Six months into the Donald Trump U.S. presidency, countries around the world must adjust to a new U.S. policy strategy and an altogether different way of doing business by the U.S. administration.
For the Caribbean region, this brings uncertainty, but also an opportunity for more engagement with the United States.
Sally Yearwood, executive director of Caribbean-Central American Action, a nonprofit organization based in Washington, D.C., that deals with economic and trade issues that relate to the Caribbean region, says times have changed.
“A lot of us have not seen a president like this. He works differently, he moves differently. That means that a lot of the issues that are on the agenda, we don’t necessarily know where they are going.”
Speaking at a Cayman Islands Chamber of Commerce event in June, she pointed to various initiatives, such as the U.S.-Caribbean Strategic Engagement Act and efforts to reduce financial services regulations as examples for potential changes in the relationship between the region and its North American neighbor.
De-regulation and de-risking
For the Cayman Islands, the reduction by U.S. banks of correspondent relationships with Caribbean clients has the been most noticeable change in recent years.
Wil Pineau, CEO of the Cayman Islands Chamber of Commerce, said, “We remain fully aware of how our relationship with our North American neighbors has changed. In particular, we want to remain informed about the changes in the U.S. banking system after many banks cut their ties with the Caribbean in a process known as de-risking.”
The reduction of correspondent banking relationships has increased in response to tougher anti-money laundering regulations, as well as harsher penalties for banks that fail to identify their customers or infringe on banking regulations. As a result, correspondent banks have blamed both a decline in margins and an increase in reputational and financial risks associated with this type of banking service for cutting ties with bank clients.
In 2015, Western Union had to temporarily stop remittance services in Cayman after Fidelity Bank decided to stop offering correspondent banking services to remittance companies. Jamaica National, which operates MoneyGram and several other cash transfer brands in Cayman, also lost its correspondent banking service provider Cayman National Bank, leaving the remittance companies in a position where they could accept only U.S. dollars instead of Cayman dollars. The fall in remittances from Cayman and a U.S. dollar cash shortage on island became visible signs of the economic impact these types of banking services have, especially for small economies.
A survey by the Financial Stability Board released in July concluded that “the decline in the number of correspondent banking relationships is continuing” as banks that are concerned about falling afoul of anti-money laundering regulations cut their correspondent relationships by 6 percent worldwide between 2011 and 2016. The number of active correspondent banks for U.S. dollar and euro transfers fell even further, by 15 percent.
The Trump presidency raised some hopes that the new U.S. administration’s desire to deregulate the financial markets would help improve the deteriorating cross-border banking services for Caribbean countries.
Banking regulation legislation
The U.S. Financial Choice Act was the first piece of legislation that impacted banking regulation this year. But de-regulation does not necessarily mean a reversal of current de-risking initiatives by U.S. banks.
Yearwood said that in her conversations with representatives of U.S. banks she gained the impression that big banks “are going to stick to the higher standards.” Because they have invested millions to manage risk and to comply with anti-money laundering and know-your-customer requirements, they are probably not going to change, she said.
However, smaller banks may offer some hope to alleviate the reliance of Caribbean countries on an ever-shrinking number of correspondent banks in the U.S.
Yearwood said, within a less regulated financial sector, smaller banks that previously have been much more risk averse, may be willing to take on more risks and consider offering correspondent banking services.
In addition, she noted an opportunity for the Caribbean to step into the Fintech space, to deal with current cross-border payment issues.
The U.S.-Caribbean Strategic Engagement Act
An important initiative for the wider Caribbean is the U.S.-Caribbean Strategic Engagement Act that was signed into law by former President Barack Obama at the end of last year.
Since the 1980s, very few pieces of legislation have focused on the Caribbean as a region.
In June, the U.S. State Department submitted a report to Congress that outlined the areas in which the U.S. wants to cooperate with the Caribbean.
The six areas of engagement are security, diplomacy, prosperity, energy, education and health.
The document states that on security, the U.S. will work with its Caribbean partners to fight terrorism, dismantle illicit trafficking networks, enhance maritime security, confront violent and organized crime, and increase the sharing of threat information among countries.
Diplomatic efforts will focus on raising the level of political dialogue with the Caribbean especially where one of the six priorities is concerned.
The U.S. promises further to increase its own “and our neighbors’ prosperity by promoting sustainable growth, open markets for U.S. exports, and private sector-led investment and development.”
The economic cooperation will extend to the energy sector, where the U.S. government believes that exports of U.S. natural gas and the use of U.S. renewable energy technologies “will provide cleaner, cheaper alternatives to heavy fuel oil and lessen reliance on Venezuela.”
In terms of education, the U.S. aims to focus its resources on exchanges and programs for students, scholars, teachers, and other professionals; and in the area of health, the U.S. will continue to partner with countries in the region in the fight against infectious diseases, like HIV/AIDS and Zika.
The report only scratches the surface in terms of where the relationship is going, Yearwood said. “But in a way that is a good thing because it gives us a lot of operating room.”
Although the act defines the Caribbean as the members of CARICOM and the Dominican Republic, the agreement may still be important for the Cayman Islands.
All of the issues that are important to U.S. policy in the region, from banking and trade facilitation to the Paris Climate Change Agreement, are probably going to impact Cayman as well, Yearwood said.
“Our push from the beginning has been that you cannot have a U.S.-Caribbean Engagement Act without including the entire Caribbean,” she said, including the English, Dutch, U.S. and French Caribbean.
“Let’s look at this as a holistic effort.”
Especially in terms of trade, the Caribbean is a very important market for the U.S., she noted.
In 2016, the Caribbean imported $21.6 billion in goods and services from the U.S., more than Russia or India.
As a result, the Caribbean has more political clout than the U.S. policy focus may indicate. The Caribbean is not inconsequential to the U.S., the CCAA director said, but the question remains: “How do we make our voices heard?”