A former Caribbean ambassador is insisting President Barack Obama’s recent decision to enact into law, new provisions that would reduce offshore financial services’ attractiveness to US citizens will impact on the Caribbean and their financial services industry in distinctly harmful ways.
Ambassador Lionel Hurst, former ambassador of Antigua and Barbuda to the U.S., told CWNN Tuesday that Obama’s decision will drive a stake into the heart of Caribbean economies’ `third artery.` It like using a `sledge hammer to kill a mosquito,` said Hurst.
Some sixteen days after President Barack Obama completed his first Caribbean visit and meeting with leaders, he moved to make good on a campaign promise to crack down on U.S. companies operating in tax havens like the Bahamas and Barbados.
Under the plan announced Monday, the administration would remove tax advantages for investing overseas and close foreign tax credit loopholes.
The move comes just over two weeks since CARICOM leaders raised the issue with Obama during the Fifth Summit of the Americas from April 17-19th and as they insisted Obama would contact the regional bloc ahead of any decisions on the hot button issue. It also comes as the region continues to struggle to cope with the global recession, as many countries see a drop in remittances, tourists and real estate investors.
Hurst said the plan will increase the cost of capital significantly and highly regulatory regimes and Tax Information Exchange Agreement would count for zero.
The President’s plan is a form of protectionism which seeks to squeeze the Caribbean jurisdictions out of a market that will migrate to the USA,` said former Ambassador Hurst. `The end result will be higher rates for borrowing that will mean higher costs for the consumers of bank services. The cost of capital to all borrowers will increase significantly.`
Although the President and his advisers have spoken of all offshore financial services institutions as `tax havens` which allow many US taxpayers to avoid US taxes, their primary function has been to lessen the cost of capital to large borrowers, especially in bank-to-bank loans, said Hurst.
The `Overnight Fed Loans` that banks make to each other to allow banks daily to meet the liquidity criterion set by US regulators, could safely be deemed the major function undertaken by offshore banks, he explained.
`They provide the (highly mobile) capital to meet the lawful requirement which all banks must satisfy. The US banks use this facility because of the low cost. Shut off that spigot and the cost of overnight borrowing will escalate,` said the former ambassador.
Focusing on tax agreements, Hurst said `all the progress and law-making will count for naught if President Obama follows through on his announcement.`
The announced provisions sound draconian and will likely deal a blow that may be deadly to this significant economic sector, he added.
`The army of accountants, auditors, lawyers, and thousands of support staff in Antigua, Bahamas, Barbados, British Virgin Islands, Cayman Islands and others will see their economic opportunities disappear,` said the Bronx resident. `Bear in mind that the most feared arm of the US Government -by US citizens- is not its police or military. The Internal Revenue Service (IRS) is feared by citizens for its arbitrary ways and seeming immunity from judicial review.`
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