Money and capital market development in TT and the Caribbean in the context of Vision 2020

Address to Guardian Asset
Management Breakfast Meeting
December 5 2003

These are extremely exciting times for Trinidad and Tobago!  So much, both positive and negative, is going on in the global economy, the regional economy and here in our twin island republic.  At the global level, trade negotiations are proceeding apace, and battles are being fought over steel, garments, imports of TV sets from China and agricultural produce.  The race continues between increasing oil and gas consumption in the West and in the emerging markets of the East and finding alternative sources of supply to the volatile Middle East.  Advances in technology seem set to revolutionise health care, communications, and several other industries.  At the hemispheric level, the discussions on the Free Trade Association of the Americas are proceeding even though the original implementation date is unlikely to be met.  Over all of this hangs the spectre of global terrorism and the tremendous uncertainties it generates from Indonesia and the Philippines in the East, to Turkey, Saudi Arabia, the African continent and the United States of America.

Locally, Trinidad and Tobago sits on over 30 trillion cubic feet of gas reserves, and oil production is set to rise significantly over the next few years.  Our macro-economic fundamentals are sound in that inflation is moderate, unemployment is declining, external debt is low, foreign exchange reserves are high and rising, and the fiscal situation is under control.  Yet we are challenged by spiralling rates of serious crimes of murder and kidnapping, violence in our secondary schools is seemingly out of control, widespread fires and flooding suggest cumulative environmental degradation, and we are also challenged in this plural society of ours to engender a sense of inclusion and cohesion even as we celebrate our ethnic and religious differences.

Vision 2020

This is the context of the work of the Vision 2020 Core Group, a team of over 20 persons drawn from the public and private sectors, from academe and trade unions, from cooperatives and NGOs.  Our task is facilitative.  It is to facilitate discussion and dialogue within the national community about the fundamental values we want to embrace and about the vision we want to share to this nation of ours.  It is to facilitate a discussion about the means by which we achieve those objectives or ends.  (It is rare for people to disagree about the objectives or ends.  Most disagreement is about how we get there or the means!)  Development inevitably involves making choices – choice about the direction in which we go, choice about the pace at which we go, choice about participation in decision-making, and choice about the allocation of resources as between consumption and investment. The Core Group is animated by the belief that broad agreement if not consensus can be achieved by engaging in extensive debate and discussion around a set of ideas and suggestions for action in various aspects of social, political and economic life.  To this end we have formed some 29 sub-committees covering areas such as:-

• Financial Services
• Energy
• Macro-economy and Finance
• HIV-AIDS
• Health
• Education
• Infrastructure
• Administration of Justice
• Governance
• Agriculture
• Industry
• National Security
• Housing

These sub-committees, several of which have already submitted draft reports, have involved over 600 persons in the discussions and some have embarked on public consultations.

Money and Capital Market Development

The specific concerns of this breakfast meeting relate to investment, and how Vision 2020 sees the evolution of our money and capital markets in Trinidad and Tobago and the region.  Earlier this year the Government published a Green Paper on the Financial Sector in Trinidad and Tobago and is currently working on a White Paper to be published in 2004.  Our own Vision 2020 sub-committee on Financial Services led by Mr Selby Wilson has also been distilling its thoughts and ideas on the development of the sector. Like the authors of the Green Paper, and Mr Wilson’s sub-committee, I think that we should be seeking to position Trinidad and Tobago as the regional financial centre. 

Let me first explain why.  First, over the next several years, this country will generate financial resources and savings well in excess of our capacity to absorb these into domestic investments.  If we attempted to spend locally all the resources generated, we will surely ignite inflation and precipitate the “Dutch Disease” problem here.  This refers to a situation in which the expansion of the mineral export sector causes prices to rise inordinately in the domestic sectors, like housing, which leads to a variety of distortions including over-capacity, wage increases in excess of productivity, etc.  We certainly saw some of this phenomenon during the 1975-1981 period, and we know that it takes the economy a long time to adjust to this problem.  We can either sterilize the excess savings or we can deploy those savings to investments in the region through local financial institutions or through local firms investing abroad by acquisitions.

Second, Trinidad and Tobago has some distinct advantages in the provision of financial services in the region.  Our banks and merchant banks have for a long time been involved in financing trade and investment from Belize, Jamaica and the Dominican Republic, and the islands of the Eastern Caribbean.  We have supported sovereign as well as corporate issues in those territories.  Latterly, several of our financial institutions – Republic Bank, RBTT, Guardian Holdings – have established subsidiaries in the region, while several industrial firms have established manufacturing plants or distribution facilities in regional markets.  Barbadian and Jamaican financial institutions – Grace Kennedy, Sagicor, NCB/AIC, JMMB — are also beginning to expand regionally, but the Trinidad and Tobago companies have a distinct headstart, and will be better able to mobilise the capital. What would it mean in practical terms for Trinidad and Tobago to be the regional financial centre?  First, I think it must mean that the regional stock exchange must be based here in Port of Spain with listings of all the major regional companies and some foreign listings as well.  There is no point to our having several exchanges in the region. 

Local exchanges may well continue to exist, but more as a vehicle for second tier listings which may then graduate to the Port-of-Spain Exchange.  Second, the region would need to embrace a single currency for money and capital market transactions.  There are only two real possibilities in this regard, the United States dollar or a Caribbean dollar. Third, Trinidad and Tobago will offer the full range of financial institutions and instruments from bank deposits and residential and commercial mortgages to the more complex derivative instruments such as foreign currency and interest rate swaps.  We will be able to fully underwrite issues of the smaller regional governments, and be the lead for larger issues which may still need to be marketed in the metropolitan capital markets.  Fourth, the sector will be supported by an up to date regulatory and supervisory framework organised and managed on a regional basis, i.e. the laws and regulations governing financial activity would be identical in all the regional territories, and actions taken in one territory, for example registration of a mutual fund, will be automatically accepted in other territories without separate filings and approvals.

Implementing the Agenda for TT as Regional Financial Centre

It is clear from what I have outlined that achieving this goal is a tall order, not least because it does require the cooperation of other Caribbean governments.  However, this should not mean that it is impossible.  It is true that our record of implementation within the Caribbean Community has been poor.  The Caribbean Single Market and Economy is having a difficult birth, and countries have never really warmed to the idea of a single currency because of what it implies for fiscal discipline.  I believe though that we can take some initiatives which will hopefully catalyse the development of the regional money and capital markets.  We can make it easy for companies to list here in TT dollars or in US dollars.  We already have the most active market stock market in the region and our multiples make it more attractive to list here than elsewhere. 

Second, we can accelerate the implementation of a modern regulatory and supervisory framework with explicit accommodation for both regional and extra-regional financial transactions. Beyond these initiatives, I would leave it to the activities of private institutions like Guardian Asset Management and its sister companies, Republic Bank, RBTT Financial and Sagicor to progress the integration of our money and capital markets.  I am encouraged by what is already taking place even with separate regulatory regimes, and separate currencies.  This tells me that there is great potential and great promise for the growth and integration of our region’s money and capital markets.

Conclusion

I hope that I have provided some context for the evolution of your personal and corporate investment strategies over the next several years.  As investors, you have a great partner in Guardian Asset Management.  Perhaps most of you associate Guardian Holdings with aggressive acquisitions and expansion over the last 5 years in life and general insurance.  GHL has however, being quietly pursuing the building of new institutions like GAM and its sister company in Jamaica.  GAM emerged from our strategic thinking some five years ago which recognised the fundamental changes taking place in the life insurance business as far as investment management was concerned and the convergence of insurance, mutual funds and banking.  We determined then that asset management was a business in its own right and one in which we already had considerable competency from the investment departments of our life companies.  GAM is now a licensed financial institution and had already implemented some successful innovations in investment management in Trinidad and Tobago, with, I am assured, more to come in 2004.

The views expressed in this column are not necessarily those of Guardian Life. You are invited to send your comments to guardianlife@ghl.co.tt