There are more than 20 offshore financial centers (or tax havens) in the Caribbean and Central America and, according to recent news report, there are some that argue that their day in the sun is nearly over.

The list of adverse factors is certainly discouraging: First of all, the reduction in tariff barriers worldwide has undermined the Caribbean islands’ reliance on subsidized exports of sugar and bananas.

Second, the attacks by the United States, the FATF and other bodies on money laundering and terrorist financing have forced the offshore financial centers to shun many of their traditional clientele.

The OECD is pressing for harmonized onshore and offshore regimes; and to cap it all, a majority of the offshore financial centers are dependent territories of Britain, and have been forced to adopt the EU Savings Tax Directive.

It’s this last problem that may turn out to be the most disastrous as investors shy away from the EU’s spotlight. Perhaps not coincidentally, last year the British Virgin Islands saw a 20% drop in revenue from IBC registrations. With such a wide choice of offshore financial centers available world-wide, the uncomfortable demonstration that Britain’s dependencies had no choice but to knuckle under to the FCO haven’t helped them.

An Economist report pointed out that all 14 of the independent countries in the Caribbean Community (CARICOM) are among the 30 most heavily indebted emerging-economy governments, with seven of them in the top ten.

An economist with the IMF’s Western Hemisphere Department has suggested that a continuation of current policies would endanger the Caribbean’s macroeconomic stability. The IMF says that the Caribbean economies have managed an average growth rate of barely 2.5 per cent in the last 25 years.

Still, in many cases, the gloom and doom may be overdone. The BVI still managed to grow last year, helped on by tourism, increased business in financial services, and substantial assets flowing from booming China.

Other jurisdictions in the region have been reporting increased business, and most of them are well aware that they have to change their fiscal models, if for no other reason than that regional integration is undermining tariff revenues, which underpin budgets in most cases.

Ratings agencies have had hard words for Belize and Barbados but have complimented the Cayman Islands; and the IMF has been mostly favorable in its regional assessments.

The dark cloud of the Savings Tax Directive may not persist: In reality, it is easy to escape the Savings Tax in a number of perfectly legal ways, and the convenience of the Caribbean for United States and European investors may outweigh their concerns once the dust has settled.

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