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GLEANER EDITORS' FORUM - Cut interest rates, say business leaders
Published in the Jamaica Gleaner: Friday | July 27, 2007
If there is one point of consensus among various business organisations in Jamaica, it is on the need to reduce the cost of loans to the productive sector. This was reiterated during a recent Gleaner Editors' Forum at the newspaper's North Street office in Kingston.
Three participating organisations - the Jamaica Exporters' Association (JEA), the Small Businesses Association of Jamaica (SBAJ) and the Private Sector Organisation of Jamaica (PSOJ), all spoke of the negative impact of high interest rates.
In this they were echoing the public sentiments of two other trade associations - the Jamaica Agricultural Society (JAS) and the Jamaica Manufacturers' Association (JMA).
Significant obstacle
Interest rate was a significant obstacle to production that exporters were anxious to have removed, according to Marjorie Kennedy, president of the JEA. Reporting on consultations with her members, she said their main constraint was the cost of borrowing.
She said they were seeking a significant reduction in interest rates. "I don't know really whether they are going to be able to do that, but certainly, we would like to work towards that goal," she said.
Like the JMA and the JAS, Mrs. Kennedy said many small producers in her organisation had serious problems with "inflexibility in the banking sector".
"These are people who don't have large and deep pockets and when you have seasonal crops, a lot of them incur a lot of debts, buying raw material in order to process."
Using the ackee fruit as an example, she said that because of the seasonal nature of the crop, processors needed greater flexibility from creditors for the purchase and processing of the fruit.
Asserting that his sector "has been paying the highest level of interest rates over the years," Oswald Smith, president of the Small Businesses Association of Jamaica, readily agreed that this was a disincentive for production.
"There is absolutely no incentive for this sector and it's like the bread basket of Jamaica in terms of really giving real tangible support to almost every other sector," he said.
Jamaica, he said, needed to follow the example of First World countries where, according to him, governments allocate lower cost funds to finance the activities of their small-business operators.
While sharing the frustration of the JEA and the SBAJ, Richard Chen, vice-president of the PSOJ, attributed the interest-rate problem largely to Jamaica's huge debt and the management of it.
"I am sure there is some leeway within the banks' own interest rates, but the high level of interest rates is largely driven by our indebtedness. There is very little that the Minister of Finance can do; there is very little that the commercial sector can do," he stated.
Elaborating, he said that trading in commercial paper in the current environment was the safest option for the banks and only a change in government policy was likely to result in that approach.
The one exception to the "inflexibility" rule, according to Mrs. Kennedy, was the Export- Import Bank.
Close association
"The Jamaica Exporters' Association and Ex-Im have a close association and I have found the Ex-Im Bank to be extremely accommodating; they are willing to bend some of the rules if they feel that the project is worthwhile; they are really willing to work with the companies," she stressed.
Citing U.S. dollar interest rates of just under 10 per cent from the Ex-Im bank for some projects, she said this was a step in the right direction.
Similarly, Mrs. Kennedy said, while Jamaican dollar interest rates from the Ex-Im bank continued to be higher than 10 per cent, they were still lower than the average 21 per cent available in the commercial banking sector.
Meanwhile, irrespective of which party forms the government after the August 27 general election, the JEA does not expect any significant change in trade policies affecting the sector.
"Most of the international agreements are already firmly in place and any government, even if the Opposition does win, they will not really be in a position to change anything," Mrs. Kennedy asserted.
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