Linda Hutchinson-Jafar, Business Writer

Nunez-Tesheira

Trinidad and Tobago has launched a full review of the likely effect of America's banking turmoil on the country's economy, but according to finance minister Karen Nunez-Tesheira initial assessment is that the impact in the short term will be minimal.

At the same time, the banking failures and the near melt-down of an insurance giant that has had Wall Street in a tail-spin this week, have energised Port-of-Spain to push ahead with regulation, for which a raft of legislation will be taken to Parliament in the coming weeks.

Tightening regulatory regime

"The current turmoil in the international financial market indicates the crucial importance for Trinidad and Tobago to tighten the regulatory regime for all financial institutions," Nunez-Tesheira said. "For all financial institutions, banks and insurance companies, the message is the need to put in place adequate risk management strategies to protect from adverse developments."

The reform, aimed in part, at underpinning Port-of-Spain's effort to transform itself into an international off-shore financial centre, will include amendments to the Financial Institutions Act (FIA) and a new Securities Act law.

Central bank's

These will clarify the central bank's supervisory role over financial institutions, strengthen the office of the Inspector of Financial Institutions, and establish new prudential requirements for financial companies.

A new Securities Industry Act will create a regulatory regime for this sector, along the lines of international best practices as set out by the International Organisation of Securities Commissions.

On the more immediate issue of the effect of the subprime crisis that triggered the meltdown of some of the most iconic names in investment banking, Karen Nunez-Tesheira suggested that the early outlook was not bad, although the central bank is still conducting a broader assessment.

"The governor of the bank has informed me that the bank has no holdings of paper issued by any of these institutions (Lehman Brothers and Merrill Lynch)," she said.

"The very small proportion of the bank's foreign assets that were being managed by these institutions are ring-fenced, since they are not on the balance sheets of these institutions," she added.

Toxic instruments

The central bank has asked commercial banks, investment houses and insurance companies about their exposure to the toxic instruments that brought down the American banks.

"Our preliminary indication is that it is minimal," Nunez-Tesheira said.

However, America's turmoil, even if doesn't hurt the Trinidad and Tobago economy - which galloped at double digit growth rates in recent years - is bad timing for Port-of-Spain, as it is happening at a time when it is revving its financial centre programme. Indeed, Lehman Brothers was among the companies being targeted to set up shop in the Trinidadian capital.

But Nunez-Tesheira argued that the development was not fatal.

"It is important to note that while we have been having discussions with Lehman Brothers, it was always in the context of having a plurality of interests at the table," she said. "The door was open to other parties."

Added the finance minister: "Certainly these most recent developments occupy centre stage in the minds of everyone involved in the international financial landscape so that we will perhaps need to reenergise discussions with other parties as we get a clearer understanding of these developments and the arrangements that will apply in the future."

The decline in the price of oil this week might have been seen as a worrying matter for Trinidad and Tobago's largely energy-based economy, but the finance minister said Port-of-Spain expected prices to moderate with a slowdown in global economic growth.

Volatility

Said Nunez-Teshiera: "Volatility has always been a characteristic of the oil market and our budgeting processes recognise this, and it is for this reason that the oil price for the budget is determined on a moving average basis.

"It is our assessment that oil prices will align to market fundamentals over the medium term and, therefore, we do not believe that there is any need to revise the assumptions on which our budget is based."

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