“STIMULATING GROWTH WHILE MAINTAINING FINANCIAL STABILITY” Address by The Incoming Chairman of the ECCB Monetary Council Hon. Dr. Kenny D. Anthony, Prime Minister & Minister for Finance Saint Lucia At the Handing Over Ceremony of the Chairmanship of the ECCB Monetary Council Wednesday September 4, 2013 at the Sandals Grand, St Lucia Spa & Beach Resort Saint Lucia It is with a deep sense of pleasure that I extend a warm welcome to all of you, on behalf of the Government and people of Saint Lucia, to this legendary land of pitons, of laureates, of artists, of beauty, of romance, on the occasion of this “Handing Over” Ceremony of the chairmanship of the ECCB Monetary Council. EXCELLENT PERFORMANCE As I accept the chairmanship of the Monetary Council from The Right Honourable Dr. Denzil Douglas, Council Member for St Kitts and Nevis, I would like to congratulate him on an excellent performance during his stewardship over the past year. It could not have been easy. During that period, the economies of the Currency Union experienced their fourth consecutive year of economic contraction. The fiscal operations of central governments were also adversely affected. Revenues stagnated in some cases and declined in others. Expenditures continued to rise as governments attempted to intensify their social safety net programmes in order to protect the indigent, the poor and the vulnerable. Significant challenges were also experienced in the banking system with non-performing loans remaining above the prudential levels. In this environment, The Right Honourable Dr. Denzil Douglas effectively guided the operations of the Monetary Council and ensured that the stability of the financial system remained sound and intact. I am mindful that Dr. Douglas did all of this in the midst of very unusual political challenges in his native Saint Kitts and Nevis. ENCOURAGING SIGNS The projections for the international economy are, at best, cautious and uncertain. A recent report by the OECD opined that growth in many advanced economies was “proceeding at encouraging rates”. The international economy is projected to grow by 3.30 per cent in 2013 and 4.0 per cent in 2014. The USA, our main trading partner, is expected to grow at a slower rate of 1.92 per cent in 2013 and 3.0 per cent in 2014. The Eurozone, which has been struggling with the debt crisis, was said to be “out of recession, although output remains weak in a number of economies.”(OECD) A marginal growth of 1.1 per cent is projected for 2014. In the emerging economies, growth in China is projected at approximately 8.0 per cent in 2013 and 2014. However, these “encouraging signs” can quickly recede if the rising geo-political tensions in the Middle East become unmanageable and unresolved. Every one of us in this room is acutely mindful of the impact of the events in the Middle East on the price of fuel, if the tensions are allowed to persist and the conflict spreads beyond the borders of Syria. Historically, threats of intervention seem to exert pressure on stock prices leading to higher oil prices. Once intervention is underway the reverse seems to happen: the prices of oil seem to drop while stock prices rebound. MARGINAL GROWTH AHEAD What does the future hold for us? The USA and Europe are the region’s main trading partners. Therefore, the performance of the member countries of the Currency Union is linked to a large extent, to developments in these economies as a result of the dependence on tourism, foreign direct investment, remittances and access to international money markets. Consequently, growth in the Currency Union is expected to be marginal at 1.5 per cent in 2013 and 2.2 per cent in 2014. A PROACTIVE APPROACH In this challenging environment, the member countries of the Currency Union have been proactive in developing an approach to addressing the impact of the global crisis. In 2010, member countries signed the Revised Treaty of Basseterre to establish the OECS Economic Union. At the time of signing the Revised Treaty, member governments also signed the ECCU Eight Point Stabilisation and Growth Programme. In the context of the movement to an Economic Union and, to effectively utilise the available resources, a strategy for work programme coordination was finalised in 2012. These arrangements will form the platform for addressing the main policy issues for stabilising the economies between 2013 and 2015 and for transforming the economies thereafter. This work programme will accordingly, guide the work of the Monetary Council. MAINTAINING FISCAL STABILITY Undoubtedly, the Bank has performed its role of maintaining financial stability in the Currency Union. It will continue to be guided by its mandate as outlined in Article 4 of the ECCB Agreement. That mandate says that the Bank exists: 1. To regulate the availability of money and credit; 2. To promote and maintain monetary stability; 3. To promote credit and exchange conditions and a sound financial structure conducive to the balanced growth and development of the economies of the territories of the participating Governments; and 4. To actively promote through means consistent with its other objectives the economic development of the territories of the participating Governments. EVERY REASON TO BE CONFIDENT During my tenure as Chairman of the Monetary Council, the Bank will continue to address the main policy issues confronting the member countries namely: financial stability, fiscal and debt sustainability, and growth and competitiveness. There is every reason to remain confident about the management of our fiscal space and financial infrastructure. This is not to suggest that other major adjustments are unnecessary. Indeed, the case for integrating our indigenous banking sector is now even more compelling. Despite the challenging environment, the Bank continues to maintain adequate foreign reserves in the system. The EC dollar is 96 per cent backed by foreign reserves, which is significantly above the legally required ratio of 60 per cent. This speaks well to maintaining the fixed exchange rate of $US1 to $EC2.7. The Bank will continue to take a proactive approach to addressing vulnerabilities in the financial system and will accelerate the implementation of the strategy for strengthening the resilience of the financial sector. Where instability and danger lurks, especially in the face of unwise and imprudent corporate behavior, we will not hesitate to act to protect investors and the stability of our shared financial space. Only recently, on August 12, 2013, the Bank assumed control of the Caribbean Commercial Bank and the National Bank of Anguilla Ltd. HIGH LEVELS OF NON-PERFORMING LOANS We are aware of the extremely high levels of “Non-Performing Loans”(NPLs), in the Currency Union, the numbers no doubt exacerbated by the difficult economic circumstances of member states. It has been a difficult period for banks as well as their customers. However, there is no doubt that that in Saint Lucia, for example, the problem is historical, mired in the archaic and now obsolete legislation inherited from Quebec, Canada. I welcome the decision of the Council to unify the legislation governing the realization of mortgage collateral across member states through consultation with member countries. While this is a necessary and sound initiative, it is essential that such legislation provide adequate protection to borrowers. It cannot be right, for example, that a borrower who has paid fifteen or more years of a twenty year mortgage is dis-possessed of a home because of sudden financial difficulties not of his or her own making. FISCAL AND DEBT SUSTAINABILITY Fiscal and debt sustainability is critical to financial stability. The debt to GDP ratio for the countries of the Currency Union remains above the sustainable level. Moreover, efforts towards structural adjustment and the impact of debt restructuring have so far not resulted in a reduction of the debt to GDP ratio to levels that exempt our member states from potential danger. It is in recognition of the need to aggressively address the debt situation that the Bank is collaborating with the Centre for Latin American Monetary Studies (CEMLA) on developing a proposal to address the peculiar circumstances of small, middle income and highly vulnerable economies. CEMLA has submitted its report and the Bank will collaborate with other agencies to take the process forward. In the meantime, the technical capacity of member countries to actively manage their debt portfolios is being strengthened through the Debt Management Advisory Service (DMAS) Unit at the ECCB, sponsored by the Development Programme of Canada. As agreed by the Monetary Council, the coordination of fiscal and debt initiatives will be strengthened at both the level of the Monetary Council and the Ministries of Finance. AN AGENDA FOR GROWTH Ladies and gentlemen, we are conscious of the need to stimulate growth as this is linked to the achievement of financial stability, fiscal and debt sustainability and ultimately, sustainable employment for our citizens. In this environment, we must pursue efforts to return our economies on a path of growth by carefully selected investment initiatives. The focus would be on increasing the growth rate to a minimum of 3.0 per cent by the end of the adjustment period of 2013 to 2015, and to a sustained growth rate of 5.0 per cent throughout the transformation period. To this end, the Monetary Council has approved a three-pronged approach to growth and development consisting of: 1. Focused Stimulus and Safety Net Programmes geared towards providing employment for communities; 2. The identification of a lead transformational sector with the capacity to put the economy on a path to sustained growth and development; and 3. A cluster of major infrastructural and related projects at the national and regional levels to lay the foundation for broad based, diversified and internationally competitive economies. The projects will be in the areas of: (a) Transportation (b) Energy (c) Environment (d) Education and Skills Training ( e) Research and Development (f) Information Technology (g) Governance These initiatives can only be achieved with adequate institutional arrangements for policy making. In this regard, efforts will be made to intensify the work of the policy and planning units in member countries and to reform their Central Statistics Offices, while building the capacity of our people to chart the development path. The challenges in 2013/2014 financial year are expected to be similar to those experienced over the last three years, but I am confident that the Monetary Council will rise above these challenges and the exchange rate arrangement and the stability of the banking system will be maintained. WE HAVE SURVIVED Unquestionably, the times have been difficult, for our people, our governments, and our financial institutions. But we have survived. It is true that the Caribbean Development Bank, IMF and the World Bank have been generous in their advice and technical assistance. We thank them. We thank too the Government of the Republic of Trinidad and Tobago for the support it has extended to the Governments of the OECS to ease the plight of our citizens who were victims of the CLICO/BAICO debacle. The important point however is this: we have survived, so far, largely by our own efforts and resources. AN UNWAVERING BELIEF It is with this unwavering belief in the will and collective intellect of our region that I now accept, in the name of the Government and people of Saint Lucia, the Chairmanship of the ECCB Monetary Council. I look forward to the continued support of my fellow Council Members, the ECCB Board of Directors, and the management and staff of the ECCB in our pursuit of stability and transformation of our economies for the betterment of the people of the ECCU. I thank you, and welcome you to the Helen of the West, simply beautiful Saint Lucia.
Posted on: Wed, 04 Sep 2013 16:47:30 +0000
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