Governor Hints That Lending Controls Will Soon Be Lifted
By Candia Dames
Journal Staff Writer
The restrictions on lending imposed by the Central Bank more than two and a half years ago are likely to be lifted some time this year, Governor Julian Francis hinted Sunday.
Mr. Francis, who appeared on the Radio Love 97 programme “Jones and Company”, was asked to respond to a suggestion made by the Prime Minister in his recent budget communication that now may be a good time to ease the tight credit controls.
“These controls were meant to avoid the economy from overheating at a time when the conditions around us on the outside have not been strong,” he said. “That’s been the whole purpose of these controls and I personally believe…we’re very close to that period being over.”
The restrictions prevent commercial banks from lending more money than they are collecting in loan repayments. As a result, some bank executives say there is a whole lot of money that they are being restricted from lending and their profits are suffering.
The restrictions were put in place to protect the country’s foreign reserves from being depleted, according to the governor.
Mr. Francis also pointed out that the controls were imposed at a time when the United States economy was going into a recession, but he said there have been clear signs that the U.S. economy is on its way to full recovery.
“We haven’t in all respects began to feel the full effects of that,” he said. “The Bahamas economy is absolutely on the way back and generally speaking we expect, for example, that during the course of this year that the economy will experience growth of something like two and a half to three percent on average.”
Mr. Francis said this level of growth has not been felt in any great way during the first half of 2003, but it is expected to become evident during the latter half of the year.
“We’ve said for the last three or four months that as soon as it is clear and we are satisfied that the recovery is on the way and on track, we will be looking at how to lessen the restrictions which have been put on the banking system or removing them altogether,” he said.
“We’ve said that on a number of different occasions and we have monitored this on a monthly basis.”
He recognized that the government would like to see the controls lifted as soon as possible because it has implications for the expansion of the economy as well as for government revenue.
“The Central Bank is entirely sensitive to that issue and I can tell you that our position has been that within our meetings deliberating on this, that we would not delay more than is absolutely necessary once we are satisfied that the conditions are right for removing the restrictions,” Mr. Francis said.
But he cautioned that lifting the restrictions will not result in an automatic economic boom.
“The economic activity which is internally generated is limited and it’s not entirely true to think that by expanding credit you’re going to create any particular level of economic activity,” the governor said. “The stimulus from our economy comes from the outside.”
Mr. Francis said the economy is about to enter a period of “very strong” growth that is being generated by various foreign investment projects.
“I firmly believe that the next five years in The Bahamas for this reason are going to be years of pretty strong growth and development,” he said.
The show’s host, Wendall Jones, then asked, “So, we’re entering a period of boom?”
Mr. Francis said, “I think in many ways, quite possibly, we are. I don’t yet know if boom is the way to describe it, but I think we’re talking about a period of fairly strong growth. I think it’s a good opportunity to do some of the things that we want to do.”
For example, he suggested that now may be a good time to downsize the public service and make it more efficient, given that many jobs will soon become available in the private sector.
“We have an opportunity to make these kinds of hard decisions,” Mr. Francis said. “You can do these things when times are good. It’s when times are difficult and bad and jobs are hard to come by that it’s difficult to make these kinds of reforms.”