the CL Financial Hit Where it Hurts Group, as they had been facing liquidity pressures. The Tourism, the heart of the Caribbean economy, has been government took control of CIB and transferred third party suffering as cash-strapped travelers from North America assets and liabilities of both CIB and CMMB to governmentand Europe opt to stay home or spend less on vacation. controlled First Citizens Bank. According to the World Travel & Tourism Council (WTTC), “The problems at CL Financial apparently stemmed in in 2008 tourism contributed $39.9 billion to the Caribbean part from the sharp drop in methanol and real estate prices, economy. This is expected to decline by 9.2% in 2009, says but also from risky practices that included excessive relatedthe WTTC. party transactions,” says JPMorgan. As part of the bailout, the According to data from the Caribbean Tourism central bank had said it would sell, liquidate or collateralize Association, tourist arrivals to the its assets and use proceeds to meet Dominican Republic dropped 4.8% funding requirements for both Clico and in the period of January to April, British American. It plans to provide full compared to the same period of 2008. funding support to meet any remaining Other islands were also hit. deficits. Despite a recovery in May, driven According to the central bank, by tourists’ concerns about drugexcluding CIB, Trinidad & Tobago’s related crime and swine flu in Mexico, banking system is well capitalized, more tourism dollars have not flowed as the average capital adequacy ratio into the region. Arora explains that stands at 18%, and it is not facing broadly speaking, arrivals are up, but undue liquidity challenges. The spending is down. For instance, even government took over CL Financial’s after getting more arrivals in January local assets in June. to mid-July of 2009, Jamaica’s tourism Meanwhile, the Stanford Bank earnings fell $70 million, or 6%, to scheme, said to amount to $7 billion $1.1 billion, versus the same period of and to have spread practically all over the previous year, he says. LatAm and parts of the Caribbean, is For the Dominican Republic, adds also impacting the region, particularly Allegations of corruption, says Díaz Franco Uccelli, a VP for EM research at Antigua & Barbuda. “The impact is JPMorgan, tourism earnings fell about significant, not only because you take 8.0% from January to March to $1.26 billion from $1.37 out a major employer, but also because it subjects government billion in the same period in 2008. Tourism earnings make officials to allegations of corruption,” says Michael Díaz, up about 9.1% of the Dominican Republic’s GDP, he says. managing partner of Miami-based Díaz, Reus & Targ, one of the Meanwhile, remittances, a major source of income law firms trying to help burned investors in the case. for the region, are in decline. Arora says that remittances Stanford was Antigua & Barbuda’s largest private sector represent as much as 15% of some local economies. employer before the company came under microscope of the “All of the countries in the region reported major declines SEC and was placed in receivership. While Allen Stanford, in remittances. Not only is this creating problems on balance the head of the disgraced bank, has not been found guilty of payments, it is hurting the lower income levels very hard,” of running a Ponzi scheme, Díaz says there is a “substantial says Walter Molano, head of research at BCP Securities. likelihood” that he will be. For the first quarter of 2009, Dominican Republic Wendell Mottley, managing director with Credit Suisse, remittances fell by 7.1% to $722 million from $777 million says the Stanford and CL Financial issues have aggravated in the corresponding quarter of 2008, says Arora. the problem. “A number of pension plans throughout the Paiz-Fredel says that remittances account for 7%Caribbean were hurt by the demise of CL Financial. These 8% of the Dominican economy. “It’s lower than in other losses are in the hundreds of millions of dollars, excluding T&T, countries in Central America and the Caribbean, but it is still where the central bank has said it sees a deficit of $5 billion significant enough to have an impact on the economy,” she Trinidadian dollars.” explains. According to JPMorgan, remittances to Jamaica dropped Just Sun, Sand and Sea 15.0% to $415 million in the first quarter of 2009 from $488 But that is not the only dire effect. Arora says that the cost of million, compared to the same period in 2008. Remittances the bailout of CL Financial, estimated at about 3%-4% of T&T’s make up 14.2% of Jamaica’s $14.3 billion GDP. GDP, which in 2008 was about $25 billion, may constrain Salt in the Wound 56 LatinFinance September/October 2009

Latin Finance - September/October 2009

Table of Contents for the Digital Edition of Latin Finance - September/October 2009