Opening loans is a good idea

The Royal Monetary Authority’s (RMA) initiative towards a possible opening of home, car and consumer loans is welcome initiative.

Their first step of consulting mem¬bers of the public on the draft guide-lines and measures is also a welcome step as it allows the public to share their thoughts, and it enables RMA to get good feedback before any final de¬cision is taken.

Ever since the RMA issued finan¬cial regulations effectively shut down housing, car and consumer loans since 2012, the Central Bank was blamed for shutting down credit and in effect freezing the economy.

However, the RMA was only using the monetary policy to the maximum limit in the absence of a fiscal policy from the former government which had lost a tax case and was later un¬able to pass a sufficiently strong tax bill in Parliament with opposition from its own MPs and the NC.

The immediate trigger for the cred¬it freeze was not only the rupee crisis but signs that Bhutan’s Financial sec-tor was over exposing itself to risks in sectors like housing among others.

The RMA which was taking huge rupee loans and paying huge rupee interest was also realizing that a lot of the rupee outflow was being caused by imports financed by easy credit.

The Central Bank swiftly and per¬haps some would say brutally moved into restore order and cool down’s Bhutan’s credit and indirectly also re-strict its imports.

There were mistakes that the RMA made and some things could have been done in a better manner includ¬ing asking Indians to withdraw all their rupees at once. There are some who would also say that perhaps the RMA should have taken less drastic steps in a phased manner much before 2012.

However, in the bigger picture what RMA did was only in reaction to a larger problem of an import de-pendant Bhutanese economy that was not earning enough foreign currency to finance those imports, and everybody including the government had been caught off guard.

At the same time the freeze on credit has been the single greatest challenge for Bhutan’s private sector and its over-all economy. Commerce, Industry and trade which thrive on easily available credit suffered terribly and the hardest hit was the private sector. Companies shut down or were downsized as the economy stopped in its tracks.

Apart from the business community even ordinary citizens suffered as many could not even get loans to build or buy a roof over their heads. The restriction of vehicle credit coupled with a vehicle import ban denied many Bhutanese to own what was no longer a luxury but a necessity. It was tough and painful times for all sectors of the economy with even the biggest player, the government going into an austerity mode which fur¬ther made things even tougher.

The RMA in the middle of all this made it clear that if there were suf-ficiently strong fiscal measures in the economy then the RMA could also relax its monetary measures.

There is no doubt that the govern-ment’s Tax Bill is far from perfect with its own flaws but tough decisions had to be taken, and at the end of the day if the result is that people can own their own homes or buy their own cars then the bitter Tax pill will become much more palatable.

Owning one’s own home or buying a family car to get around is no longer a luxury but a very basic necessity which must be provided.

With the RMA’s proposal, the light at the end of a dark, cold and long tunnel of economic gloom seems to be shining brighter. It is a wise move that the possi¬ble re-opening of credit in these sectors comes with conditions and measures to check overheating.

“It’s a recession when your neighbor loses his job; it’s a depression when you lose your own.” – Harry S. Truman

 

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