Linda Hutchinson-Jafar, Business Writer

Ewart Williams, governor of the Central Bank of Trinidad and Tobago.

Trinidad's central bank governor Ewart Wil-liams says the country's official reserves of US$8.5 billion are safe, although Lehman Brothers was one of external brokers managing its foreign assets portfolio.

"The bulk of these resources was invested in treasury securities of G7 countries, and as such faced very low risk," said Ewart.

"A very small amount of US$85 million was invested in a mutual fund sponsored directly by Lehman Brothers. We were able to liquidate this asset at no loss."

Lehman handled about six per cent of the bank's portfolio.

The bulk of Trinidad's asset-backed securities were issued by Merrill Lynch, another institution that ran aground.

But: "The take-over of this institution by the Bank of America eliminates or reduces the risk attached to this asset," Williams said.

To handle the country's increasing wealth, the central bank had developed a structured foreign reserve management strategy under which its resources were split into three tranches: one to meet working capital needs, another as a second line reserve; with the residual allocated to an investment tranche.

The central bank engages six foreign money managers including the World Bank to handle portions of the reserves.

External managers handle 32 per cent of the total official reserves, while the other 68 per cent is managed by the central bank.

Independent custodian

Williams also utilised an independent custodian to keep watch over the foreign holdings, an arrangement which ensures that the country's assets are not co-mingled with the resources of the external manager.

"This proved to be extremely important since it meant that in the case of Lehman Brothers our resources were not involved in Lehman's insolvency," said the central bank chief.

The strategy also provided for investment guidelines designed to reduce the risk to which the portfolio is exposed and which helped in insulating the official reserves from any loss.

"All our deposits are in commercial banks which have not been affected by the recent crisis, " he said.

The country's United States bondholdings, he adds, have actually benefited from the increase in prices consequent on the flight to quality, which has been the mainreaction to the market meltdown.

"Our limited exposure to Fannie Mae and Freddie Mac bonds - some six per cent of our total reserves - could have resulted in some losses," he said. "However, the US Government takeover of these institutions has reduced, if not eliminated, the risk of this exposure."

Williams also acknowledged that a global slowdown could present a new set of challenges for Trinidad and Tobago

"Even if order is quickly restored to the US financial system, with the approval of the US$700 billion package, the consensus is that the global economy is

scheduled to undergo a pronounced slowdown - some are using the R word - recession. If this occurs, the reduction could prompt a fall in international oil and

energy prices," Williams said while addressing manufacturers.

"Under these circumstances, something will have to give; either a reduction in expenditure or a reduction in savings through the Heritage and Stabilisation Fund (HSF), which strictly speaking, is permitted under the HSF Act. Either option has unpalatable consequences."

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