OPINION: President Ali draws a line in the sand: 4% interest rate

Last Updated on Friday, 15 September 2023, 7:24 by Denis Chabrol

by GHK Lall

Excellency Ali recently said that this country will not pay more than 4% interest for loans.  Thanks, Excellency for that position.  I laud it as a powerful, resounding, and unambiguous posture found immensely appealing.  For the first time in a long time, Guyana’s President Ali has spoken with clarity, authority, and potency.  It is the way that the leaders of this country, including Vice President Jagdeo and Opposition Leader Norton, should be speaking: confidently, vigorously, and just the right shade of swagger.  I am with the President on this.

According to a KN article of September 15th, the President said this in Washington, DC: “We are not prepared to borrow invariable rates (sic). Many people would say that you’re crazy because in this existing market everything is invariable rates but we have made it a point that any borrowing must be a fixed rate, of less than a very low percent. Less than 4% in most cases and we have been able to achieve this in this existing market.”

I hate to dash a splash of icy water on what President Ali said, but there is this reality check, and it could be an obstacle.  Currently, the two leading interest rate benchmarks are above the 4% that the President spoke of, and which I applaud so lustily.  Both the Fed Funds rate and the London Interbank rate (LIBOR) hover in the 5.25% -5.5% range, while the US Prime rate is 8.5%.  The Prime rate is the rate at which banks lend to their best customers, and at the current 8.5%, this is in line with the rule of thumb +3% that is usually tacked on by banks.

Now, here is Guyana’s President saying unequivocally that this country will pay a maximum of 4% and no more.  I am wondering if he means 4% above where the Fed rate is, which would be 9.25% to 9.5%.  In tabling this, I point to the recent World Bank classification of Guyana as a “high-income” country.  This means that Guyana is not an economic basket case or on the breadline; one needing a helping hand with low interest rates.  In effect, what that categorization signifies is that this country would now have to pay a higher interest rate than before for loans.  So, as much as I hail President Ali for that bold line about 4% interest rate, and not a basis point more, there may be some considerations that stand in the way.

For practically speaking, and from a lending institution’s perspective, a 4% interest rate would be below their own interest rate cost.  I think there may be a little disconnect here between what the President said, and what the interest rate market can bear.  From a national point of view, I am behind the President, but ask myself what could be missing, as a 4% interest rate ceiling flies in the face of today borrowing/lending realities.  In trying to figure this out, I came up with some scenarios that may or may not apply.

First, President Ali made this statement in Washington, DC.  The U.S. Government is working assiduously to woo Guyana away from the Chinese, and to do more business with American companies, which would include banks.  Second, this brings into play an entity like the US’s EXIM.  With this in mind, it could be that President Ali is making clear that if Guyana’s borrowing business is desired, then this is the interest level at which it must be fulfilled.  That is music to my ears.  Third, Guyana is not a regular consumer, but a country, a rich one with collateral and abundant needs, so why not a prime rate for a winner….  Fourth, it could be also that the President is pointing out that the Chinese loan packages are currently in this vicinity; therefore, they must be matched.  Fifth, I believe that 4% could be a ‘teaser’ rate that His Excellency dangled, being fully aware that most commercial entities-corporations, banks, insurance companies, and others-want to get a foot inside the door of the Guyana treasure house of opportunities; an interest rate cap of 4% would be the price of entry.  At the risk of going overboard, I posit that Guyana is today in the position of China, viz., everyone with a profit motive ardently wishes to be here. China wrung numerous concessions out of big American and European businesses that wanted to be in that country’s incomparable marketplace.    In short, charge 4% on loans, and the carpet is rolled out, for who knows what else could be had to make up for that low, cheap 4% starter rate.

Whether this gains traction or falls is not of interest to me.  What is important is that I have a President who speaks like one in charge of an oil rich nation (the richest?), and calls the shots to match.  None of this weaseling and whimpering and wriggling, as though Guyana is begging, or looking for favors.  I would be heartened to read, hear, learn that VP Jagdeo has abandoned his slippery approaches that are exemplary in frailty before Exxon, and insists that this is the way that things are going to be.  President Ali spoke with conviction and strength of 4% interest rate.  This should be the tone and aura of our leaders in dealing with foreign entities starting with Exxon.  What say you, Dr. VP?  How about the new 10% royalty on all oil blocks, including Stabroek?  Exxon wants it, or it doesn’t.