Offshore financial centres in the Caribbean: potential and pitfalls

To a growing extent, offshore financial services are judged to be an attractive development option for small island states. This also applies to Caribbean islands which, due to their declining traditional industries, need to look for development alternatives. Offshore financial centres (OFCs) in the region are booming. Island after island sees the great opportunities of hosting an OFC and wishes to exploit its direct benefits. Government revenue from fees and licences, expenditures of offshore banks and companies operating locally and new employment opportunities are considered important factors to foster the island's economy. Although small islands can certainly benefit by hosting an OFC, there is a range of problems which must be taken into consideration. In this paper the potential and pitfalls of OFCs will be discussed particularly with respect to their costs and the long-term development prospects they offer for the countries in the region. Using the Cayman Islands as a case study, the indirect effects of the industry are analysed in detail