Le sens commun n’est pas si commun – common sense in not so common. – Voltaire
Although I am not yet known as “Sir Harry”, I believe that I have a modicum of common sense. I have been insisting that lowering interest rates to the extent that we have done was, and is, a mistake.
The low interest rate regime, as I predicted, was going to impact on the banks as well as on the poor among us. I am saying again that it suits Government to have the low interest rate regime because it pays less for its local obligations. At the same time it is strangling the poor, the middle class and the elderly with taxes – a double whammy.
In fact, it is wiping out the middle class. This is all done ostensibly in an effort to reduce the deficit. But does it? Would not a healthy and vibrant interest system generate activity that, in turn, would generate increased taxes; not the value added tax that now has to be adjusted here and there to plug gaps of poverty and hardship.
Banks in Barbados, when they are able, can only lend a percentage of the money with which they have been entrusted by way of deposits. This is the law. The rest of the money, as a safety margin, must be invested in Government paper. This paper now bears a low interest rate.
But this is the money that the general public has entrusted to the banks that the Government is using. Therefore the Government is impoverishing the poor in two ways – taxation and low interest for depositors at the banks.
Because of the downturn in the economy, competition among banks is fierce as they target the dwindling market share and, hence, it affects the spread they would usually obtain in a buoyant market. Less spread, less profit.
The result is that although we are proud that our banks are all well capitalized, that in itself now turns out to be a questionable thing since high capitalization means higher amount of dividends to be paid or expected.
Banks have responded by raising fees on all services. The latest nail in our coffin (speaking literally and figuratively), and not the last, is the retrenchment of hundreds of staff. Recent layoffs is anathema to Government’s touted policy of retaining jobs.
This requirement by banks to cut back must be laid firmly at the feet of Government and the low interest rate regime policy in following the United States and Britain.
On the other hand, Government must chose between cheaply funding its debentures and other paper and other vote-catching actions. Eventually, as pressure for a better and more costly health care arrangement mounts, it will be forced to cut its Civil Service and parliamentary expenses.
As I have mentioned before, we do not print money to be circulated all over the world. The few dollars that we print for internal use, when they are not stolen, cannot be pressed into service willy-nilly because it would impact on our foreign exchange that is already under tremendous strain.
Coupled with the squeezing of the poor and the negative impact of the changes in health care, both for the practitioners and participants, is the principle that if people pay taxes through their noses then they should get the relevant benefits; it being incumbent on the Government to manage the country efficiently, not necessarily to say that such and such a thing costs too much.
The cost of living in Barbados is high, but its citizens would be satisfied if the benefits such as schools, health and other living standards were satisfactorily dispensed.
But, like Don Quijote, I am attacking windmills, and, like Sisyphus, I am rolling a stone up a mountain. Aristotle said: “There was never a great genius without a tincture of madness.”
Congrats to my grandson Liam, who has continued the Harrison College tradition and followed in his father’s and grandfather’s footsteps.
Harry Russell is a banker. Email [email protected]
