The question on the minds of the Government and the people of Jamaica is: what is the extent of our exposure to this global economic crisis? How does it affect us directly and indirectly? To answer this question, the Caribbean Policy Research Institute (CaPRI) sought to measure the degree of direct exposure by surveying 285 firms between January and March 2009. We wanted to determine how much of their deposits or investments were in financial institutions outside of Jamaica.

Direct exposure

Approximately five per cent (13) of the businesses we surveyed had deposits or investments (in the form of bonds or other forms of financial instruments) with financial institutions overseas. Two of these were from the micro-business sector, three were from the small business sector, five were from the medium-business sector and two were from the large business sector. They belonged to either trade/distribution, manufacturing, social or personal services, financial services or real estate/business services sector.

Of the 10 businesses willing to provide us with information on actual percentages, six said their overseas deposits represented less than 10 per cent of their total deposits and investments. Two businesses (a large and a small from the trade/distribution and manufacturing sectors) had overseas deposits worth a little over 50 per cent of their total deposits and investments; only one business from the trade/distribution sector had between 80 per cent and 89 per cent, while another one respondent from the real-estate/business sector admitted that the value of its overseas deposits was worth over 90 per cent of its total deposits and investments. Further probing revealed that only four of these 10 businesses actually had their deposits in distressed foreign financial institutions.

Of the 13 businesses who had overseas deposits, nine of them acknowledged the importance of these deposits and investments to the survival of their businesses, but seven went on to admit that they were not essential to the liquidity of their businesses and they could survive without it. Furthermore, most of them (eight) have not experienced reduced access to such funds since the start of the crisis, nor have they seen any change in interest rates.

Indirect exposure

Having made these preliminary observations as to what the direct exposure might be, CaPRI understood that an assessment of 'indirect exposure' was equally critical in determining the extent to which the Jamaican business sector is threatened by the global economic crisis. Indirect exposure is generally transmitted through the lines of credit provided to local institutions and it will be largely determined by a number of factors having to do with business relationships between local businesses and both local and foreign financial institutions and suppliers.

We have determined that only eight per cent (24) of the businesses surveyed are 'indirectly' exposed to the crisis on account of their existing lines of credit with foreign institutions and more than three-quarters of them said these arrangements are more or less critical to their business operations - a little less than a half of these businesses (11) have reported that their lines of credit with foreign financial institutions are critical to the solvency of their businesses and they cannot survive without it, while just over a quarter of them (seven) said that these lines of credit are very important.

On a whole, most of these businesses have not experienced changes in their lines of credit with these foreign financial institutions:

"More than half of them (13) have reported that there has been no change in the maturity/length of loans since the US financial crisis and only a quarter of them (six) have reported a decrease in the length of the loans with foreign institutions.

"Half of these businesses (12) said they have not experienced a change in the cost of the loans compared with a quarter (six) which have experienced an increase in the cost of these loans.

"A little less than a half of them (11) have reported no change in the availability of credit from foreign institutions, while only nine of them have indicated a decrease.

Financial crisis

"Over half (14) of these businesses have reported no change in the size of the loans with foreign institutions, five of them are not sure there has been a change and only three of them have noticed a decrease in size of these loans, since the US financial crisis.

The number of respondents with lines of credit with foreign suppliers is four times those with credit from foreign financial institutions - approximately 32 per cent (92) of all the businesses surveyed reported that they have lines of credit with foreign suppliers. More than half (50) these businesses considered these lines of credit to be critical to the solvency of their business.

The majority of these businesses said they have not experienced any change in their credit arrangements with foreign suppliers:

Sixty per cent (59) of them said there was no change in the maturity/length of loans with these lines of credit with foreign suppliers since the US financial crisis started and another 19 per cent (17) reported that there has been a decrease in the period of maturity for these loans.

Sixty-five per cent (60) of these businesses reported that there has been no change in the cost of loans/interest rates charged since the US financial crisis started while 20 per cent (18) have experienced an increase in these rates.

Fifty-nine per cent (54) of these businesses have indicated that there has been no change in the availability of credit with foreign suppliers since the US financial crisis, while 27 per cent (25) of them have seen a decrease.

Fifty-eight per cent (53) of these businesses stated that there is no change in the size of loans, 15 per cent (14) have experienced a decrease in the size of these loans and 14 per cent (13) have experienced a large decrease in the size of these loans.

Conclusions

Most of the Jamaican businesses surveyed have minimal direct exposure to the US crisis through deposits and investments in foreign financial institutions. Indirect exposure through lines of credit with foreign financial institutions and suppliers was also small, with most businesses indicating that they did not have such arrangements. Most of the businesses that had such arrangements, however, noted that they did not experience significant changes in the maturity, cost, availability and size of the loans since the US crisis.

On the surface, this may seem like good news, and it is. It is important to note, however, that the degree of exposure of Jamaican businesses to the US crisis is only partially captured through the examination of deposits and investments in and loans with foreign entities. The US crisis has precipitated a recession in many of the country's major trading partners, which might adversely affect the export markets of many businesses. The exposure of Jamaican businesses to such indirect impacts of the crisis will thus be presented in subsequent public forums.

The Caribbean Policy Research Institute (CaPRI) is an independent think tank affili-ated to the UWI, Mona. CaPRI welcomes all comments and suggestions. Please contact us at info@capricaribbean.org.