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<SPAN class=Subheadline>Economists differ on Shaw's strategy</SPAN></TD></TR><TR><TD>Errol Gregory Business Editor
Sunday, November 26, 2006
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<P class=StoryText align=justify>Finance Minister Dr Davies has dismissed the suggestion of opposition spokesman on Finance Audley Shaw regarding single-digit inflation .The Opposition Finance spokesman has repeatedly argued that he would use "moral suasion"( gentle persuasion) with private sector representatives and lending institutions, to get them to accept single-digit interest rates. According to Shaw, this would be critical to bring the local economy in line with our trading partners.<TABLE cellSpacing=0 cellPadding=5 width=120 align=right border=0><TBODY><TR><TD>
</TD></TR><TR><TD><SPAN class=Description>Shaw.....says he will be meeting with banking sector to pursue discussions aimed at narrowing the spreads between bank's deposit rate and lending rates </SPAN></TD></TR></TBODY></TABLE><P class=StoryText align=justify>Just this week, he was on record as saying he would be meeting with the banking sector, to pursue discussions aimed at narrowing the spreads between the bank's deposit rates and lending rates, as part of his rate reduction strategy. But, in a quick response, Finance Minister Davies dismissed these suggestions concerning negotiated rates as simply impossible and just not on.<P class=StoryText align=justify>Putting it succinctly Dr Davies said, "Can you imagine telling an institution holding long-term pension funds, that you would not be paying the agreed rates of return?". And, in a very strong tone, Finance Minister Davies stated that it was irresponsible of Shaw to express such a view at this time as, if word got out to the overseas financial community that any such move was being contemplated, it would have negative ripple implications for the economy . "The Opposition spokesman must get real," he declared.<P class=StoryText align=justify>What is noticeable about this divergent interest rate position of Dr Davies and Shadow Minister Shaw is that they share common perspectives regarding the use of the relatively cheaper Petro Caribe funds. Shaw had recommended that the Fund be used to pay down expensive debt thereby reducing the country's substantial stock-of-debt problem.<P class=StoryText align=justify>Dr Davies agreed with this prescription and argued that government had taken it on board but pointed out that, paying down the debt did not merely imply reducing the actual debt stock, but included other current government initiatives such as making cheaper financing available to the Port Authority and assisting Petrojam's expansion plans.
But looking specifically at Shaw's recommendation regarding negotiated interest rates, it is this recommendation that has generated much furore among market analysts .<P class=StoryText align=justify>One analyst, who preferred to remain anonymous, said Shaw should back off his proposal as with interest rates falling and inflation being brought under control, he should focus his attention on keeping the lid on inflation, while stimulating increased production. "Let the financial markets continue to work," he added.<P class=StoryText align=justify>Economist Lloyd Prince was equally dismissive of Shaw's suggestion.
Prince argued that historically interest rates have been largely determined by exogenous factors (external) and not market forces. "Invariably interest rate policy was determined by successive Ministers of Finance", he noted.<P class=StoryText align=justify>Prince continued, "Now that we are running a capitalist model, we can't have it both ways. The finance minister could use moral suasion to influence lending rates but banks would argue, if they incurred any loan
<SPAN class=Subheadline>Economists differ on Shaw's strategy</SPAN></TD></TR><TR><TD>Errol Gregory Business Editor
Sunday, November 26, 2006
</TD></TR></TBODY></TABLE>
<P class=StoryText align=justify>Finance Minister Dr Davies has dismissed the suggestion of opposition spokesman on Finance Audley Shaw regarding single-digit inflation .The Opposition Finance spokesman has repeatedly argued that he would use "moral suasion"( gentle persuasion) with private sector representatives and lending institutions, to get them to accept single-digit interest rates. According to Shaw, this would be critical to bring the local economy in line with our trading partners.<TABLE cellSpacing=0 cellPadding=5 width=120 align=right border=0><TBODY><TR><TD>
</TD></TR><TR><TD><SPAN class=Description>Shaw.....says he will be meeting with banking sector to pursue discussions aimed at narrowing the spreads between bank's deposit rate and lending rates </SPAN></TD></TR></TBODY></TABLE><P class=StoryText align=justify>Just this week, he was on record as saying he would be meeting with the banking sector, to pursue discussions aimed at narrowing the spreads between the bank's deposit rates and lending rates, as part of his rate reduction strategy. But, in a quick response, Finance Minister Davies dismissed these suggestions concerning negotiated rates as simply impossible and just not on.<P class=StoryText align=justify>Putting it succinctly Dr Davies said, "Can you imagine telling an institution holding long-term pension funds, that you would not be paying the agreed rates of return?". And, in a very strong tone, Finance Minister Davies stated that it was irresponsible of Shaw to express such a view at this time as, if word got out to the overseas financial community that any such move was being contemplated, it would have negative ripple implications for the economy . "The Opposition spokesman must get real," he declared.<P class=StoryText align=justify>What is noticeable about this divergent interest rate position of Dr Davies and Shadow Minister Shaw is that they share common perspectives regarding the use of the relatively cheaper Petro Caribe funds. Shaw had recommended that the Fund be used to pay down expensive debt thereby reducing the country's substantial stock-of-debt problem.<P class=StoryText align=justify>Dr Davies agreed with this prescription and argued that government had taken it on board but pointed out that, paying down the debt did not merely imply reducing the actual debt stock, but included other current government initiatives such as making cheaper financing available to the Port Authority and assisting Petrojam's expansion plans.But looking specifically at Shaw's recommendation regarding negotiated interest rates, it is this recommendation that has generated much furore among market analysts .<P class=StoryText align=justify>One analyst, who preferred to remain anonymous, said Shaw should back off his proposal as with interest rates falling and inflation being brought under control, he should focus his attention on keeping the lid on inflation, while stimulating increased production. "Let the financial markets continue to work," he added.<P class=StoryText align=justify>Economist Lloyd Prince was equally dismissive of Shaw's suggestion.
Prince argued that historically interest rates have been largely determined by exogenous factors (external) and not market forces. "Invariably interest rate policy was determined by successive Ministers of Finance", he noted.<P class=StoryText align=justify>Prince continued, "Now that we are running a capitalist model, we can't have it both ways. The finance minister could use moral suasion to influence lending rates but banks would argue, if they incurred any loan
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