Cayman continues to hold significant US debt

(CNS): While the removal from the OECD notorious grey list should ensure that the Cayman Islands financial services will survive another day, the fact that Cayman is one of a number of Caribbean Islands that collectively hold $189.7 billion of US Treasury debt is probably an even better insurance policy.

According to the latest Treasury International Capital (TIC) report (released 17 August) which examines the purchases of long-term U.S. securities ie the country’s debt, while China remains the country’s biggest creditor, the Cayman Islands is part of a group listed by the Treasury as ‘Caribbean banking centres’ which collectively holds the fifth largest amount of US debts. (Besides Cayman the list includes the Bahamas, Bermuda, Netherlands Antilles and Panama.)

Mush of the US debt held in Cayman is in hedge funds as well as subsidaries of foreign banks based here. Private investors using Cayman Islands companies and trust as well as rich individuals banking here are all creditors of the world’s biggest economy.

According to experts in the field the United States will require $3 trillion to $4 trillion in debt issues for 2009 and 2010. Last year however, foreign net purchases of U.S. Treasuries plummeted 60 percent to $412 billion from the previous three year annual average of $1 trillion. This latest report has revealed that China reduced its holdings of US government debt by the largest margin in some nine years in June cutting its US securities by more that 3 percent.

While the Treasury report showed that about $31.2 billion in capital flowed out of the United States in June, about half the level of outflows in May economists say this is due to sales of short-term investments such as Treasury bills, and the decline does not reflect an overall loss of confidence in U.S. government debt.