BARBADIAN FIRMS will be able to draw on a wide range of credit for capital once Government follows through with its plans to liberalise interest rates and exchange controls.

However, businesses have been warned of the exchange-rate risks that could arise when sourcing credit overseas.

This warning came from Dr Justin Robins, a lecturer in management studies from the University of the West Indies, Cave Hill, while addressing members of the Barbados Coalition of Service Industries at the Savannah Hotel in Hastings, Christ Church, last Monday.

He pointed out that liberalisation would mean they could go to the region from the end of this year and the rest of the world by 2009 for everything from credit cards to loans and mortgages, if the interest rates out there were more favourable than what local financial institutions were offering.

However, Robinson cautioned them not to look only at the interest rates on the credit being sourced, but also to consider exchange-rate fluctuations that could occur over the repayment period – then, he noted, the effective interest rate on a foreign currency loan would be the interest rate quoted plus whatever
rate fluctuations.

The university lecturer said there would not be as much of a risk raising capital in the Eastern Caribbean which, like Barbados, maintains a exchange rate fixed to the United States dollar.

On the other hand, he said, in Guyana, Jamaica and Trinidad and Tobago where currencies floated against the United States dollar, borrowers could be opening themselves to exchange-rate risk.

While this could be good for the firms if the foreign currency weakened, Robinson said, it could also be detrimental if the currency strengthened against our dollar. (CH)