Loan will not increase SVG’s financial burden, says PM

The EC$100 million loan sourced from the Caribbean Development Bank (CDB) “to reduce the outstanding public sector debt at the National Commercial Bank (SVG) Limited (NCB)” will not increase the country’s financial burden, says Prime Minister Dr. Ralph Gonsalves.{{more}}

“We just swapped the debt, $100 million of the debt at the National Commercial Bank for the $100 million at the CDB,” said Gonsalves.

The Board of Directors of the CDB approved the loan at a meeting of the Board on July 22, 2010. In a press release, the CDB noted that this will also be used to facilitate the restructuring of the NCB.

The public sector owes the NCB $160 million.

Gonsalves at the sitting of Parliament on Thursday, August 5, said this was the reason why the Government went to the CDB for a “policy based loan” of $1,000,000.

Explaining the difference between the loan from the CDB and the previous loan at the NCB, Gonsalves disclosed that the interest rate is only 4.3 per cent, whereas the interest rate on the loans for the Government and the public sector entities at commercial banks ranges from 8 per cent to as much as 14 per cent.

Gonsalves said the Public Sector of St.Vincent and the Grenadines has always been a significant borrower from the NCB. He explained that such public policy was enunciated by former Prime Minister Robert Milton Cato, and was also pursued by the administrations of former Prime Ministers Sir James Mitchell and Arnhim Eustace.

“When you have the swap, so to speak, the liquidity at the NCB increases. I notice that the Honourable Leader of the Opposition has said that he ‘is happy to see that the CDB has (become) involved’ or words to that effect.

“CDB can’t involve itself,” said Gonsalves, as his voice drowned a response from Eustace.

“You know the difference between you and I; you don’t understand not one thing about banking. You don’t understand not one thing about banking. You’re the only man in the history of the world who started a bank, the St.Vincent and the Grenadines Development Bank, and at the very moment when you started it, the bank was in intensive care. The very moment of its birth, it was bankrupt,” said Gonsalves, as he took a swipe at Eustace.

Shortly after announcing that it had granted the $1,000,000 loan to St.Vincent and the Grenadines, the CDB stated in a press release that the Government of St. Vincent and the Grenadines has articulated a financial sector reform agenda that is designed to enhance the regulation and supervision of the country’s financial sector.

The release said the ultimate objective is to bring the regulatory and supervisory functions in line with international best practices.

“As part of its reform programme, the Government proposes to reduce the public sector debt portfolio of NCB and transfer the public sector shareholding in NCB to the private sector,” said the release.

“The loan will permit a restoration of NCB’s liquidity position and an improvement in its asset quality, consistent with the Eastern Caribbean Central Bank’s prudential guidelines,” the release added.

While presenting the Estimates for the fiscal year 2010 on January 19, 2010, Prime Minister Ralph Gonsalves said the domestic portion of this country’s public debt stood at EC$588.86 million.