Treasury & FX in the Caribbean

Commentary

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The Caribbean is a region which does not often come up in treasury discussions, mostly due to its small size and very fragmented nature. The participants generally manage to achieve most of their objectives, but it is a challenging environment, where operations are generally not as efficient as they would wish.

• The region is made up of many islands, most of which are independent countries. This means a large number of small economies, and many different regulations.
• For historical reasons, there are several different languages and cultures. One participant mentioned that they split the region into language groups between English and Spanish – but there is also French (Haiti) and Dutch (the former Netherlands Antilles). 
• Most countries do not have formal exchange controls, but shortages of hard currency are frequent. The consequence is that it can often be difficult to execute FX transactions, and there are cases of trapped cash building up. However, cash can usually be repatriated once the FX becomes available. Banks do not seem to treat all customers the same way.
• FX shortages have always been a problem in the area, but these have been aggravated by the current environment: COVID 19 has severely impacted tourism, on which many countries rely, while some countries depend heavily on a single industry, such as oil and gas. Other countries have economies which depend closely on larger neighbours, such as Venezuela. They are therefore impacted by issues in these countries.
• Given the absence of formal exchange controls, the region is often included in in-house bank structures – but cross-border settlements frequently have to be delayed.
• Another consequence is a highly fragmented banking environment. Most participants prefer to work with their international banking partners, but they are far from providing complete cover across the region. Many now include local banks, to increase access to FX – but this creates issues with counterparty risk management.
• To add to all these issues, the region also includes Cuba. While most countries do not have sanctions against Cuba, and it is perfectly legal to do business there, the United States is an exception. The US sanctions regime against the country has tightened over the past few years, with the result that even non-US banks are now very reluctant to handle transactions related to the island, for fear of reprisals under the US sanctions regime. This even applies to transactions executed in currencies other than USD. Participants usually manage to find a bank which is prepared to handle payments into and out of the country, but the number is decreasing, and it is becoming more and more difficult.
• Finally, different companies have different organisation structures: many include the region under LATAM, but there are a variety of other solutions.

Bottom line: the travel brochures usually depict the Caribbean as a paradise. This may be true for vacations and tourism – but it definitely does not apply to treasury management there. It is a mosaic of small, difficult and inefficient markets. But they work!