MUCH HAS BEEN SAID about the current economic environment plaguing the Caribbean since the 2008/2009 worldwide recession. Top of the list of items is the inability of most of the countries to generate, much less sustain, any significant rates of real economic growth.
What that failure means is that it has become virtually impossible for those countries to increase tax revenues without having to resort to higher marginal tax rates on personal income, corporate earnings and properties, among others. Furthermore, most of the solutions we hear about are higher governments’ spending and initiatives to attract foreign investors. Isn’t that interesting? Why? While the need to attract more foreign investors is no doubt a noble gesture on the part of our governments and the impact if successful on our economies could be quite strong, there is an easier solution that is within our reach. Is that so?
Join me and scan through the balance sheets of many of the local banks and credit unions operating in the region and you will find a hidden treasure. The banks are sitting on liquidity far and beyond what is required to maintain a strong financial institution. Unleash the liquidity to businesses and you create a stimulus which has never been seen before in our region! Do you doubt me? Imagine you are a small manufacturer and have the opportunity to export your products. You get orders but need cash to buy the input materials. Getting a line of credit or a loan today is almost impossible. But if you were able to get one, you would then hire workers, produce more output, export, and create economic activity and employment opportunities for many.
So why are we not doing that in Barbados and other Caribbean countries? To begin with, many of the banks doing business in the region have to change their attitudes completely. They have to understand that financial returns cannot be realised without some elements of risk. In fact, several models have suggested a way that financial institutions can benefit by way of higher returns on their investments when exposed to greater risks. Too many of our banks are risk averse or risks haters and that stance defines quite often the kinds of lending policies adopted. The net result is that seemingly good investment opportunities go abegging and economic activity suffers as a consequence.
Further, regulators have to create an enabling environment to promote commercial loans and not just jumbo loans for hotels and other considered “safe investments”. What about increased lending to our agricultural sectors? What about making more loans available for those interested in serious manufacturing especially for the export market? What about greater access to credit to entrepreneurs with brilliant ideas for the creating and building of small businesses?
The more I reflect on the economic challenges facing Barbados and many Caribbean countries, the more convinced I become that our economic problems are not insurmountable. They can be resolved amicably if the right thinking prevails and the right things are done by commercial banks and other key players in our economies. Put differently, the solution to the problems facing the region are unmistakably not beyond our reach. It is just the lack of economic and political will.
Email: bfrancis@uwi.edu.bb
