Government sets out plans for economic slump

| 10/10/2008

(CNS): As banks moved to cut interests rates by 0.5% this week the Leader of Government Business has also announced a number of measures in an attempt to mitigate the potential detrimental impact the global financial situation could have on the Cayman Islands.  He said that while government earnings were likely to be affected there would be no new fees levied and the major capital projects would still go ahead.

LoGB Kurt Tibbetts said that not all planned government capital projects were underway as yet and it would proceed with certain ones based on the level of need for the given development combined with the positive impact on the local economy.

“It is imperative that the local economy continues to function and to generate activity, and we believe that government must lead by example,” he said, adding that the development of the schools had demonstrated how government spending could fuel economic activity.

“The decision we took to proceed with a number of major government construction projects….is having a huge positive impact on the local economy,” he said. “These….government projects are providing significant employment and are pumping millions of dollars in to the local economy each month.  This will continue for at least the next 18 months to 2 years.”

Aside from maintaining targeted Government spending, Tibbetts said the government was creating an Economic Monitoring and Advisory Group which he would chair and which will meet monthly or more frequently as needed, until Cayman has successfully navigated the local impacts of the global economic storm.

“The Group will comprise a broad array of representatives from the private sector and members of the Cabinet. Its terms of reference are to facilitate the sharing of updated information on the local economic situation, and identify issues that need to be addressed as they may arise,” he explained.

He said government would also be watching out for any economic opportunities that the country could capitalise on coming out of the global downturn.  “Even in the face of difficult circumstances and changing operating landscapes, opportunities inevitably arise.  We need to position ourselves to take advantage of these opportunities while at the same time protecting our existing business,” he said.

Assessing the potential impact on Cayman’s economy, Tibbetts stated the local retail banking sector is not experiencing any stress arising from the global conditions and lending continued, although he noted the banks are mindful of potential credit quality issues that could arise with any significant deterioration in the local economy.

Areas expected to suffer however were, he said, mostly connected with hedge funds and structured finance. “Current global market conditions in the hedge fund arena are characterized by heavy redemptions,suspensions and re-structurings coupled with much-reduced new fund formations,” Tibbetts added. “In the structured finance arena there has been severe drop-off in deal flows as a result of the freezing of the global capital markets.”

He also reported that the country was already seeing an impact on the public sector side, with new company registrations down 10% this year over the same period in 2007. “By some expert estimates, the number of hedge funds globally could contract by 20-30%, which will obviously affect Cayman’s book of business,” he warned.

As far as tourism was concerned he said the sector is cautiously optimistic about the short-term outlook with advance bookings for the winter season on track to exceed last year’s but the medium-term outlook is less certain given the fixed trend of compressed booking windows which make it difficult to predict demand. He also noted a decline in the economy generally with retrenchments in the restaurant sector and the commercial real estate development sector in particular.

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  1. Annoymous says:

    What is going on is that the banks in this country are a cartel.  They can do to you what they want and you have no one or no where to complain about them.  I hope that they will soon be regulated and come under the microscope.

  2. Tim Ridley says:

    Government needs to take into account that, horrendous as it was, Ivan resulted in around US$2.5 billion of outside (re)insurance monies being injected into the local economy. The construction, supply and other support industries boomed and Government coffers swelled with revenue from import duties and other fees. The latest financial disasters are not going to produce the same injection of monies into the economy. Indeed the reverse is happening right now.

    There are very few here who are immune. We must therefore expect a significant contraction in local economic activity, discretionary spending will seriously decline, many foreign workers will be sent home, many local businesses will fold and confidence will remain low for some time.

    The Government should of course keep the projects it can afford going (standard Keynes economics from the Great Depression), but must show serious commitment to stopping waste, securing performance and accountabilty from the public sector and acting prudently in its borrowings. Being within the statutory borrowing limits is hardly an argument or justification for poor policies and imprudent finances.

    Looking forward, the Government should use the opportunity now to do some real introspection, then look over the horizon and develop well thought out and considered plans for the future of tourism and the financial services industry.  These are perfectly possible; but continuing to do the same things as in prior decades will not work.  There is lots of willing expertise in the community, the Government simply has to listen, plan and actually act. Sadly, this it has never been a traditional strength of our politicians.


  3. Anonymous says:

    I hope the LOG ensures that the people of the Cayman Islands get the benefit of this rate decrease effective immediately and not next month. The banks have said they have lowered the rates already but if you call certain banks they will tell you that your payment will not change untill the end of November.

    What is going on?