Last week’s contribution focused on the essential role that commercial banks can play in advancing the process of economic growth and development in the Caribbean. The piece ended with the question: “How can our countries maintain a significant rate of economic growth, when the main financial institutions which hold everybody’s money are actively discouraging people from saving much more than they do now?”
Plainly, if the answer to that question is important, then, it would, by necessity, warrant an examination of the behaviour of our commercial banks as well as the need for more effective regulations/interventions by our governments to bring some level of order to our crucial financial structure. Why?
Without a doubt, there is a third major way in which the current policies of commercial banks are retarding economic growth and development in the region: they insist on lending a huge percentage of their deposits for the purchase of imported consumer goods to the detriment of significantly more loans for business expansion and for increasing national production.
Appallingly, many businessmen and women will tell you that it is easy to borrow money to buy cars, but not to expand agricultural or manufacturing output. If Caribbean countries are to see serious economic growth and development, this course of action, and the others documented in the previous column, have to be abandoned in favour of pro-development policies. Period.
Left alone, it is hardly likely that the banks would take such a progressive stance since all of their actions to date suggest that they are driven heavily by the profit motive. Government’s intervention is therefore necessary to bring about desired changes.
Fiscal policies (taxation measures) must be instituted to reward banks with smaller interest spreads, higher interest payments to depositors and lower interest rates to borrowers who are interested in increasing production in the economy.
Further, banks prepared to take higher risks in lending to businesses rather than customers to facilitate the purchases of imported motorcars, should be rewarded with substantially lower tax rates.
Moreover, fiscal policies must aim at stimulating business expansion, invigorating economic growth and development; not just on raising taxes to balance the national budget.
For too long we in the Caribbean have been ignoring the supply-side of our economies, placing instead most of our attention to influencing aggregate demand.
While the management of aggregate demand is clearly important from an economic perspective, the need to stimulate aggregate supply is imperative in order to generate employment; grow our economies and, by extension, raise revenue for governments without any increases in marginal tax rates on individuals, corporations, wealth and properties.
This, indeed, is the real stimulus our Caribbean countries are badly lacking, holding back our abilities to progress economically.
On the side of regulations, I am firmly of the conviction that our countries have come to the point where commercial banks that currently embark on seizing depositors’ money in the form of more and higher fees and charges of all kinds, should be reined in.
The kinds of fees and charges that the gullible public has had to endure from commercial banks operating in the region over the years, if you will forgive the most appropriate pun, is nothing but bank robbery!
Only effective regulations by our governments can bring an end to this untoward practice that clearly hurts us as a people and stifles much needed economic growth and development in our small and fragile countries.
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