By Errol Gregory, Contributor
IN an obvious bid to get production going, Government has moved to increase the supply of concessionary funds available to the productive sector.
Specifically, the EX-IM Bank has announced that it will be making a $100 million fund available for exporters at 9.5 per cent. The financing will be geared for short term pre and post-shipment working capital and can be accessed through commercial banks which will lend on behalf of the EX-IM Bank.
This fund forms part of the proceeds of the Development Bond designed to capture funds released contingent on the reduction in the commercial banks cash reserves. This scheme, you will remember, was proposed and brokered by Finance Minister Dr. Omar Davies. As if there was any doubt concerning the bank's objective in providing the funds, Pamela McLean, EX IM's executive director made it clear that the fund was one of the steps taken by government to boost exports.
Meanwhile only days after this announcement, the privately-controlled National Development Foundation of Jamaica (NDFJ) disclosed another concessionary facility this time for small business. These funds will also be onlent at 9.5 per cent and are earmarked for agribusiness, manufacturing, mining and tourism.
In a not unexpected move the JEA has come out in support of the EX-IM facility. This is so as working capital needs are usually excluded from special funds facilities. Additionally, the JEA has frequently argued that exporters were so indebted to local banks that they had little collateral available to take advantage of special funds that had stringent collateral requirements such as the BNS 8.5 per cent initiative. The new EX-IM facility obviously has no such encumbrances.
But while these special funds offer unquestionable benefits for those lucky to qualify, in recent times there has been a greater focus on the merits of using special funds to stimulate economic activity. University lecturer and economist Damian King, frequently argues that special funds can not be relied on to stimulate an economy that has not experienced growth.
In addition only recently the head of EX-IM herself expressed disappointment that exporters were not taking advantage of the factoring facility that was introduced to ease their case flow problems. Some analysts interpreted the refusal of exporters to take advantage of the factoring initiatives as further proof that a wave of risk aversion, that threatened increased production, had overtaken the private sector. In fact this fear of pervasive risk aversion was recently confirmed by Junior Minister, Colin Campbell, who lamented that government had allocated $300 million to assist information technology firms but a mere $40 million was taken up by local firms.
Against that background, it is debatable that merely increasing the supply of concessionary funds, as occurred last week, will serve to reverse the risk aversion syndrome of the private sector. Resolution of this problem demands frank discussion between Government and the private sector on consensual policies that are required to increase production. This is a feat that has so far eluded us despite the rhetoric in officialdom of public and private sector partnership and commitment to a market economy.
Meanwhile in an ironic twist only minutes after the positive news of increased concessionary financing started percolating through the economy, news broke that another US garment manufacturer was pulling up stumps and 400 workers would lose their jobs. This gave the impression that a forward movement by the economy (provision of special funds) was counterbalanced by the closing of the garment plant.
This is a timely reminder that the road to economic expansion takes winding turns. It is also a compelling reason for consensual politics and economics.
