Leaders clash on credit crisis

(CNS): As the Leader of Government Business tried to reassure the community that the continued turmoil on the world’s financial markets would not have a serious direct impact on Cayman’s financial service sector in terms of jobs and revenue to government, the Leader of the Opposition said that this demonstrated the PPM’s disconnection from the reality of economic issues.

With major financial giants such as Merrill Lynch, Lehman Brothers and AIG falling from grace as the world’s markets spiral out of control in the wake of the credit crisis in the United States, LoGB Kurt Tibbetts has said that there should be no major problems for Cayman’s finance sector as a result.

Noting that AIG did not have an office in Cayman, he said that Merrill Lynch had a local operation consisting of a staff of six. There are 30 companies and 16 partnerships registered in the Cayman Islands associated with Merrill Lynch, and Tibbetts said that a senior official from the firm revealed that there are no anticipated changes in its operations in the Cayman Islands in the immediate term, as Bank of America Corp makes its acquisition. He said that while Lehman Brothers did not have an office with staff employed in the Cayman Islands, there are 130 companies, 39 partnerships and 7 trusts registered in the Cayman Islands connected to the firm. However, he said, even if all of these entities were to disappear after Barclays’ acquisition of Lehman, the annual revenue lost to Government would be approximately CI$244,000.

However, McKeeva Bush, the Leader of the UDP opposition party, said the potential impact of the fallout is great and extends far beyond employment and government fees relating to these companies. “This is proof in the pudding that the PPM are totally disconnected from economic issues”, said Bush. “The potential impact affects the global economy and clearly has major potential implications for the Cayman Islands. It has potential negative impacts in terms of the funds which are domiciled here which may be related to the fallout, the employment and revenues associated with those funds and their administration or accounting. The crisis also has a general impact on potential American tourists as their wealth will likely be eroded due to the fallout.”

Tibbetts had said, however, that in general terms Cayman was not likely to be badly affected by events. “First and foremost, it is important to say that all our consultations indicate that there will not be an impact on the viability of any of our local retail banks in the Cayman Islands,” he said at the weekly press briefing on Thursday 18 September. He explained that recent results from the Economics and Statistics Office on the economic indicators for the Cayman Islands at the end of March 2008, compared with the position at the end of March 2007, were encouraging, with performance indicators pointing to the robust performance of the financial services sector as well as a sustained growth in air arrivals or stay-over tourism. 

“Increases were recorded for mutual funds of 13.6 per cent, new companies registered a 16.7 per cent increase, the number and value of stock exchange listings increased by 37.8 and 41.4 per cent respectively,” he said, adding that air arrivals grew by 9 per cent. He also said he had checked with the Treasury that morning and the government currently had some CI$91,167,000 in the bank.

“The Government is in the process of convening meetings with appropriate individuals in the financial services sector, to determine whether any further actions need to be taken in the Cayman Islands to mitigate the turbulence in the world’s financial markets,” he added.

Tibbetts acknowledged that the world markets would see a tightening of credit standards and a possible increase in legislation and regulation of credit facilities offered to business entities, but in Cayman there had been an increase in the amount of credit being made available to businesses and individuals during the first quarter of 2008.

But Bush insisted that the Leader of Government Business was not seeing the depth of the global crisis. “This is yet another example that this administration is disconnected from the Cayman Islands economy and its business community. Recently they have also tried to tell us that the economy is doing great while there are dozens of local businesses suffering and complaining that economic activity is down,” he added.