Economists define a recession as two successive quarters of negative GDP growth. Belize has had that in this year, but a review of the records at the Statistical Institute of Belize will show that the there were two such quarters at the start of 2003 and in the middle of 2007.

But this 2010 recession is marked by the projection of negative GDP growth from one year to another and that hasn’t happened – in probably more than 20 years. What’s more, the projection is for three percent negative growth – that’s one heck of a lot considering that even a country like Honduras which is wracked by domestic turmoil is only predicting negative growth of 2.5%. Indeed, economically, it is a dark time – which got Jacqueline Godwin wondering, so then why doesn’t someone do something about high interest rates.

You’ll recall that in October, Jackie did a major investigation into high interest rates and what’s keeping them that way. Since then the Prime Minister made it official, Belize is in a bad way financially...so when would be a good time for the regulator of the banking system, the Central Bank to go in and clean things up? That’s what Jacqueline Godwin asked today.

Jacqueline Godwin Reporting,
Since Prime Minister Dean Barrow officially declared that Belize was in a state of recession on October twenty ninth, there has been more talk than action …in the meantime businesses and homes continue to be threatened largely due to continued high interest rates.

Jacqueline Godwin,
“Since PM Barrow has officially announced that we are in a crisis, the country is in a recession, is it wrong for me to assume then that this would give the Central Bank even the government of Belize a legal footing so to speak to go into these commercial banks and force them to lower these interest rates?”

Glenford Ysaguirre, Governor of Central Bank
“No I don’t think we have the authority to go in there and dictate interest rates and you have to understand something too that the only rate that the Central Bank sets is a foreign and savings deposit rate which is set at 4.5% and we are looking at that because perhaps that may to some extent, a large extent, acting as a benchmark rate which in turn tend to keep the other deposit rates inflated and therefore put upward pressure on lending rates. 4.5% you would have to admit you can’t get that even in the best TD in developed markets right now so why are we still paying 4.5%. We need to reduce that but you also have to understand that this 4.5% is paid on savings deposit which would then affect small depositors at the commercial banks. And so kind of sacrifice will have to be made by depositors to compensate for the lower lending rates.”

Jacqueline Godwin,
“But something has got to be done Governor, people are losing their homes, businesses are going bankrupt, something has got to be done. You just can’t state that oh we are in a recession and then nothing is being done. What is being done?”

Glenford Ysaguirre,
“We are not only saying that but you have to understand that those are the consequences of the global downturn.

You do not declare a recession until you have two consecutive quarters of contracting growth and it is only at the end of June that we could have established based on the numbers put out that there were two consecutive quarters of contracted growth. When the global economies declared recession, that was at the end of March which was at the end of the first quarter but they had already had a contraction in the last quarter 2008 and a contraction in the first quarter of 2009. There is a bit of a lag with what happens over there and what happens in Belize. So we were probably lagging by a quarter or so and so at the end of June, the numbers indicated that yes we are officially in a recession. But even prior to that, there were things that were being done; the government stepped up its capital spending to try and make up the gap for reduced private sector investment, the Central Bank like we did, we had issued our press release and we stated that we were going into enhanced due diligence to make sure we preserved the integrity of the asset portfolio for the banking system.”

According to the governor of the Central Bank a number of initiatives have been undertaken to help reduce lower interest rates but he cautions it will not happen overnight.

Glenford Ysaguirre,
“We are working on a monetary policy reform that would provide alternative investment instruments and give the Central Bank much more flexibility in manipulating the deposit base to get the necessary effect once the market is working. A part of that program also involves the competitive bidding for treasury paper, treasury notes, government held paper in the market.

Insurance companies are kind of limited in terms of their investment options and they put all this money in the bank. Now they put pressure on the banks cause they need a certain for their investment too and they put pressure on the bank to pay them high interest rates. You have large institutional depositors like the Social Security Board who have according to them, their actuaries are telling them they need to earn an average of 8% on their portfolio. So they go to the banks too and they want 8% on their portfolio and these are huge depositors that the banks cannot necessarily ignore.

What is happening in this situation that we need to come together to look at the situation and everybody will be required to make an adjustment. What is happening is everybody thinks that we have a problem but it is the other person’s who must make the adjustment. So it is not only the banks who must make the adjustment, those institutional depositors have to be prepared to make the adjustments too and do it in the interest of the national good.”

Governor Glenford Ysaguirre says over a month ago a meeting was initiated with the commercial banks and the Chamber of Commerce to discuss the problem and the way forward.

Glenford Ysaguirre,
“We have made proposals to the commercial banks in terms of moral suasion to say if we were to reduce the flooring on the savings deposit rates from 4.5% to reduce it gradually maybe to maybe 4% or maybe 3.5%, would the banks be prepared to make a like adjustment in their lending rates. This approach has been used in Barbados which also has a flooring and the moral suasion worked there. it hasn’t moved at the same pace I would have expected in Belize….”

Jacqueline Godwin,
“It is moving at a snail’s pace?”

Glenford Ysaguirre,
“Well it may be so but when we do look at it we’ve seen a gradual shrinkage, albeit very small, in the interest rates spread. But we do need to press on and see what we can do.”

Jacqueline Godwin,
“When we did a story on the high interest rates, your comments were that there is excess liquidity in the banks, therefore you would have expected to move towards a direction of lowering the high interest rates and you would have expected more stiff competitions between the commercial banks. Do those comments still hold through today?”

Glenford Ysaguirre,
“I still feel so yes but I recently attended a Governor’s meeting in Haiti and the experience being shared for instance by the other jurisdictions in the region, the other CARICOM countries, are pretty similar to Belize and it does suggest that we have structural issues with our system that does not necessarily facilitate the level of competition that we would want and some of those issues like I mentioned to you involve the fact that we have a few investors, institutional investors that control a large proportion of the deposit base in the banking system. They have the ability to dictate prices and put pressure on interest rates.”

Jacqueline Godwin,
“You also stated that our interest rates are the highest throughout the region and something needs to be done to find out why this is happening. Any homework there has been done?”

Glenford Ysaguirre,
“We are not the highest but I would want to say we are among the top three. I think Jamaica may be carrying higher interest rates than us but we have to understand the level of inflation.”

Jacqueline Godwin,
“You did say the highest governor.”

Glenford Ysaguirre,
“I did but I am telling you with recent checks and data I got from the meeting I attended, Jamaica is really up there ahead of us.

I feel that we need to find a way. I don’t know where we go from here but we need to….”

Jacqueline Godwin,
“That’s not encouraging, you’re the Governor of the Central Bank.”

Glenford Ysaguirre,
“Yes but I can’t dictate to the commercial banks what they need to lend because that is like me going out there and telling the farmers how much he must sell his fruits for or what price you must sell your goods for. It takes time to make adjustments to the factors that feed into the costs of doing business and so each business individually might have a different pattern of adjustment or period of adjustment that they will have to go through before they can make those changes that are necessary.

But you have to understand that it is a period of unusual circumstances where people are probably losing their jobs, they are getting salary cuts and that type of thing and so the commitments they have no longer can be met by their present incomes.”

Jacqueline Godwin,
“So the banks need to make adjustments.”

Glenford Ysaguirre,
“Everybody needs to make adjustments. Everybody does, the borrower and we need to decide what we have to cut loose; if we have to sell the car or have to get rid of something else.”

Jacqueline Godwin,
“How long you think this thing will last?”

Glenford Ysaguirre,
“Well there is talk of what they call green shoots in the US which means there are some signs that the US economy is recovering. Like I said earlier that this thing happens with a lag. So what happens there won’t translate into anything for us immediately, especially in the areas of tourism which we rely on a lot. We have for instance this week a pickup of tourist activity with regards to cruise tourism. We may not necessarily see the same with regards to overnight tourism which is the big ticket for us.

I would say that for us, we will probably start to see some turnaround maybe in the first quarter next year but I have to caution though that 2010 will also be maybe a year of some subdued economic activity.”

Jacqueline Godwin,
“So don’t carve that one in stone.”

Glenford Ysaguirre,
“Not necessarily but even the IMF has predicted a recovery in the region with growth averaging anywhere from 2% to 3% within the region and I want to hold to that.”

And by then if present trends continue it is fair to say that far more businesses will be in a bind and more homeowners on the corner. Reporting for 7News Jacqueline Godwin.