The Adrian Loveridge Column – The Banks, the Banks, the Baaaaaaaaanks!

Despite the apparent impasse between the current Government and our banks and financial institutions on the subject of terms for foreign debt repayment, it would be nothing short of silly for the heads of those banks to perpetuate the ongoing impression that they are not still open for private sector tourism investment and fiscal support.

When I broached this subject through the social media recently, a locally acknowledged economic pundit pointed out that banks are not in the ‘business of taking risks’. If this was vaguely comprehensible, someone would have to carefully explain to me that while at one time holding the second lowest credit rating status of any sovereign nation on the planet, those same banks extended further loans to the then administration and on clearly unsustainable interest rates and repayment periods.

As some investor confidence returns, it must be obvious even to the most sceptical bank director or senior manager that any acceleration in recovery is going to be driven by the private sector, as they are the only significant group of players who create new wealth.

Government have very limited options without further increasing, already what many consider crippling taxes, which have a direct negative consequence on either business owners or our already value-for- money challenged visitors.

Ultimately, every rational observer knows that the banks will eventually recover any or all the state indebtedness largely by recouping through increased customer fees, service charges and interest rates. At least one of them has already announced a second fee hike within thirteen months despite a notable reduction in service delivery.

The private sector can however fight back by using its trade associations to collectively negotiate down credit and debit card merchant transactional and processing charges to offset additional opportunistic service fee increases. Paying by cheque is another area that should be finally relegated to the dinosaur age, because of the costs involved and time delays in settlement to traders and retailers.

Meanwhile virtual or actual monopoly utility and other providers hold out against accepting payment by credit card online.

Highlighting this recently, a senior regional representative of MasterCard stated, that ‘the Caribbean currently had a very low penetration of electronic payments across the board and that there was scope to explore the 85 per cent of transactions now not done electronically’.

Our financial institutions could also extend their co-operation, with the tourism sector, by including the same concessions to the industry that some offer to wholesale clubs and food distribution entities, where currently up to 4 per cent cash back is given, when particular brand credit cards are used as payment. Even if this is extended to limited quieter times of the year!

September is a classic example, which for many in the sector, is one of the most challenging months of the year.

52 comments

  • I find your article a bit misleading. Firstly banks are in the business of taking risks. It is in the degree of risk that may be in question. I may not be rational, however I am sure that the banks will recoup their indebtedness by means other than the methods that you suggest. Those fees are increased to cover operating costs not to say they do not contribute to profit. The way the private sector can fight back on high transactional and processing fees is to not accept credit cards that have higher fees, for example many merchants that I frequent will not accept American Express due higher transactional fees. In that some credit cards reward the consumer , it may be difficult to convince them to reward the retailer also, as a consumer it is my bottom line I am concerned about, not that of the retailer As far as the elimination of cheques is concerned , the use of cash has some of the same drawbacks.

    Like

  • Vincent Codrington

    @ Rbert MacDonald

    All three systems/methods( cash,cheques,electronic transfers) have their drawbacks. It is usually the dominant system that survives.
    I agree with you that banks are designed to manage risks , especially credit risks. The alleged statement would be a very strange assertion for a banker to make.

    Like

  • Interesting post. I always wondered about the gap in both quality of service and range of services provided by the Canadian banks between Bdos and say, Toronto.

    Like

  • @David

    Here is something evening reading for you and the BU family.

    A pretty clear synopsis of the IMFs playbook using the Ecuador experience. The Barbados case is no different.

    https://www.theguardian.com/commentisfree/2019/aug/27/imf-economics-inequality-trump-ecuador

    Like

  • Vincent Codrington

    @ David BU

    The IMF playbook never changes. The assumptions that it makes are seldom rooted in the realities of the borrowing country.

    Like

  • The IMF, World Bank and other international agencies are cognizant of market nuances, it is why they hire second professionals from other regions to work. The challenge appears to be that our countries always approach these agencies when our tails are against the wall, therefore losing any leverage that might have accrued if we had approached sooner.

    Like

  • Vincent Codrington

    @ David Bu at 4:05 PM

    The solutions had nothing to do with going to the IMF sooner. The technocrats on the ground should have anticipated the cause of the GoB deficit and recommend corrective measures earlier. They should have anticipated the growth of public and private debt and instituted the appropriate corrective action. The economy was highly leveraged. Development requires capital not short and medium term loan finance. The economy was on auto pilot.

    Like

  • Vincent Codrington

    @ David BU

    I think you have become addicted to Kool Aid. Hal, John A and I are still looking for the analyses that informed the current program and cannot find them.

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  • @ Vincent

    Well said.

    @ David

    You still don’t get it.

    There is a fairly high probability that Bdos (like many before it) will come out of this IMF program worse off than when it entered. That has nothing to do with when the IMF was approached but all about their flawed, neoliberal one-size-fits all approach.

    Liked by 1 person

  • There is also a high probability that without the IMF loan we would have already been worse off now than we will be when we come out of this current loan.

    The probabilities of both happening are “fairly high”. Some of us keep looking at those states that failed under the IMF but always fail to mention the previous two loans/ austerity programs that Barbados has successfully navigated.

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  • @Vincent

    You state the obvious to make a point?

    Why did Barbados become a member of the IMF in the 70s?

    Like

  • Vincent Codrington

    @ David BU.

    It is because some people appear to miss the obvious that we try to bring it to their attention. Even then some refuse to see the implications of the obvious.There is nothing others can do about it other than to let them fall into the pit. Is that where you want to be?

    Like

  • @ David.

    Vincent’s point of a lack of direction and what I would call ” a hard ears MOF” Is where we need to focus our discussion.

    If you recall at least 4 years prior to the 2018 elections Sinkler was warned he is playing a dangerous game with his ” printing press approach”, but he refused to listen. Over the 2014-2018 period he unleashed a massive amount of local dollars to chase the few USD we had in reserve. From there it was all down hill for sure, as his approach was based in financial lunacy.

    When I hear people say the The IMF did this and that, it is amazing how no one stops to ask how did we end up at their doorstep again?

    If you eat non stop and end up morbidly overweight, thus having to go on a rigid diet under a doctor’s management, do you get angry with the doctor?

    We showed piss poor financial prudence as a country, led by a MOF whose sole purpose was to get to the 2018 elections without rocking the political boat. That was like not treating a sore on a diabetic toe then quarelling when the foot had to be amputated. The lack of a system of checks and balances were our failing. It happened then and It can happen again, because after all the ” long talk” when the BLP was in opposition, nothing has been done to change the fact that today the MOF can still dictate to the central bank what they MUST do!

    So don’t blame the IMF for dispensing harsh medicine, we were like an uncontrollable child in a candy store, they were therefore called in to slam the door on us.

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  • Also what no one mentions is that our economy has contracted over 25% since 2007. When the governor talks of growth of 0.5% in a year, does anyone stop to think at these anaemic rates how many decades it will take for us to get back to an economy the size of what we had in 2007?

    Bear in mind too we are now officially in a recession having experienced in excess of 3 consecutive quarters of negative growth. Again something our learned opposition fails to mention!

    The truth is nobody has stopped to explain our reality to the public in a non bias way So that they can grasp the seriousness of where we are today.

    Liked by 1 person

  • @John A

    The point made a s that we will not see Barbados in our life time revoke membership in the IMF. We are hooked!

    Like

  • @John A August 27, 2019 6:12 PM

    “Also what no one mentions is that our economy has contracted over 25% since 2007.”

    Read https://countryeconomy.com/gdp/barbados. We are slightly higher than in 2008, but have no real growth since then. Tron has been pointing this out for years. How do you get minus 25 percent?

    The reasons for the economic zombie existence are well known:

    1) I had a nice talk today with the management of a well-known tourist facility in Barbados. Bitter complaints about the low work ethic of the local staff.

    2) The bureaucratic waterhead of about 30,000 officials.

    Barbados will never return to the growth zone as long as the schools only produce labour-shy talkers and the bureaucracy is not substantially reduced in size.

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  • @ David.

    No we will stay with them as we don’t know when another government might again mis manage our economy and we will need them to tell us what we already know we should do!

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  • @ Tron.

    Go back to the 2008 central bank report on the total size of our economy and compare it to the last central bank report and compare the change in the size in percentage terms.

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  • Some of us keep looking at those states that failed under the IMF but always fail to mention the previous two loans/ austerity programs that Barbados has successfully navigated.

    Not really. You are overlooking a great deal of context.

    What was the scale of the previous two austerity programs? What was the debt/ GDP ratio at the time?
    Where these pre or post the watershed period for the global macro-economic landscape of 2008?
    What was the status of the NIS fund?
    Where we on the brink of a global recession?
    What was the level of foreign investment? Of internal investment? Our credit rating? Our ability to borrow externally? And so on…

    The circumstances surrounding this iteration of IMF intervention are much more severe than the previous two.

    Liked by 1 person

  • @ Dullard.

    Well said sir.

    In 2008 we were coming off the largest single boom in construction this island ever saw. Barbados like many islands was benefiting from easy money available from banks. In the USA you could buy a house for $200k today and walk back in the bank tomor and get a $50k home equity loan on the same house. The thing is up to even 2012 we still had an economy worth 7.01 B according to Wikipedia. That however contracted heavily to where we are now 7 years later.

    All that cheap money has dried up now and easy money is a thing of the past. That’s why this recovery is going to be the hardest hurdle we ever faced. That combined to the Brexit issue and host of new offshore laws, is going to make us work for it this time.

    Of course if we had a clearly defined growth plan instead of BERT and statements like ” we will continue with our austerity program while promoting growth”, that too would help.

    Liked by 1 person

  • Dullard

    Agreed with al the question you asked in your reply to me.

    I also agree with David suggestion that we should have gone earlier when we in a better position to negotiate. The CS loan perhaps should have been an IMF loan (don’t know if it would have made a difference under Chris though).

    I also agree with John A. and think the IMF would have help to reign in the folly of Chris.

    None of us knows when the worldwide recession will hit, it severity or how long it will last. What we do know is we needed the FX now and we will need it to weather the recession when it does hit ( or with any act of god).

    What were or other options beside the IMF?

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  • @ John A August 27, 2019 6:36 PM

    Your data make only sense with the GDP PPP. Please give us concrete figures.

    In any case, you cannot expect the local population to be able to intellectually comprehend a 25 percent loss of prosperity. They learn singing, dancing, nationalism, Barrow´s fairy tales and socialism at school, but not economics. You know that very well.

    Is it true that Chris Sinckler as finance minister has always received a one-page summary of the annual report so that his sparrow brain is not overburdened?

    Like

  • @ john2 August 27, 2019 8:22 PM

    Read the CS/FCIB loan agreement. There is an IMF clause: “Borrower to provide Lenders with a full copy of the StaffReport for the 2013 IMF Article IV Consultation on Barbados as soon as it becomes available, as well as anupdate on the Borrower’s plans for implementation of anyspecific recommendations included in the report”. Most MPs probably didn’t know at the time what they voted for, if you take into account their poor financial background and financial illiteracy.

    The loan was a covert IMF loan. The following IMF programme 2013 sqq. failed. In fact, Barbados is now going through the fourth IMF programme.

    It will not be the last. If the current programme fails, we will get a new one with fantastic conditions like the dismissal of half of all civil servants. Hurray! Long live libertarianism.

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  • @ Tron

    How you could say that about sinkler you too bad! Lol

    A friend of mine says he was a poor MOF but an amazing magician as he could make a whole economy disappear!

    Sad truth is we all watched it unfold in front of us but were powerless to do anything but complain.

    Liked by 1 person

  • Tron

    The interest on the CS lone was the difference. CS was supposed to prosper more and more from the folly of chris/downgrades. Not so with IMF.

    Like

  • If we want to look at what’s unfolding now with the debt restructuring and IMF program it’s basically a bringing in line of the oversupply of bajan dollars to USD.

    By cutting the return on the bonds and implementing austerity, the MOF is basically reducing the amount of bajan dollars out there that are chasing the USD reserves. With it consumption shrinks and the economy contracts. Some will say it’s a good approach others a bad one, but one thing is for sure and that is such an approach will not result in economic growth.

    That is why many keep calling for a economic growth plan to be implemented as BERT can not do it based on its current format.

    Liked by 1 person

  • @ john2 August 27, 2019 8:41 PM

    Tell that to Mariposa. I wouldn’t be surprised if she and the other blue magnates kept getting at least a quarter of the insanely high interest as a kick-back.

    Police and DPP are deaf here. The DPP prefers to loll around in her Mercedes. The DPP is the poster girl for the banana republic of Barbados.

    Like

  • @John A

    Did you really write this;

    “Sad truth is we all watched it unfold in front of us but were powerless to do anything but complain.”

    Are you the same person who posts on the blog that as citizens we have to hold the government accountable?

    Like

  • The major problem is that we were sold that once we got the IMF program, it would have been a bed of roses. From the outset, I said that from what I gathered, the real success of the program , will be judged in 2033. Of course I was vilified by the cool aid drinkers and jokers on BU.
    Those who are calling for real growth within the IMF program live in a wonderland. The reason that the IMF is here is that when all the fancy intellectualizing is done, we are still broke. That is is why we are witnessing increase taxes and so on. You can’t go shopping when you are broke and foreign creditors are unpaid. In other words even if there were growth, there would still be a heavy price to pay.
    Massive lay offs mean less disposable income. In our case we are hoping that less income and less spending would dampen the outflow of foreign exchange. Even if this works, the fridge would be full but locked.
    We could as well abandon all this growth talk because there are countries that show growth while all the social services for the poor are decimated. A position supported by those who simply don’t know what they are proposing. There is a social cost that inevitably affects as all.
    The simple truth is that the economy needed transformation for forty plus years and nobody touched it. The economic model remained the same. That’s why land prices are now beyond the reach of the ordinary person and there is scarcity of capital projects and a decline in social services.
    Straight talk: We we’re running on fumes for a long time and eventually the car just stopped. Now get out and push it and stop dreaming.

    Like

  • @ David

    Yes we have to hold them accountable but in the end if they proceed to do foolishness we are powerless to stop it from happening. The only power we hold we get to exercise once every 5 years.

    We can complain, March, sign petitions, but in the end we still have to hope that they will make the right decision. We can demand that the central bank be ring fenced too but in the end we can’t make it happen.

    Liked by 1 person

  • BREXIT: Boris wants to suspend parliament. The pound falls apart.

    We should think together about the consequences for local tourism, dear friends.

    Britain lies in ruins, where the French, Italians and Germans have always wanted the isle.

    Will we soon achieve parity between the dollar and the pound? Will we soon have white English housemaids who have to clean the toilet in Barbados after escaping the British inferno and applying for asylum in Barbados?

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  • BREXIT: Boris wants to suspend parliament. The pound falls apart.

    We should think together about the consequences for local tourism, dear friends.

    Britain lies in ruins, where the French, Italians and Germans have always wanted the isle.

    And it looks like there will be a coming US recession to deal with as well:

    An Indicator With A 100% Perfect Track Record Of Predicting Recessions Says That Another One Is Coming
    By Michael Snyder
    August 27, 2019

    You can believe that we will somehow beat the odds this time if you want, but history is completely against you. One of the biggest reasons why there is so much anxiety on Wall Street right now is because of how the yield curve is behaving. We have seen yield curve inversions before each of the last seven U.S. recessions, and now it has happened again. Perhaps this helps to explain why insiders are dumping stocks right now as if there will be no tomorrow. If you were looking for a giant waving red flag to tell you that it is time to run for the exits, it doesn’t get much better than this. This week, we watched the yield curve do something that it hasn’t done in 12 years.

    The spread between the 10-year Treasury yield and the 2-year rate fell to negative 5 basis points, its lowest level since 2007. This is called a yield curve inversion. Experts fear it because in the past it has preceded recessionary periods. The 3-month Treasury bill rate also traded higher than the 30-year bond yield.

    “The primary thing is yields are going down and going down with some acceleration,” said Art Cashin, the director of floor operations at UBS.

    In addition, the spread between 3-month Treasury bonds and 10-year Treasury bonds just hit negative 50 basis points. We haven’t seen that happen since March 2007.

    And as David Rosenberg has noted, when the spread between 3-month Treasury bonds and 10-year Treasury bonds goes negative for at least three months, we have a recession 100% of the time…

    We now have had three months of a 3-mo/10-yr yield curve inversion. The track record this has had in predicting recessions: 100%.
    

    Yes, it is theoretically possible that this indicator could be proven wrong this time.

    But do you really want to bet against an indicator with a track record of 100% accuracy?

    https://www.activistpost.com/2019/08/an-indicator-with-a-100-perfect-track-record-of-predicting-recessions-says-that-another-one-is-coming.html

    Like

  • @John A

    For 10 years we lived with a government that ignored the people except for one or two instances. Your point is valid. We need triggers that x or y will automatically occur to ensure the power evolves from the people’s not the other way.

    Like

  • David

    We need a little Haitian spirits inside of us or Hong Kong.

    Like

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    https://www.ft.com/content/d0160952-2980-3713-acbf-259782e6df19

    Prime minister Boris Johnson’s plans to suspend parliament in a bid to stop MPs from passing legislation to block a no-deal Brexit have been approved by the Queen. The political manoeuvre has sent the pound sliding.

    Like

  • The Queen has approved Boris Johnson’s request to suspend parliament from the middle of next month, which will restrict MPs’ ability to block a no-deal Brexit.

    Liked by 1 person

  • The pound will fall even more. Perhaps even up to parity with the US dollar.

    The government should therefore confiscate the British expats’ domestic accounts as long as there is anything left to be fetched from them.

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  • Boris has to do something drastic because Brexit is the most divisive issue the UK has had to battle since when?

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  • Barbados tourism could have serious problems this coming season.

    Let us hope “We gathering” 2020 is a successful bonus.

    Like

  • SirSimpleSimonPresidentForLife

    @GreenMonkey August 28, 2019 9:27 AM “Britain lies in ruins, where the French, Italians and Germans have always wanted the isle.”

    However it is NOT the fault of the French, Italians and Germans if Britain lies in ruins.

    The British, who have brutally exploited peoples all over the world, voted Brexit out of their selfish desire to keep “others” out of Britain. Some of my own elderly Bajan born relatives also voted Brexit because they did not want poor European immigrants coming into Britain, seemingly forgetting that 40/50 years ago they too were piss poor but ambitious and hard working immigrants.

    The British will get their comeuppance.

    Donald Trump is NOT their friend.

    Unfortunatelt Barbados will suffer some of the fallout from this foolishness.

    Like

  • To move forward, while renegotiating the current loan profile, Barbados needs to:

    urgently remove bureaucratic and inefficient procedures to individual and business operations. Too much red tape, too hard and lengthy to get things done. This is across the board
    a paradigm shift in purchase patterns. Buy local food first. Buy locally made products where these are an alternative i.e sandals made locally etc. Stop buying imported rubbish aka over processed foods. That rubbish in pretty boxes in the frozen aisle of the supermarket.
    a new locally, whether joint venture with international bank or local stock exchange, owned financial institution. I would suggest a bank part owned by each of the credit unions and supervised by a joint government / private sector board. Not these silly appointment (I know a man who did for the party) boards or like the senate, political honourees, but truly recognised people in their field, international if necessary.
    a major attitude campaign. NICE had the right idea. That is a restart.
    a review and public education on skills work; compare skills needed internationally, educate for those. Bajans can work overseas with the right skills. Those working overseas send back remittances.
    a reassessment of the development plan for the tourism belt, with all stakeholders able to offer input and the plan put into the public sphere, to ensure that there is movement on projects to ensure investment opportunities. These are desperately needed.
    a revisit of the non aligned movement internationally, Barbados can lead this drive. This is needed to ensure that lower tiered economies have a say in the future political and by extension economic activities in the international arena. Right now current activities are going to create a further gap in the developed and lesser developed countries.

    Like

  • @ Crusoe,

    Many good points. But instead of leading a rejuvenated non-align movement, Barbados should fight tooth and nail to make CARICOM a better regional organisation. This is what prime minister Mottley should be doing, over and above the short-term urgency of the economy.

    Like

  • SirSimpleSimonPresidentForLife

    @Crusoe August 29, 2019 12:27 AM “Buy local food first. Buy locally made products where these are an alternative i.e sandals made locally etc. Stop buying imported rubbish aka over processed foods. That rubbish in pretty boxes in the frozen aisle of the supermarket.”

    Agreed.

    Liked by 1 person

  • @Hal,

    Improving the workings of Caricom and rebirthing the non-aligned movement need not be mutually exclusive.

    You are right, both are important. The reason I see the international non-aligned movement as important is that in order to counter actions by the G7 that may prove unacceptable to the lesser developed nations, there needs to be an international discussion and joint response. Otherwise there is no strength behind it.

    This is essential. It also gives a voice to other lesser developed countries, not just those in Caricom.

    This is one of the tragedies of the last thirty years, the fizzling out of that movement. That points to lack of leadership across the board.

    Like

  • @ Crusoe

    You are right. You may remember the Bandung Conference and the subsequent meetings. But times have moved on. We now have ASEAN, Mercosur and other regional unions, there is a global shift of trade from North-South, to South-South and China and its neighbouring Asian nations have shown that economic development need not be accompanied by a liberal democratic political system.
    I also believe that we are witnessing the beginning of the end of the nation state (and the failure of the Enlightenment, but that is another discussion), so arguments about sovereignty are becoming irrelevant. As an island state, our medium and long-term future must be tied up in regional unity.
    As the lead nation in CARICOM, I would have hoped over the last two decades that we would have pushed for greater unity; after the global crisis, the Great Recession, it was even more imperative.
    Instead of trying to punch above our weight, or introducing piecemeal policies such as free movement, we should be pressing for wider regional unity.
    Two examples of the need for sound regional policies: Clico and Venezuela. In fact, with a good, functional CARICOM central bank, there would have been no need for Barbados to default.
    So, government priorities should be improving the standard of living of Barbadians, national security and regional unity and being a good member of the international community of nations.

    Like

  • @ Hal, Crusoe

    What are your thoughts on Bdos joining the OECS?
    If possible I think it could be a way forward for us.

    There is much to admire about some of their institutions.

    Like

  • @ Dullard

    Any form of regional unity must be supported. The danger in this, however, are the unintended consequences. I can see Barbados joining the OECS and then behaving the way the UK did in the EU.
    Joining a reasonably well organised group late and then trying to punch above our weight will only lead to disunity. Is it in our make up to be humble?

    Liked by 1 person

  • The biggest problem facing any form of regional unity is the leadership with which we are now burdened.

    Like

  • @ William

    We have to skip a generation. The problem with the current leadership is they are addicted to power.

    Like

  • Hal
    The leaders as , you said are addicted to power, and averse to progressive ideas. Double jeopardy my bro’.

    Like

  • @ William

    You say averse to progressive ideas. But they even refuse to discuss them. Rather strange. Take for example, on another stream we are discussing pensions, but not single word about pensions/NIS reforms. Odd. Out of a dysfunctional system we are hoping to get some good. Our public discourse needs an urgent shake-up.

    Like

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