WILD COOT: Connecting the dots
IF THE WILD COOT were an active banker managing an organisation in today’s market, I would not be seen presenting a pessimistic outlook, especially if my bank had had a successful year of operation. In fact, I would be full of praise for the Central Bank in ensuring that the rate of interest on savings was almost zilch. Another nail in the small savers’ coffin.
Furthermore, I would hasten to assure the general public that my bank scoffs at the idea of selling off delinquent mortgaged properties even though the market for such sales is exceedingly poor. I would have nothing to do with small business. I would not be too concerned with the “tightness” of domestic liquidity.
If the Wild Coot were an active banker I would be happy to offer the Barbadian public loans for cars and credit card access because those things bring in maximum profit. That, coupled with paying next to nothing for savings, would be the icing on the cake.
However, if the Wild Coot were in active banking, I would view with concern the advertisements in the Sunday SUN of September 20, by the Central Bank. One advertisement on Page 1 of the Classified section advertises the issue of $50 million Barbados Government 6.65 per cent Treasury Notes 2025 and the other on Page 2 advertises $50 million of Debentures 2035 at 7.75 per cent. The interest is payable on March 31 and September 30 in each year. Not only is the Government through the Central Bank pulling another $100 million out of the banking system, but it is offering interest rates that are a disconnect with the current market trend.
Am I not offering mortgages on the other side of my balance sheet of 4.5 per cent? Is this not a distortion? And why? Why are you asking me to pay one per cent interest and you are paying 7.75 per cent? (Shades of Cyprus as I warned)
Mark you, Barbados’ bonds are junk bonds, but that has to do with our international image. Here we are dealing with the local market. You just pulled $70 million of the people’s money, now $100 million more, plus taxes, plus savings on oil imports. Where is it going? Maybe the Cahill deal is a cash $700 million deal. Just talking rubbish like anybody else.
There is a contradiction in what the governor is saying: “The Central Bank’s target is keeping domestic interest rates in line with international trends taking account of the tightness of domestic liquidity” (Page 18, Barbados Business Authority of September 21). Tightness of liquidity, and the Central Bank entering the market to withdraw another $100 million. Is this a dampening process? Furthermore, there is confusion for the poor Wild Coot since our Central Bank may be trying to correct the concerns of pensioners that their $10 000 investment allowance for tax purposes has been withdrawn.
The governor said that “the global phenomenon of low interest rates poses a challenge for pension funds in their search for investments that provide them with yields sufficient to meet their obligations without eroding the capital value of their assets”. By the way, if you have not heard, the central bank of the US has just decided to leave interest rates at their low rate. I suppose this is bad news for our Central Bank.
Indeed, the conditions attached to purchasing the aforementioned treasury notes and debentures are funny. If you are 60 years old or over, you do not have to pay 12.5 per cent withholding tax, but you may be taxed on your total income. If you are under 60 years you are subject to the withholding tax. If you are a non-Barbadian you have to “satisfy the Revenue Commissioner of your status” in the application – vague, meaningless differentiation. Thus these are target issues meant for pensioners with a catch. Instead of placing your funds with a private sector fund manager, place your funds with the Government.
In addition to all of this, and this takes the cake, the present Government may not have responsibility to repay these treasury notes or debentures until 2025 and 2035, long after these gentlemen in Government and at the Central Bank have demitted office.
An old lady called me blue vex about my last article. “You do not know what Trinidad is charging us to refine the crude into gasoline, Wild Coot.” I only asked her if she knew of the workings of the BNOC. Did she know how much cess went into a litre of gasoline or diesel? I promised to tell her but not on the phone because the IMF or the minibus owners might hear.
• Harry Russell is a banker. Email [email protected]