CATEGORY:BUDGET SPEECH
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Presented in Parliament by Grenada's Finance Minister, Hon. Anthony Boatswain.



8. REDUCING VULNERABILITIES OF THE FINANCIAL SECTOR AND TO NATURAL DISASTERS

Regulating the Financial Sector

Mr. Speaker, the management of the economy does not only require that measures be put in place to ensure growth in the midst of macroeconomic stability, but very important Mr. Speaker is that the financial sector, i.e. banks, insurance companies, credit unions, etc remain stable and do not pose a threat to the economic development of the country. As history has indicated in recent times, Mr. Speaker, the failure of a financial institution can have negative contagious effects not just on banks themselves, but also on the whole economy. It is for this reason that every effort must be made to ensure that financial institutions operate within established benchmarks.

As it is well known, all duly licensed commercial banks are regulated by the Eastern Caribbean Central Bank. In June of this year, the ECCB conducted an on-site supervision visit of all commercial banks in Grenada that are members of the ECCB Clearing House facility and concluded that generally the banking system has remained sound after the two hurricanes and their performance does not pose any threat to the financial stability of the economy.

With regards to regulating non-bank financial institutions, I am to inform this nation that the Bill for the Regulation of Non-bank Financial Institutions was finally passed in Parliament in May 2006. With this Act in place all non-bank financial institutions such as off-shore banks and companies, insurance companies, credit unions, development foundations and money transfer enterprises will now be regulated in order to ensure that our financial sector remains safe and sound and does not pose any threat to the economy. The Board of GARFIN has already been approved; plans are advanced for the recruitment of an Executive Director as efforts are concentrated on having GARFIN operational early in the first quarter of 2007.

Catastrophe Risk Insurance

Mr. Speaker, insuring public assets is a financial burden which many countries, particularly those in our region cannot afford individually. Therefore, following several natural disasters, particularly Hurricane Ivan in 2004, the CARICOM Heads of Government requested the World Bank to develop catastrophe risk insurance instruments.

I am pleased to report that the World Bank has completed the feasibility study and design of the Caribbean Catastrophe Risk Insurance Facility. The Facility will provide coverage for hurricane and earthquake events in participating countries and is intended to be launched in time for the next hurricane season. The Government of Grenada has advised the World Bank that Grenada will join the Facility.

At a time when the forecasts are for more severe and more frequent natural disasters, the Facility is part of a more pro-active and comprehensive approach to natural disaster mitigation and management in the Caribbean.

Some of the key advantages of the Facility include: the pooling of country-specific risks into one diversified portfolio; reduced premiums and rapid disbursement. The cost of coverage will be approximately 40% lower than what countries could obtain if they were to access the insurance market on their own. Moreover, Government will now be able to purchase coverage akin to business interruption insurance with an immediate cash payment after the passage of a hurricane or major earthquake.

Mr. Speaker, I want to make it abundantly clear that the coverage provided by the Facility will not replace traditional property insurance for specific assets such as Government buildings or private property. Nor will it eliminate the imperative for prudent disaster risk mitigation policies such as the strengthening and enforcement of the building code and the retrofitting of public and private buildings. As a Nation, we must continue to invest in improved disaster mitigation. In so doing, we will protect our hard earned gains and over time, reduce the cost of insurance. Several major donors have indicated their willingness to contribute to the establishment of the Facility. These donors are aware that the Facility will provide only partial coverage and that their assistance will still be required if a country is affected by a major hurricane or earthquake.

The Caribbean Catastrophe Risk Insurance Facility will be a captive insurance company owned by participating Governments and donors.

Strengthening the Physical Planning Unit

In the area of reducing vulnerabilities to natural hazards, special attention was given to the institutional strengthening of the Physical Planning Unit of the Ministry of Finance. A day-long retreat for PPU officers was convened in July, to address ways to improve the physical planning process in Grenada given the country's limited resources. Additionally, with assistance from ARD, a draft proposal for the restructuring of the PPU has been completed and is now being examined by the Ministry of Finance and the Planning Development Authority.

The Commonwealth Fund for Technical Cooperation (CFTC) has been a major partner in strengthening the PPU. CFTC has provided the ARD with a Physical Planner, who is working with the Physical Planning Unit. The CFTC has also provided the Unit with a Global Positioning System, two desk top computers and a colour printer to support Local Area Planning.

These efforts have been augmented by the commissioning of a Legislative Consultant to review the Regulations governing the Physical Planning and Development Control Act of 2002. The consultant held discussions with all relevant stakeholders. Given the fact that the regulations governing the Act date back to 1988, the review is very timely. Preparation of the draft regulations is now in progress, and follow-up consultations will be held early in the New Year, as a prerequisite for finalizing the new regulations for the consideration of Cabinet.

Government has also been working closely with the ARD to ensure that as we rebuild our beautiful Country, adherence to the Grenada Building Code and Guidelines becomes more widespread.

The Government is therefore very pleased with the support from the Organization of American States and the Canadian International Development Agency for the Grenada Hurricane Resilient Home Reconstruction Programme.

With this Programme, training and capacity building will be made available to all those involved in the construction sector. These include the financial and insurance community, relevant statutory bodies, contractors, draftspersons, engineers, architects and tradesmen. There will also be a public education component to ensure home owners are equally informed about the Building Codes and Guidelines.