WHEN THE United States sneezes, we in the Caribbean say: “Bless you.”
The meltdown and its consequent hardships have been felt here in Barbados; so much so that we are hesitant to produce a Budget. If we dare produce one, it will be practically meaningless. We are now operating under the old-time principle of if it ain’t broke, don’t fix it.
A fellow met me the other day and said: “You could write till the cows come home, we on cruise control.”
The trillions of dollars that were promised to the International Monetary Fund (IMF) at the “Rats In Council” do not seem to have altered the perceived image of the IMF as purveyors of draconian conditionalities.
Are we sure that they will tell us to devalue the dollar or fire civil servants?
If they tell us to cut out some of the foreign imports and to rely on local production, what is wrong with that?
Suppose they tell us to stop making stupid remarks about CLICO and let CLICO face a judicial management rather than burden the Barbadian taxpayers, making the country’s financial position precarious, what is wrong with that?
Suppose they tell us to pay Mr Barack his money using that fellow Harry Russell’s suggestions, what is wrong with that?
They may even tell us to pray for the Prime Minister instead of worrying over the implications of his absence. In exchange, help us get over the hump of 2010-2012.
We do not have to go as far as Greece or Ireland. I am one who believes that we should confront the dragon and argue our case. They supported the regimes in Europe, why not us in the Caribbean? And we do not want billions!
The trillions promised to the IMF was conscience money and we should not be hesitant in requesting our share.
Recently a gentleman from Canada, a leading banking executive, warned that American banks were being asked to increase their capital ratio. That is, their capital versus other items on their balance sheet should show a greater percentage.
For American banks that would mean either they go out and persuade other people to invest in their bank or they reduce their percentage of loans and other assets, so that their capital liability forms a greater percentage of their balance sheet.
For some banks, raising new capital may be easy, especially the bigger ones, but for some it might mean reducing the most profitable area of operation. That is all well and good for America as far as Barbados is concerned. But is it?
You mark my words, that same thing is going to happen in the Caribbean and particularly in Barbados. Banks in Barbados are foreign-owned and any increase in capital requirement will dilute earnings. The American banks will be obliged to ensure that banks in Barbados that do business with them carry out the same orders.
Similar demands were made after 9-11 when the Patriots Act was passed. Remember the big fuss that it caused? People who banked with a bank for “umpteen” years were asked to bring in a utility bill to confirm address. Nobody could walk into a bank and simply say: “I want to open a savings account.”
The bank clerk would ask you “horse dead and cow fat”, he would photograph your ID or passport, etcetera.
The requirement for increased capital has been caused by the massive losses which the banks in the United States incurred from 2007 and which the government had to support by ploughing taxpayers’ money into the banks.
No such conditions prevailed in the Caribbean, but the banks will have to comply like American banks. Perhaps the American banks do not envisage that our banks need increased capital, but they will have to insist.
How would such a move affect Barbados? I believe that our banks would reduce lending so that their capital ratio complies. Reduced lending would reduce profits, or should reduce profits; although I see some balance sheets with reduced lending but increased profits.
I suppose that whatever the circumstances banks will survive, even if it means paying the depositor one per cent. I still have a banker’s heart.
• Harry Russell is a retired banker.
