This past weekend the world seemingly stopped to digest the political chess match in the United States as attempts were being made to solve a financial crisis which many pundits predict can affect the financial sphere globally.

In an about swing Monday, the US Congress voted against a 700 billion ‘bail out’ Bill to rescue the battered financial system, sending global jitters across many financial centres around the world.

The vote summed up the month of September which saw the pillars of capitalism rocked in the United States with the collapse of major investment banks.

In less than a week, Merrill Lynch and Lehman Brothers — iconic institutions of the American financial system — collapsed like the proverbial house of cards.

Then there were the bailouts of two other US government organisations Fannie Mae and Freddie Mac that were created to provide funds to private mortgage lenders.

That cost US tax payers another $200 billion

Congress’ vote against the Bill came despite a strong warning from Treasury Secretary, Henry Paulson that the US economy is in imminent peril if Congress delays approving the rescue package.

There is some anxiety in the Caribbean over the likely fall-out from the edging of the US economy.

One of the key issues for the Caribbean has been the likely knock-on effect on the region.

To date while there have been statements of concern by regional governments and experts, the fall-out for the Caribbean is still being assessed and remains unclear.

The Prime Minister of St Vincent and the Grenadines has said that the current global economic turmoil could lead to a slowdown in tourism, investment and remittances.

Dr Ralph Gonsalves said there had been minimal impact on the Caribbean so far, apart from tourism.

But he said the magnitude of the crisis meant that it was bound to have a ripple effect.

After weeks of silence, our Premier and Minister of Finance, Ralph T. O’Neal stepped to the microphone to address the effects of a deepening economic crisis in the US on the Virgin Islands.

One of the more interesting revelations was the heroics to save Social Security Board funds that were invested in Lehman Brothers, which were moved to another institution before the institution collapsed.

The Financial Services Commission has not yet reported any fallout from the financial crisis in the U.S. A large portion of the Territory’s services business originates from Asia but given the depth of the financial crisis the VI’s financial services industry could also be affected. 

As the premier pointed out there is always a time lag of months before the VI feels any negative effects and this is so even when the U.S. is experiencing an economic boom.

However, a prolonged crisis could prove harmful; impacting adversely other sectors such as construction and real estate if liquidity dries up as a result of a reduction in mortgages either from the consumers or lenders side.

Striking enough, the Premier acknowledged that the global credit crunch could affect the Government’s ability to secure overseas financing and borrowing locally could hamper private investment.

This could impact the Government’s ability to conduct capital projects in the Territory.         

However, the trickle down effect from the economic crisis in the US has already hit local gas stations and supermarkets as prices continue to rise steadily.

VI leaders must continue to closely monitor the situation in the US and must make a conscious effort to keep the public updated in a timely manner.

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