The year 2009 delivered a surprisingly strong recovery as equity markets rebounded from the historic financial crisis seen in the second half 2008. The remarkable levels of government investment into the global financial system seem to have rescued the world’s economy from a potential disaster that could have taken decades to recover from.
Yet, the debt taken on by governments worldwide will have implications on a national and international level. Internationally, serious concerns about the future value of the dollar and dollar interest rates, given the massive US government deficits, have prompted doubts over the dollar’s viability as a long-term reserve currency. Warren Coats addresses the question, whether we need a new global reserve currency, for instance based on Special Drawing Rights issued by the IMF, in this issue.
Rising state debt across the world also increases the focus of governments on corporate tax revenues and will inevitably fuel further allegations over the impact of offshore vehicles on domestic tax collection.
We examine two important reports that were released in the last quarter of 2009, underlining the value and role that offshore financial centres like the Cayman Islands play in the international financial system. The Hines Report, commissioned by the Society of Trust and Estate Practitioners, finds that OFCs have a contributing rather than a damaging effect on neighbouring industrialised countries, whereas the Foot Review of the UK’s overseas territories and crown dependencies comes to the conclusion that these OFCs help channel investments to the UK.
As we ponder what may lie ahead for financial services in 2010 there remains a great deal of uncertainty surrounding the stability of global markets and the ability of the world economy to sustain the recovery that began in 2009. At the same time regulators continue to debate how to ‘repair’ the financial system and there is a real danger that the pendulum of regulation may swing too far, affecting those that played a significant part in the crisis, including complex credit instruments, and those that did not, such as hedge funds.
The market for collateralised debt obligations, dominated by the Cayman Islands before the subprime crisis in terms of its share in the issuance of these instruments, has collapsed and struggles to recover find Christopher Culp and Paul Forrester, who in this issue look into what shape CDOs may take in the future.
Meanwhile, hedge funds regulation is looming both in Europe and the US and it is just one of the issues fund administrators in the Cayman Islands are concerned with argues Don Seymour. Locally Cayman needs to tackle the challenges of a declining economy, higher taxes, an unpopular rollover policy and a dynamic global competition, he says.
Tourism, was also already dealing with greater competition from Caribbean and overseas markets before the negative wealth effect decreased the discretionary spend usually spent on holidays and second home ownership. This environment has served as the catalyst for leaders of the Cayman Islands government and prominent business leaders to join together in finding creative solutions to lead Cayman through these intense, challenging times and hopefully, emerge with a stronger, more efficient and more diverse economy.
After breaking with three of its six self-imposed principles of public financial management, which we highlight in our Cayman by the Numbers section, the Cayman government has installed several commissions to investigate the potential to make savings in the civil service and raise additional revenue. For its revenue commission it was able to secure the services of James Miller a former director of the US Office of Management and Budget (OMB) and a former member of President Reagan’s Cabinet.
On the private sector side the Cayman Islands Investment Council was created to provide a unified vision for the growth of local businesses and foreign investment in Cayman. The CIIC will offer a coordinated, integrated investment strategy, a plan for sustainably growing the local economy and will work collaboratively with others to define, design and manage the marketing of Brand Cayman, writes Mike Ryan in this issue of CFR.
Central to this issue is the contribution by Tim Ridley, who introduces a feature section prompted by Cayman’s new Anti Corruption Law and Commission. Tim has assembled an impressive array of writers offering interesting perspective and background on the subject, including views from the Basel Institute on Governance, the OECD, Transparency International, the UN and country analyses for Canada, the UK and the US.
Tim has stepped down as chairman of the editorial board for personal reasons and on behalf of my colleagues on the board and the publisher, Cayman Free Press, we want to extend our public appreciation for his leadership, vision and technical expertise in guiding the rebranded Cayman Financial Review this past year. Through his outstanding reputation and longstanding experience as a practitioner in the Cayman Islands he has contributed greatly to the success of the magazine.
Although resigning as chairman we wish him all the best and look forward to receiving regular contributions and much-valued critique from him in the future.