Of the ten submissions made by the business community, seven were shot down by the PM for lack of intelligence
Almost a month after the private sector submitted their wish list to the government through the Bhutan Chamber of Commerce and Industries (BCCI), the government responded to the issues at a meeting last weekend. The meeting with the business community was chaired by Lyonchhen Jigmi Y. Thinley.
Of the ten submissions made, the government conceded to only three that were considered reasonable, viable and relevant to solve the current economic situation.
Lyonchhen, who expressed discontent towards more than half of the recommendations that were made asked, “Couldn’t you come up with something better than this, haven’t you conversed with the experts?”
Ten submissions were finalized to be forwarded to the government during a meeting between the business community and bankers on 15th September. The report, with the prime focus to ease the current liquidity crisis among other economic issues was submitted to the government on 17th October.
At the meeting attended by members of the cabinet, senior government and central bank officials, businessmen and bankers, the cabinet revealed its decision to allow local banks to provide guarantees to private borrowers to borrow from foreign countries for projects that have the capacity to earn foreign currency but subject to central bank’s prudential norms.
The government also removed the borrowing cap of USD 10mn on external commercial borrowing (ECB). Commercial borrowings can now be unlimited, but will have to be raised within the debt equity ratio of 2:1 as prescribed in the guidelines. These changes called for amendment of two clauses of the guidelines for ECB 2010.
BCCI’s proposal to incentivize long-term savings, Lyonchhen said, will not solve the economic situation of the day and said such measures will take a time of five to six years before providing any result. The government insisted shareholders inject capital to improve bank liquidity.
The government flatly disapproved of the recommendations on lifting moratoriums on establishment of new commercial or foreign direct investment (FDI) banks and considered it inappropriate and not a viable solution at this juncture. Finance secretary Lam Dorji said while old banks reel under the liquidity crunch, it would be impossible for new ones to enter the resource-scanty market.
He further stated one reason for the liquidity crisis was the introduction of two new commercial banks in 2010.
Lyonchhen said, “ The FDI story is not a happy one in many countries.” He said FDI should work in the country’s advantage and hence for the betterment of the country, ease of doing business with Bhutan will not improve.
However, talking to The Bhutanese, ex-secretary general of the constructions association of Bhutan, Cheku Dukpa said no one should determine the number of banks in the country. “It should be left to market forces and moreover people will have more choice with more banks,” he said.
BCCI secretary general Phub Tshering said it is a policy decision and that the chamber agreed to it. “RMA is the best organization to understand it rather than the private sector and through their research it isn’t feasible till 2013,” he said.
“It was just an option among many that we submitted to the government and not a demand,” he added.
The central bank had blocked the establishment of new banks until 2013. The government also denied the recommendation on reducing limits on FDI below 20% for it would defeat the very purpose of inviting FDI in terms of capital and management benefits.
The government acknowledged BCCI’s recommendation to identify priority sectors for lending. Priority for credit shall be sectors or investments that will earn Indian Rupee (INR) or convertible currency. Priority sectors will be re-identified by the government in consultation with relevant stakeholders.
The government as recommended by BCCI shall review the ad-hoc policies as and when the liquidity as well as foreign exchange situation improve based on measures being implemented. Such policies include the vehicle import ban among others.
The BCCI secretary general said vehicle imports does not come under the priority sector for lending but if anyone has money, no one shall stop one from importing a car. “If there is no money in the economy, there is no question of importing vehicles,” he added.
The private sector had also demanded continuous financing of the ongoing approved projects the municipality approved before 8 March, 2012 but had not processed bank loans before the same date. So far, a BCCI study revealed constructions worth Nu 4bn are either ongoing or yet to commence which require funding.
The cabinet however said there is sufficient liquidity in the banking system to continue credit to housing projects approved before 8 March this year.
Other recommendations by the private sector included promotion of tourism sector and reviving export credit for the exporters among others which the government claimed was already in place.
Talking to The Bhutanese President of the association of Bhutanese industries (ABI) Rinchen Dorji said exporters appreciate the fact that government realized the importance of agriculture product exports which actually earns INR or foreign currency.
“We are trying to catch up with the financial institutions as it (export packaging credit) is available only through BoB at the moment,” he added.
The BCCI secretary general also expressed content over what transpired from the meeting last weekend. “The government’s positive response to our submissions will help solve many problems we face at the moment,” he said.