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Stabroek News



Few dangers seen from Olint's slide
published: Friday | July 18, 2008

Sabrina N. Gordon, Business Reporter


David Smith

With no precise figure available for the funds Olint and its various subsidiaries have under management, analyst says it is hard to predict the full impact of the corralling of the foreign exchange trader's assets on the local economy.

But there appears to be a fair bit of consensus that the immediate effect would be consumer spending, in much the same as the Cash Plus effect.

"The implications has to be viewed in conjunction with what is happening in the wider economy, such as oil prices, inflation ... ," said economist, Errol Gregory.

"We still have no precise numbers, thus, we are operating in the dark, but it definitely adds another dimension to what is happening and will only make it more difficult for the economy," he said.

Olint, considered the forerunner of the unregulated investment schemes, is as secretive about its dealings as the other 40 or so operations that regulators have detected over time.

But 'guestimates' have centred on US$600 million (J$43 billion) of principal, and possibly US$2 billion (J$144 billion) when interest payables are added to the mix.

Jamaican think thank, CaPRI, which estimated the total amount of invested funds in the schemes at J$100 billion to J$200 billion, said Wednesday that it had no individual breakout of the figures.

Club's exposure

The exposure of Olint though is said to be substantial for two reasons - other clubs are said to have invested with the David Smith-led operation, tying up their fortunes with Olint's; but also, because the club's exposure is in hard currency.

Olint, formed some five years ago, was considered to be one of the safest among the schemes, according to the CaPRI study findings, which was based on investors' perception of the capacity and capabilities of the key masterminds behind the operation.

Added Gregory on Wednesday: "It was believed that, unlike Cash Plus, Olint was one of the more 'acceptable' ones, given foreign exchange trading is an international activity."

But since January, there has been a slow down in the flow of funds from the investment scheme to its investors according to reports, with the latest hit on its operations being a closure of its office in Kingston and a raid on its activities in the Turks and Caicos Island and Miami this week.

These events followed a hold on payments to investors, to, the investment scheme claimed, allow for completion of a due diligence exercise on the operation by a top international bank.

Later, rumours surfaced that the fault was that of local banks, prompting a full page advertisement from National Commercial Bank denying there was a hold on Olint's accounts, and declaring the bank willing to transact business with the scheme, at least until a court case is decided.

The freezing of Olint's assets under a money laundering investigation is unlikely to have much of an effect on the formal financial sector, but some consumption wealth effect is expected, said one analyst, noting that the only question would be the degree.

"The economy has been going along for most of the year without inclusion of funds from Cash Plus or Olint... so if those funds are not coming into the system to stimulate any activity, then, the question is to what extent the funds that normally have been coming in is use for local consumption," said the analyst who spoke on condition of anonymity.

"No doubt funds have been coming as one hears anecdotal evidence about investment in real estate, and the purchase of motor vehicle... if people are not able to complete these transaction then certainly there will be a slow down in the economy in those categories, and I'm not sure the rest of the economy is sufficiently buoyant to overcome."

But according to the analyst there has been no major fallout from the investment schemes so far, pointing to the CaPRI study which concluded that most of the investors in the unregulated schemes were well-off Jamaicans.

The study indicated that in the event of the collapse of one or more of the alternative investment schemes a severe and long lasting effect would be unlikely, and further that the effect of the collapse would be largely confined to personal accounts of the investors with a wealth effect on consumption and therefore the general economy.

"The consequence of this could be a cyclical contraction in economic activity, in light of the limited exposure of most participant this effect should be neither severe nor long-lasting," the study said.

Finance Minister Audley Shaw reiterated that position this week, following news of Olint's misfortunes.

Analysts now say it is up to the authorities to manage any fallouts.

"The area which stands to be affected is in terms of where funds were obtained for investment," said one analyst.

"Some may have borrowed money" from the formal system.

"The authorities need to ensure that the Central Bank is on top of this situation, see to what extent the banks may have been exposed to some of these sources, and carefully examine the people who have loans," he said.

sabrina.gordon@gleanerjm.com

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