“Ignoratione rerum bonarum et malarum, maxime hominum vita vexetur” (The inability to tell good from evil is the greatest worry of man’s life). – Cicero.
TRADITIONALLY BANKS have used the savings of a country to facilitate loans. The capital of banks is reserved for emergencies. These loans then promote growth in social areas, housing, personal and business, hotel promotion. Outsiders look on this as a prudent manner in which a country is run. Investors become interested in the country. The Central Bank guarantees savings in a bank up to a certain amount.
However, when the savings of a country are put to a different use, this not only becomes a worry to the country, but also poses a question about the safety of these savings.
Here is the situation in Barbados. In excess of $1.9 billion of the savings of the country has been put into the hands of the Government. This has been done in a dramatic way with the Central Bank playing the leading musical instruments – bonds and loans. How? It has encouraged the banks to reduce the interest rate on savings to close to zero and at the same time offered up to 7.5 per cent for bonds. The result is a complete reversal of the use of savings. Banks may be happy as the spread (difference in interest paid and interest charged) widens, along with spurious commission charges. What have we now? Instead of the banks being the real debtor for the savings, it is the Government. By the way, as I have warned, this also happened in Cyprus. Savers have had to accept a haircut somewhere in the region of 40 per cent. Where is the insurance for the savings of the people? – surely the banks. The Wild Coot says no. If the Government goes bankrupt (has excessively high debt either local and/or foreign), then the savings that have been transferred and those placed by the bank are at risk.
So the alacrity with which our people are responding to the offered bonds may not be ignoratione rerum bonarum…vexetur, but the needed quarterly payment of interest. But as I predicted before, in 2020 when bonds mature we may be looking to receive more bonds.
This is not the only vexetur. The Auditor General just published on May 25, 2016 in the NATION a part analysis of essentially off balance sheet Government obligations totalling $1.5 billion. So in addition to a 130 per cent of GDP indebtedness, there is a further $1.5 billion obligation. This confronts the obligation to repay the banks (depositors) $1.9 billion of savings.
What is even more disconcerting is that in addition to the $1.5 billion of off balance sheet, the banks themselves are involved having facilitated it appears $48 million in loans and $35 million in overdrafts, at least $83 million plus whatever indebtedness is owed by large entities (BIDC, Barbados Tourism Investment Inc., National Housing Corporation and Sanitation Service Authority).
And we have a Central Bank that is supposed to be the watchdog of the people as against the vagaries of a government.
The Wild Coot has to read between the lines of the International Monetary Fund (IMF) report. It is full of generalities that obfuscate the truth of the situation. Funny how those in charge have exalted the report. ‘Ignoratione …. vexetur’.
We watch with interest the rising awareness of the iniquitous charges by certain banks that has raised the ire of a government in the Eastern Caribbean. Why would a bank charge $25 per month as a minimum charge for maintaining an account in its books? The government is questioning the intention. We in Barbados have not reacted in this way? Former independent senator Dr Frances Chandler put the recent report by the IMF quite succinctly in her latest column, quoting some relevant ‘ifs’ by the IMF.
We now wait for the next Budget, fearing where the axe will fall. Pensioners who were the helpless target in the past will already have seen that the subsidy on certain medication has been removed. Just scrutinise your next prescription to see if the charge has been changed. There is talk of more taxes.
The taxes are used among other things to pay the interest on bonds. It is a merry-go-round without music. We will soon have music with Crop Over and the people will be satisfied having spent over $1 000 on a costume that hardly covers the essentials. Stimulus for the Wild Coot.
• Harry Russell is a banker. Email: [email protected]
