REPORT #3 1997
INTERNAL REPORT ON THE PROGRESS OF A BELIZEAN STOCK EXCHANGE EDUCATION AND AWARENESS PROJECT FOR ECONOMIC DEVELOPMENT

The year of 1997 saw a widening debate and discussion within the country of Belize, of the need for Belize to have it's own Stock Exchange and possibly an International capability to handle Futures and Commodities contract trading services. The most encouraging sign of interest were discussions among the politicians of the cabinet in Belmopan, the occasional letter in the national newspapers showing that intellectuals and editors were considering the subject, finished by a visit by the Prime Minister of Belize, while in the United States of America, with the head of one of the many stock Exchanges there, in a discussion to familiarize himself with the subject.

Throughout the Caribbean and Central American region there are about 10 small national stock exchanges. While the Asian markets collapsed and their economies went into a tail spin, with South Korea leading the pack with a $50 billion dollar International Monetary Fund loan program bailout and a NATIONAL DAY OF SHAME declared for mismanagement by the government. The Caribbean in contrast and in particular the Jamaican Stock Exchange surprisingly led the world, and was the 10th. BEST PERFORMING STOCK INDEX IN THE WHOLE WORLD. Jamaica saw it's performance up by 29%, while Asia had gone into a sinking tailspin.

When you add the capitalization of the top three Caribbean markets together it comes to roughly $6 billion. Yet, not one Caribbean island has a stock market even one-hundredth the size of Brazil's market. There are 95 listed companies among the three top exchanges. The trading market is very small.

On the economic development front, eight separate smaller island states in the Eastern Caribbean are creating a common electronic stock exchange, set to debut next year, 1998. Each island hopes to attract the trading of eight to ten companies. Jesse Wright of the IDB, a financial sector specialist has been working with the islands to set up the common electronic exchange. The idea is that the Caribbean will have similar regulations so that some day they can move to a greater association. It is not recommended at this point in time, any such developments in Belize be confined solely to such recommended regulations, but a common electronic communications format would be advantageous.

Trinidad and Tobago, Jamaica and Barbados have done about $200 million in stock trading so far this year. That is about half a million brokerage fees and another half million in agents fees. The real importance is seen by this Belize Development Trust Public Educational Project, as getting Belize established with a Stock Exchange, even if it be only two rooms allocated in Belmopan with telephone lines, internet 24 hour service for a few computers for FREE delayed data downloads and a back room for accounting purposes. What is needed, is the electronic capability to trade between the various Caribbean Exchanges and those in Central America and hopefully access to the international trading world. The Caribbean already has two companies that are cross-listed. Barbados based CIBC West Indies Holdings Ltd. is listed in Jamaica, Trinidad and Tobago, and Barbados. The Insurance Company, Life of Barbados is listed in Barbados and Trinidad and Tobago, Iton said. BHI of Belize is traded through the Nasdaq Exchange in the USA.

In the outside world there is nascent interest in these markets. BBV Latinvest expects to open up a Central America investment fund soon. Deutsche Morgan Grenfell is working on a fund with the Central American Bank for Economic Integration. In Panama, a brokerage called, Wall Street Securities has amassed about $23 million in Panamanian stocks alone in the past two years, through it's Bahamas based Panama Balanced Fund. In Belize, the Suisse Belize Trust offshore trading representative, Ray Auxillou, is also developing the research for opening an Offshore International Fund for localized regional business investors to participate in, and is seeking start up capital. Leo Williams, who runs Williams & Associates an investment firm in Boston, said he plans to start a publicly registered fund to invest in the Caribbean next year. Williams is born in Jamaica and he knows of others who are testing the waters. It is the considered opinion of all of the above, that the Caribbean has some good value that has not yet been tapped. The markets and investments are strengthening because the markets are intergrating.

Jamaica, Trinidad and Tobago, Barbados and the Bahamas have all bought the same software for trading and clearance and settlement as part of the plant to integrate electronically. They have basically compatible issuing requirements and few restrictions on foreign capital. There is still a problem in Belize, as branch banks of Barclays Bank, Nova Scotia, and Atlantic Bank still are not servicing foreign dollar accounts, despite approval to do so by Central Bank, in district areas outside of one town. No one has yet explained why.

There is a big push in the Caribbean to convert the exchanges from simple stock trading, to capital markets for investment, said Ray Auxillou of the Suisse Belize Trust in Belize, and Raul Lacayo, director of Nicaragua's Stock Exchanges. Progress is slow.

Many politicians do not understand the flow of speculative and investment capital. Trained accountants in these countries and in Belize which is our concern, lack the training also to understand Public Company reporting requirements for investment speculation outside of primitive balance sheets. They in turn advised the Prime Minister of Belize some three years ago, that public company reporting requirements should not be changed in Belize and he announced that the policy would not change as it was regarded as satisfactory according to his advisors. For investment and speculative capital this is unacceptable. Without newspaper reports on book value, price earnings ratios, dividend ratios, the public float and many, many other technical reporting jargon, the overseas investors from around the world cannot judge what is happening and so Belize cannot and will not attract the necessary venture and risk speculative capital. Many family run companies in the region would rather take out loans for expansion rather than open their books to strangers. Nor do they understand the advantages of going public and selling shares. The mechanics of raising capital for expansion and growth by going public are still a mystery to most localized businesses in the region. The loss of control worries some family businesses and the knowledge of how to buy back the stock if they are successful with their growth plans is generally little understood.

To emphasize the seriousness of this public education problem, not a single share was traded last year on exchanges in Guatemala, Honduras, Nicaragua, or the Dominican Republic. Belize does not even have an Exchange. Some regulators of stock exchanges have even been obstructive. Roberto Brenes, general manager of Panama's stock exchange, said he's been trying for two years to convince Costa Rica to list Panama's blue chip stock "Cerveceria Nacional SA", to no avail.

There are signs of change coming. Within the next six months, the Caribbean Exchanges are expected to be set up with compatible clearance and settlement systems and could have a common standard on the requirements for listing shares in 1998. If all goes well, companies that meet the standards will have their shares listed automatically on all 10 Exchanges. Some will only elect to be listed on their home Exchanges, and may choose to do so. If, Belize decides to form it's own Stock Exchange, it is on standards for listing companies that Belize will differ. The electronic and service accounting compatibility will probably be the same, but Belize hungers for investment business and international capital flows. To attract this, they will probably choose, or should choose, to have a more wild and wooly vibrant exchange on the style of the Colorado mining stock exchanges and that of Vancouver, Canada. This remains to be seen and may be affected by the attitudes of political change and development within Belize. The current political party in power, the UDP has shown itself to be ultra conservative and probably would be restrictive in any stock exchange requirements contrary to the needs of such a development.

Common linked trading between the regions stock exchanges may not foster a propulsion into major latin market status, but could provide more funding for the capital strapped region's businesses and projects. It is in venture and risk capital flows that Belize needs to expend some investment on a simple trading stock exchange to get off the ground floor. This is the machine that will make it possible. Nasdaq Exchange in the USA, started in a similar way. By uniting a cluster of regional over-the-counter informal trading markets in the USA by computerizing them, the now large and famous NASDAQ exchange trading platform was created. Using that technology, the Caribbean and Central America could also unleash a market potential that is not there now. Robert Riess, managing director for NASDAQ international market initiatives unit ,has been working with the existing Caribbean Exchanges to computerize their trading, so the leverage of world investment could find it's way into such a very small market, by world standards.

The whole development process is likely to be a slow one. Seed capital in Belmopan for a Belize Stock Exchange is expected to require about $150,000 BZ per year for three people, not counting equipment, rent, telephones and data hookups. There are at least two people with experience. Trevor Christopher a Belizean with a Series 7, brokers license from the USA, temporarily located in Panama( E Mail: [email protected]) and Ray Auxillou,a Belizean with twelve years experience real time, real money, as an active international trader investing other peoples funds, currently located in Miami ( E Mail: [email protected] ). The talent pool is not large for practical experience in Belize and only time and experience are the real qualifications here. If academic degrees could guarantee success the world would be filled with millionaires. It is unlikely that either of these people, or any others could be attracted to develop a Belize Stock Exchange without a minimum of a five year contract.

Funding would most likely have to be by GRANTS and whether or not, the government in Belmopan has yet achieved a level of awareness of the importance of such a development for the country and has the ability to attract the initial financing is in doubt. While the moment has not yet arrived, it is coming.

As Waine Ion, general manager of Jamaica's stock exchange says. " We need to mobilize savings to fund the various projects we have, the alternative is high-cost debt."