Bahamas-domiciled investors and investment vehicles held more than $23 billion worth of US debt and equity securities as at June 30, with this national and other Caribbean financial services centres accounting for a combined 62 per cent of all such investment by the entire Americas region.
The US Treasury Department’s report on foreign holdings of US securities as at June 30, 2005, showed that Bahamas-registered entities had invested almost $23.5 billion in short and long-term equity and debt instruments, illustrating the important role this nation and other international financial centres play in the US capital markets.
[Editor’s Note: The author fails to note that most of the money in those investment vehicles came from the US to begin with. Thus, the US plays a more important role in the success of the Bahamas financial services industry than the role the Bahamas playts in the US economy.]
As at June 30, 2005, almost $22 billion in long-term US securities was held in the Bahamas, a slight drop on the previous year’s $23 billion. Out of that amount, over half – some $12- billion – was in the form of common stock or other equities.
However, Bahamas-based holdings of long-term debt securities, such as US Treasury debt and asset-backed securities issued by other US government departments and corporations, fell from $10 billion to $9 billion between June 30, 2004, and June 30, 2005.
As for short-term securities, Bahamas-based investment vehicles had reduced their holdings over the same period from $1.745 billion to $1.517 billion. Most of the short-term holdings are US Treasury debt.
The size of the role played by the Bahamas and other Caribbean nations in the US capital markets is best illustrated by the lead they take in investment in US-issued securities for the Americas region. Investment in US securities that is channelled through Caribbean financial centres, including the Bahamas, has grown from $341 billion in March 2000 to $472 billion in June 2003 and $607 billion at June 2004, reaching $715 billion in June 2005.
The total investment in US securities by the Americas region at June 30, 2005, was $1,155 billion.
The US Treasury report said: “Of these American region countries, the Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands, Netherlands Antilles and Panama – referred to collectively as the Caribbean financial centres – serve as major financial centres through which investments of residents from other countries are channelled. As a group, these financial centre countries accounted for$715 billion, 62 per cent, of all investment attributed to the Americas region.”
The role played by Bahamas-domiciled investment in the US economy and capital markets is also possibly this nation’s greatest defence against further attacks by the Organisation for Economic Co-Operation and Development (OECD) and the Financial Action Task Force (FATF).
[Editor’s Note: It also creates the greatest liability because the US government may realize that much of the investments are nothing more than tax evasion, causing them to crack down further on tax havens.]
Any further destabilisation of the Bahamian financial services industry by initiatives such as the OECD’s ‘harmful tax practices’ could damage the inward investment upon which large portions of the US economy thrive.
Yesim Yilmaz, a research fellow with a leading US-based opponent of the OECD, the Centre for Freedom and Prosperity, drew on this theme to explain why low-tax jurisdictions should be left alone, arguing that they contributed to “the long-term success of the US economy”.
Data showed that the Bahamas and other Caribbean financial centres had helped channel more than $1.3 trillion in investment into the US economy at March 2006, based ﾠon the liabilities the US bank- ﾠing system and capital markets owed to these nations.
Mr Yilmaz said low-tax jurisdictions placed competitive pressures on the US to ensure its federal and state tax systems were not too onerous, with these disciplines generating “more benefits than costs for America”.
He described the US as the world’s largest repository of foreign capital, standing at some $11 trillion, with some $7 trillion of this financial investment.
Mr Yilmaz said: “Losing some or all of this capital to other tax havens, which would happen if the US ceased its favourable tax treatment of foreigners, would have significant negative impact on the US growth and employment.”
By Neil Hartnell, The Tribune
