As if the Caribbean did not have enough worries on its over-flowing plate to deal with - rising food prices and a neglected agricultural sector, high oil prices and a runaway crime situation to name a few - the region now has to gird itself against the impending impact of the US sub-prime housing crisis and its long reach that is now penetrating the global financial system.

This latest challenge virtually on our doorsteps calls for governments and financial and monetary authorities in the Caribbean to be vigilant and to take as many preventative action as possible to mitigate its possible impact.

Although our countries so far are showing some resilience against the financial crisis in the US, Christine Daseking, Deputy Division Chief in the Caribbean 11 Division of the IMF's western hemisphere department warns that the region will continue to slow down economically, there will be a reduction in foreign direct investment while the tourism sector will be adversely affected.

Consider the fact that among the ten most tourism dependent countries in the world, seven are in the Caribbean. Eight of ten of the world's most indebted low-middle income countries are also in the Caribbean.

On Friday last at a seminar in Port of Spain to look at the impact of the sub-prime crisis on the Caribbean, Ms. Daseking, also Mission Chief for Barbados and Trinidad and Tobago advised fiscal and monetary authorities and employers and unions to coordinate strongly to help preserve debt sustainability, help give fiscal support to the most vulnerable groups and contain second round effects on inflation.

It will require a concerted effort of all the different arms of government and monetary authorities and the unions and employers to make this happen.
From all indications, the worst in not yet over and many predict that the housing decline in the US will continue in 2009 and mortgage delinquency will continue to rise.

The aggregate potential losses from the financial crisis is estimated at US$945 billion, according to the IMF, the most expensive financial crisis in modern history.

A week ago, Neil Pierre, Director, ECLAC subregional headquarters for the Caribbean urged the Caribbean to put measures in place including re-routing exports to other countries to cushion the potential impact of a recession in the US, which attracts 50 percent of the region's exports.

Our countries are already facing major economic challenges brought on by oil and food price shocks while a recession in the United States could dampen export demand from the Caribbean.

The hike in food prices is already putting a severe strain on budgets and on the living standards of families. We recently witnessed the food riots in Haiti.

The spike in fuel prices and other commodities are already leading to a high inflation environment, undermining many of the gains in the standard of living, according to Pierre's dismal prognosis.

Caribbean economies have already began to see slower growth in their economies.

Latest data from ECLAC shows that the Caribbean overall recorded a slower rate of economic expansion in 2007 than during 2006, mainly reflecting reduced growth in tourism activity and in construction.

Montserrat was the only country that experienced positive growth.

For the Caribbean as a whole, ECLAC estimates that the economic growth rate fell from 5.6 per cent in 2006 to 3.9 per cent in 2007.

The slow down was substantial in Antigua and Barbuda, Belize, Dominica, St. Vincent and the Grenadines and Trinidad and Tobago.

The Caribbean's fiscal imbalances and high levels of indebtedness in a number of Caribbean countries were areas of major concern, according to Pierre.

With debt to GDP ratios exceeding 100 percent in some countries and debt servicing costs in excess of 30 percent of exports of goods and services, Pierre said the debt overhang presents a serious challenge to fiscal management.

Barbados Central Bank Governor, Dr Marion Williams also saw the offshore financial sector along with tourism areas likely to be affected by the US sub-prime crisis which has already penetrated the global financial system and contaminating the real economy.

Questioning how the Caribbean should respond to the US crisis, Dr. Williams said it will prompt countries to revisit their financial system.

Countries will need to maintain sound banking practices, develop a derivatives market that is orderly, attract quality capital investment and emphasize the importance of due diligence at the level of credit origination.

In Trinidad and Tobago, Central Bank Governor Ewart Williams has already sounded the alarm bells, warning that the country which has been battling rising inflation over the past year and a half, is now facing the threat of seeing more double digit inflation over the coming months.

He blamed this on robust economic growth, the government's fiscal policies with excessive public spending, rapid credit expansion, domestic agricultural bottlenecks and a surge in global food price.

After peaking at 10 percent in October 2006, headline inflation declined to 7.3 percent by November 2007. The steady decline was reversed in December and by the beginning of this year returned to 10 percent.

The rate of inflation stood at 9.4 percent in February and by March inched up to 9.8 percent.

Taming existing demand pressures in Trinidad and Tobago will require stronger monetary policy action and considerable expenditure tightening.

Demand control will however face even greater challenges later this year arising from the inflows of US$1.2 billion that will be paid to shareholders of RBTT Financial Holdings following approval of their sale to the Royal Bank of Canada.
Bank credit expansion is also adding significantly to demand pressures, increasing at a rate in excess of 22 percent during 2007.

It's important for governments to look at their own financial indicators and take whatever monetary policy action to tighten up expenditure as no one yet knows the extend of the impact of the sub-prime rate crisis and the economic slowdown of advanced economies.

With all the challenges already facing us in the region, it does look as though, whether we want it or not, that it will inevitably creep to our doorsteps.

Being prepared is the only way to face what one audience member at last week's seminar described as the coming storm.