The Economist focuses on the Caribbean—Anguilla, the British Virgin Islands, Cayman Islands, Montserrat, and the Turks and Caicos Islands—stating that Britain’s Caribbean dependencies have been hurt by economic stagnation, the war on tax havens and their own fiscal recklessness and corruption. Here are excerpts with a link to the full article below:
With or without the [McKeeva] Bush affair [the ousting of the premier of the Cayman Islands], corruption would have been high on the list of election issues in a society where “everybody expects that you are going into politics to make your money”, as a former auditor-general recently put it. But there is plenty more to worry Caymanians and the inhabitants of Britain’s other remaining scraps of empire in the Caribbean: Anguilla, the British Virgin Islands (BVI), Montserrat and the Turks and Caicos Islands.
Tourism and international finance have brought prosperity but the “twin pillars” are showing cracks. Fiscal fumbling has compounded the problem and has strained relations with Britain, which has long provided an economic backstop. The region’s two big tax havens, Cayman and the BVI, are under attack as never before. The world economic slowdown hit these small, open economies hard. Tourism, the biggest employer, has rebounded but remains below its peak in some places. [. . .] Finance, the biggest earner, is a mixed bag. Offshore shell-company registrations (a BVI speciality) are back near record levels. Hedge funds and banking (mostly Cayman) are down by 10-20%.
[. . .] The Overseas Territories’ economic problems are not as severe as those of independent Jamaica and St Kitts and Nevis, which have had to restructure their debts. But the depletion of their reserve funds spooked Britain into imposing fiscal plans with borrowing limits last year. Negotiations have been difficult. Anguilla’s chief minister, Hubert Hughes, signed a pact last month, but not before accusing Britain of being “hell-bent on destroying the livelihood of the people”. He has called for an independence referendum.
In some cases Britain has pushed for income taxes to supplement the fees and indirect taxes that the territories rely on. [. . .] Avoiding fee rises is seen as important at a time when tax havens are under bombardment, especially from Europe. The five territories, Bermuda and others have been arm-twisted into backing a multilateral scheme for the automatic exchange of tax information. [. . .]
Offshore optimists note that China and Russia, whose citizens are big users of Caribbean havens, have not signed up to the information-sharing pact. But remaining attractive to clients while complying with ever more stringent international rules is “an increasingly difficult needle to thread”, says Andrew Morriss of the University of Alabama. No wonder the territories are trying to diversify away from finance, which in the BVI’s case accounts for 60% of government revenues. Anguilla is looking at fishing, Cayman toying with medical tourism. But hip replacements will not be as lucrative as hedge funds.