8/13/2019 Borrowing Constraints Have to Be Solved

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Borrowing constraints have to be solved using a system of comprehensive financial

development

Stabroek News –  February 15, 2014

 Dear Editor, 

The ideas we have proposed in the paper justifying Unity and Human Development (UHD), can

 be downloaded at http://bit.ly/18odYmG. As ever, we welcome criticisms and comments. Here,

we argue that sustainable development of our nation also depends on the sensible foreign trade

and industrial policies along with the evolution of financial resources that attract foreign

investors and help to fuel the creation and expansion of businesses.

With serious challenges to our border integrity, Guyana would need the most skilful team of

diplomats to secure the integrity of the border and the economic resources contained within its

 borders. Also, with a population of fewer than 800,000, Guyana needs to promote an industrial

strategy that is export-oriented. This requires securing the obvious ones within Caricom, andexisting trade agreements between Caricom and the US. Diligent attention should also be paid to

Guyana’s associations with Brazil, Canada, India, the People’s Republic of China, and the

United Kingdom, as well as the EU, Unasur and, of course, the Commonwealth. The transfer of

knowledge through technical exchanges should also be explored and developed where helpful.

It would be impossible to implement policies consistent with the outlined principles if they

cannot be financed. Any development plan has to be financed. Borrowers face substantial

 borrowing constraints in Guyana. Businesses now have to borrow at around a 14% interest rate,

and credit tends to be extended mainly to the traditional and established businesses. This is not

to blame the present commercial banks which have served the nation well doing their method of

risk management and screening. Solving the financing constraint involves developing otherforms of finance such as bond and equity financing, which can be integrated with the existing

commercial banking sector.

The borrowing constraint has to be solved using a system of comprehensive financial

development, including the re-establishment of the state development bank. Because it will

serve a different class of borrowers seeking initial financing, the state development bank would

not compete with private commercial banks. Once new businesses are established, the private

commercial banks will still have the opportunity to earn more fees and provide working capital.

Privatization programmes can be conducted through the stock market to breathe new life into the

moribund Guyana Stock Exchange. This could be one way of disciplining state-owned

corporations, and allowing transparency of information so as to attract and secure investorsusing a stock market. The bond market could also operate better because of market transparency.

Additionally, given the importance of food security, the re-establishment of the Agricultural

Development Bank along the lines of the former Gaibank may be worth considering.

Yours faithfully, 

Clyde Walcott  

Terrence Simon 

 Hubert Wong  

Tarron Khemraj 

(http://www.stabroeknews.com/2014/opinion/letters/02/15/borrowing-constraints-solved-using-

system-comprehensive-financial-development/)