Promoting National and International Financial Stability and Growth

An International Monetary Fund Team was in The Bahamas last month as part of a preliminary appraisal, eventually leading to participation by the nation in an FSAP.

The FSAP, a joint IMF and World Bank effort introduced in May 1999, aims to "increase the effectiveness of efforts to promote the soundness of financial systems in member countries." Supported by experts from a range of national agencies and standard-setting bodies, the programme seeks to:

• identify the strengths and vulnerabilities of a country's financial system;
• determine how key sources of risk are being managed;
• ascertain the sector's developmental and technical assistance needs; and
• help prioritise policy responses.

The completion of the Bahamas' FSAP, expected this year, was described by Minister of Finance Sir William Allen as a way of demonstrating to the world that the country has in place a system now equal to any other international financial system.

Wendy C. Warren, CEO & Executive Director of BFSB, said at the time of the IMF visit that the voluntary request by The Bahamas for an FSAP boosts the nation's credibility as an international financial services centre, open to attracting only reputable business. "This sends a positive message to international investors seeking reputable centres", said Ms. Warren.

The January visit was at the request of The Bahamas Government, who felt an early review of the financial system's regulatory arrangement would be in order, given the steps already taken to upgrade the regulatory system. During 2000 and 2001, The Bahamas made significant strides in the further development of a sound regulatory environment, and a strong anti-money laundering framework. As part of its review process, the IMF team met with regulators as well as private sector representatives.

FSAPs support consistency of policy advice by the IMF and World Bank, fostering accountability. Originally launched on a one-year, twelve-country pilot basis, country coverage had expanded to around 24 members in FY 2001. The program has found strong support in the international community and in countries that have participated.

Detailed assessments of observance of relevant financial sector standards and codes, which give rise to Reports on Observance of Standards and Codes (ROSCs) as a by-product, are key components of the FSAP. The FSAP also forms the basis of Financial System Stability Assessments (FSSAs), in which IMF staff address issues of relevance to IMF surveillance, including risks to macroeconomic stability stemming from the financial sector and the capacity of the sector to absorb macroeconomic shocks.

During 2001, the Financial Stability Forum (FSF) called for independent reviews of offshore financial centres, as a means of enabling such centres to understand where improvements are necessary. The FSF, which ranks offshore financial centres according to what it perceives as the "risk to global financial stability", at that time also encouraged OFCs to disclose assessment findings as a means of demonstrating progress towards meeting such standards.

Sir William Allen has confirmed that The Bahamas will agree to the IMF's publication of its findings upon completion of the FSAP.