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Global financial crisis holds lessons for Caribbean - Davies
By Al Edwards
Jamaica Observer
Friday, January 30, 2009
Opposition spokesman on finance Dr Omar Davies has argued that the current global economic crisis demonstrates the full extent of the interdependence of the world's economies and the dominance of the United States, factors which provide many salient lessons for the Caribbean.
Speaking at the Jamaica Stock Exchange (JSE) 2009 Investments & Capital Markets Conference at Rose Hall Resort and Country Club, Montego Bay on Wednesday, Davies pointed out that in the face of this present crisis,<span style="font-weight: bold"> pragmatic policy responses have quickly replaced ideological dogmatism.
"In many instances, these responses have been ones which officials of the developed market economies and the multilateral financial institutions have consistently warned developing countries like Jamaica to avoid,"</span> he said.
"In particular, the use of deficit financing to support "stimulus packages" has won endorsement from the IMF, which traditionally has cautioned borrowing countries against such approaches," said Dr Davies. "However, in addition, in many instances, the responses do not seem to have been subjected to rigorous analysis prior to being implemented. The result is that there have been changes to policies involving significant expenditure within a short time period after an initial announcement."
He said that<span style="font-weight: bold"> many sought initially to suggest that the root of the crisis was in the US housing market. </span> Davies, however, was of the view that the term "sub-prime" is a euphemism for the fact that millions of home buyers had been granted mortgages significantly above what any basic risk analysis would have justified.
<span style="font-weight: bold">"The initial policy response by the US authorities seemed to have been based on the erroneous assumption that addressing the problem in the mortgage market would resolve the more general challenges facing the US financial system,"</span> he said. "Clearly, whilst the sub-prime crisis was significant, it only represented the tip of the iceberg, as it brought to the fore myriad deficiencies in the US economy, not the least of which is the extent to which much of that country's consumption was financed by credit from the rest of the world. The size of China's holdings of bond issues by Fannie Mae and Freddie Mac (approximately US$400 billion) is a case in point."
He also argued that capital deficient economies, like <span style="font-weight: bold">many in the Caribbean, pay a "penalty" to access external financing in the form of high interest rates, but wryly stressed that little notice has been taken of the far greater use of external credit by an economy such as the US, sourced at the low interest rates justified by AAA ratings </span>
By Al Edwards
Jamaica Observer
Friday, January 30, 2009
Opposition spokesman on finance Dr Omar Davies has argued that the current global economic crisis demonstrates the full extent of the interdependence of the world's economies and the dominance of the United States, factors which provide many salient lessons for the Caribbean.
Speaking at the Jamaica Stock Exchange (JSE) 2009 Investments & Capital Markets Conference at Rose Hall Resort and Country Club, Montego Bay on Wednesday, Davies pointed out that in the face of this present crisis,<span style="font-weight: bold"> pragmatic policy responses have quickly replaced ideological dogmatism.
"In many instances, these responses have been ones which officials of the developed market economies and the multilateral financial institutions have consistently warned developing countries like Jamaica to avoid,"</span> he said.
"In particular, the use of deficit financing to support "stimulus packages" has won endorsement from the IMF, which traditionally has cautioned borrowing countries against such approaches," said Dr Davies. "However, in addition, in many instances, the responses do not seem to have been subjected to rigorous analysis prior to being implemented. The result is that there have been changes to policies involving significant expenditure within a short time period after an initial announcement."
He said that<span style="font-weight: bold"> many sought initially to suggest that the root of the crisis was in the US housing market. </span> Davies, however, was of the view that the term "sub-prime" is a euphemism for the fact that millions of home buyers had been granted mortgages significantly above what any basic risk analysis would have justified.
<span style="font-weight: bold">"The initial policy response by the US authorities seemed to have been based on the erroneous assumption that addressing the problem in the mortgage market would resolve the more general challenges facing the US financial system,"</span> he said. "Clearly, whilst the sub-prime crisis was significant, it only represented the tip of the iceberg, as it brought to the fore myriad deficiencies in the US economy, not the least of which is the extent to which much of that country's consumption was financed by credit from the rest of the world. The size of China's holdings of bond issues by Fannie Mae and Freddie Mac (approximately US$400 billion) is a case in point."
He also argued that capital deficient economies, like <span style="font-weight: bold">many in the Caribbean, pay a "penalty" to access external financing in the form of high interest rates, but wryly stressed that little notice has been taken of the far greater use of external credit by an economy such as the US, sourced at the low interest rates justified by AAA ratings </span>