Caribbean Trade Law and Development

Category: Uncategorized

  • IMF’s 2010 Reforms finally come into effect

    Alicia Nicholls

    After five long years of waiting, the 2010 reforms of the International Monetary Fund (IMF), which aim to modernise and democratise the IMF’s quota and governance system by giving greater voice to emerging economies, have finally come into effect on January 27, 2016.

    The voting rights, access to financing and subscriptions of the 188 country members of the IMF, one of the guardians of the international monetary system, are largely based on their quotas which are in term based on their wealth. Therefore, while a small IMF member country like Barbados has only 1,442 votes (or 0.06% of total voting power), the largest IMF member, the United States of America, has 421,991 votes (or 16.11 of total voting power).

    The IMF’s Board of Governors, its highest decision-making body, periodically conducts a general review of members’ quotas. However, since the IMF’s creation in 1945 as part of the Brettons Woods system, its quota and governance system have been stuck in time; the alignment of quotas and governance structure were reflective of the historic economic might of the US, advanced European economies and Japan, and does not take into account emerging economies’ growing share of the global economy in the last two decades. Take for example the fact that the United Kingdom had more voting rights than China!

    In recognition of their under-representation in the quota allocations, emerging economies have been pushing for years for reform of the IMF’s governance and quota system to take into account their importance in the shifting global economy landscape. Following the 14th General Quota Review in 2010, the IMF’s membership agreed to a sweeping and historic reform package aimed at giving a greater voice and say to emerging economies. A major hurdle to implementation was the delay in US ratification of the reforms.

    Last year the G20 in its communique echoed India’s disappointment with the delay in the implementation of the reforms. Additionally, in the IMF’s Executive Board’s report to the Board of Governors adopted on January 29, 2016, the Board noted that it had been unable to complete its work on the scheduled Fifteenth Review by the deadline of December 15, 2015 due to the delay in the implementation of the 2010 reforms. Frustration by the BRICs with the delays and their desire for closer cooperation amongst themselves led them to create an alternative multilateral development bank, the New Development Bank, in 2014 with its headquarters in Shanghai

    Finally, at long last the 2010 reforms are  in effect. Building on reforms undertaken in 2008 and entered into effect in 2011, the major highlights from the 2010 reform package are the shift of 6 percent of quota shares from developed to dynamic emerging market and developing countries (leading to increased voting rights for emerging economies), a re-alignment of the quota shares which will result in China becoming the third largest IMF member and Brazil, Russia and India being included among the top 10 members.

    A landmark change as well is the reform of the IMF’s 24-member Executive Board to make it an entirely elected body. Previously, a portion of the directors was elected and five were appointed by the members with the five largest quotas.

    The reforms also double members’ quotas which will increase the IMF’s funding, but preserves the quota and voting shares of the poorest members.

    Outside of these reforms but still of interest, in December 2015 the renminbi became the fifth currency to be included in the IMF’s Special Drawing rights basket. The four other currencies are the U.S. dollar, the Euro, the Japanese yen, and the British pound.

    The 2010 reforms are a praiseworthy start in a thrust towards a modernised, and what we would hope will one day be, a more democratic IMF. It is hoped that the reform work which is expected to continue under the Fifteenth Review will build on these reforms and will not face a similarly long delay in implementation once agreed.

    The full press release from the IMF on the 2010 reforms may be accessed here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can read more of her commentaries and follow her on Twitter @LicyLaw.

     

  • Cuba and North Korea Sign Trade and Technology Agreements

    Alicia Nicholls

    Cuba and the Democratic People’s Republic of Korea (North Korea) have added two additional protocols to a growing list of cooperation deals between the two countries.

    Prensa Latina reports that two protocols, one on trade and the other on science and technological development, were signed by the Cuban Minister of Foreign Trade and Foreign Investment, Rodrigo Malmierca and North Korean Ambassador to Cuba, Pak Chang Yul at the Ministry of Foreign Trade and Foreign Investment in Havana, Cuba this week.

    The trade protocol is an interesting one as it will be based on bartering, that is, payment for goods and services via other goods and services, as opposed to cash. The exchange of goods is expected to help Cuba obtain inputs for its sugar industry and railway system.

    Cuba and North Korea have enjoyed strong relations since 1960 (the height of the Cold War) and both countries are subject to heavy US economic sanctions. According to Diario de Cuba, Cuba and North Korea already have cooperation agreements in a number of sectors, including education, oil, agriculture and trade.

     

     

    For further information, please see the full news report from Prensa Latina (In Spanish).

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. The Author is not affiliated with the World Bank, the Caribbean Association of Banks or any bank. You can read more of her commentaries and follow her on Twitter @LicyLaw.

  • Caribbean Region Most Affected by Loss in Correspondent Banking Relationships, according to World Bank Survey

    Caribbean Region Most Affected by Loss in Correspondent Banking Relationships, according to World Bank Survey

    Alicia Nicholls

    The withdrawal by international banks of correspondent banking relationships with Caribbean-based banks and money transfer businesses has once again been making headlines in the Caribbean. This week Antigua & Barbuda’s Prime Minister raised the issue at the Fourth Summit of the Community of Latin American and Caribbean States (CELAC), terming it a “clear and present danger”. Last year mere weeks after Prime Minister Barrow of Belize raised the issue in his address at the Summit of the Americas in Panama, the Bank of America severed ties with Belize Bank, the largest bank in Belize.

    Correspondent banking relationships are Caribbean countries’ umbilical cord to the international financial system. They allow for the conduct of international trade and investment by facilitating crossborder payments, as well as the receipt and sending of remittances through international wire transfers. At the microlevel these relationships help local exporters to receive payments for their goods and services, local businesses to pay for imports, and poor families to receive remittances for their day to day survival. As I mentioned in an earlier article, the loss of correspondent banking relationships could spell disaster for the small, open economies of the region which are highly dependent on trade and investment flows, with implications for poverty reduction and eradication.

    World Bank Survey

    The Caribbean’s fears are not unfounded. According to the findings of a survey published by the World Bank in its report “Withdrawal from Correspondent Baking: Where, Why, and What to do About it” in November last year, the World Bank found that “small jurisdictions with significant offshore banking activities are particularly affected by the decline of CBRs”. More ominously, according to the Report, the Caribbean Region seems to be the most affected by a decline in correspondent banking relationships.

    It also noted that United States banks have been most frequently identified as withdrawing their correspondent banking services. According to the Report, the services which respondents mentioned as being the most affected by the loss of correspondent banking are “cheque clearing and settlement, cash management services, international wire transfers”, while banking authorities and local/regional banks identified trade finance.

    While the report noted that the majority of respondent banks have been able to find alternative banking relationships, in some cases the time and cost of finding new relationships are significant and not always on comparable terms and conditions as with the previous correspondent bank.

    The survey highlighted several reasons identified by international banks for withdrawing their correspondent banking services and noted that for large international banks, the main reasons were AML/CFT (anti-money laundering and counter-terrorism financing) and CDD/KYC (customer due diligence and know your customer) related concerns.

    In concluding, the Report provided a number of recommendations for both respondent banks and correspondent banks. One of the recommendations was for correspondent banks to consider the respondent bank’s business when making their decision to end a relationship, including by outlining the reasons for withdrawal, considering giving longer notice periods and considering the use of restrictions as opposed to outright termination.

    Caribbean seen as “Risky business”

    For the Caribbean, the loss of correspondent banking relationships, mainly as a result of banks’ de-risking practices, is intertwined with the fight against the arbitrary blacklists the region’s offshore financial jurisdictions are constantly called on to defend themselves against. Last year, both the EU and the District of Columbia (US) published blacklists which included Caribbean countries, causing regional governments to spend consider time advocating for their removal. Either way, the net result of these arbitrary actions would appear to do little to mitigate international banks’ perception of the Caribbean as literally a “risky” place to do business. The Financial Action Task Force (FATF) has reiterated the risk-based approach to AMT/CTF on a case-by-case basis as opposed to the wholesale de-risking which many banks are doing.

    The way forward

    The World Bank’s report is welcomed as it has provided some empirical evidence to support the concerns of Caribbean countries and in so doing helps to place a global spotlight on this issue. The Financial Stability Board (FSB) Report to the G-20 on actions taken to assess and address the decline in correspondent banking referenced the World Bank Report. The FSB has partnered with several organisations, including the World Bank, IMF among others, to address this issue through a four-point action plan which it has articulated in its report to the G-20.

    The E15 Initiative Report entitled “Strengthening the Global Trade and Investment System in the 21st Century” which was launched at World Economic Forum’s Annual Meeting at Davos this year noted that while data was scarce it would appear that developing countries are most affected by limited correspondent banking relationships and has offered some very timely proposals.

    Given the potential threat this issue poses to the region’s economies, it is incumbent on Caribbean banks to continue to observe the highest regulatory standards, including on AML/CTF and CDD/KYC. The Caribbean Association of Banks (CAB) has commendably been at the forefront of advocacy in regards to the issue of correspondent banking and their continued advocacy will be important.

    Former Prime Minister of Barbados and economist, Owen Arthur, at a Roundtable discussion on Correspondent Banking held in Kingston, Jamaica earlier this month has called on regional leaders to adopt coordinated regional measures to address the issue. Caribbean leaders must continue to raise the issue at the diplomatic and multilateral levels at every opportunity, and join forces with other similarly affected countries in advocating for an immediate global solution to the problem, including action on some of the proposals highlighted in the World Bank’s and E15 Initiative’s reports.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. The Author is not affiliated with the World Bank, the Caribbean Association of Banks or any bank. You can read more of her commentaries and follow her on Twitter @LicyLaw.

  • Cuba: US eases restrictions on trade financing

    Alicia Nicholls

    The United States’ Office of Foreign Assets Control (OFAC) and the Department of Commerce have announced today several further amendments to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR). These amendments further implement the new direction toward Cuba that President Obama outlined in December 2014.

    Key among these amendments is that US banks will now be allowed to provide financing for most types of exports and re-exports to Cuba, with agriculture commodities and items being the major exception.

    Summary of amendments 

    In summary, the amendments include:

    • Removing financing restrictions for most types of authorized exports and re-exports to Cuba.
    • Additional amendments to increase support for the Cuban people and facilitate authorized exports e.g: news gathering, telecommunications, agriculture
    • Additional amendment to facilitate carrier service by air and with Cuban airlines.
    • Expanding authorizations within existing travel categories to facilitate travel to Cuba for additional purposes e.g: information and informational materials, professional meetings and public performances

    For more information, please see this press release from the Department of Commerce.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can read more of her commentaries and follow her on Twitter @LicyLaw.