of the financial sector collapse in Jamaica in the 1990s is "something of a record," according to Sir Howard Davies, chairman of the United Kingdom-based Financial Services Authority (FSA).As such, he said a proper regulatory environment needs to be instituted before the financial sector is deregulated. He was speaking at a Jamaica Observer awards function at the Jamaica Pegasus Hotel in New Kingston on Wednesday at which Vincent Chang, chief executive of Tastee Ltd., won the Business Leader of the Year award.
Sir Howard said that "In the 90s, Jamaica set something of a record in terms of the scale of the disaster that hit your banks. You can see some indication of the scale of that problem in terms of the debt Government held after the work done by FINSAC, which I think is, in terms of GDP, close to triple the scale of the debt following the Indonesian collapse and six times what happened in Mexico."
ESTIMATES
Recent estimates of the cost of the collapse assumed by the Jamaican Government, through the Financial Sector Adjustment Company, has been placed at $140 billion. FINSAC was created to restore stability in the island's financial sector.
"The roots of this problem are complex and you know more about them than I do," Sir Howard told participants at the awards function, where he gave the main address. But he said there were some universal lessons which were already known about such collapses.
A financial collapse "is almost the worst thing that can happen to a developing country," he said. The FSA, which he heads, is an independent body which regulates the financial services industry in the UK.
"There is only one thing worse than a totally regulated and well-disciplined financial sector and that is a loosely regulated and undisciplined financial sector," Sir Howard said. "Financial market liberalisation preceding the development of adequate regulatory capacity is likely to lead to an enhanced probability of a financial crisis."
CRISIS
Since the financial crisis in Jamaica, "The Government has been commended by the IMF for what it has done to improve the regulatory environment.
"I don't need to explain the perils of financial collapse to Jamaicans because you know the problem only too well," he said. Among these are that it reduces the capacity of banks to play their role as a secure home for savings and taking on financial risks, which is a severe handicap for any economy, retarding growth and employment.
All financial markets are prone to bouts of instability, said Sir Howard. Markets tend to overshoot when going up and undershoot when going down. The central authorities exist to control market excesses, he said.
