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Monday, March 05, 2007

Revised National Budget 2007 : More debate on banks

Refer to more stories below on the need for a local bank, what the Reserve Bank of Fiji has said and what expectations are there for system liquidity and interest rates. The stories were taken from the Fiji Sun website,

"Academic welcomes local bank concept

The idea of having a locally owned bank has been praised by an academic. University of the South Pacific's Dr Mahendra Reddy said the inclusion of a local bank was excellent. However, he said it would not be easy. Dr Reddy said the country had lost their chance when the Laisenia Qarase- led government sold it shares from the Colonial Bank. "We have lost a golden opportunity by losing our state bank and we can't re-invent the wheel," he said. Interim Finance Minister Mahendra Chaudhary challenged the large local companies to open a locally owned commercial bank. Going by the level of profits of commercial banks, he said it was a lucrative venture. "For a locally owned bank, at least the profit gets to stay in Fiji," he said. Fiji's state- owned bank National Bank of Fiji ceased operations in 1990s after events of corruption.

RBF accepts Minister’s call

The challenges outlined by the interim Finance Minister Mahendra Chaudhary at the 2007 revised national budget announcement has been accepted by the Reserve Bank of Fiji. The RBF Governor Savenaca Narube said the challenges outlined were clear. He supported the actions for improving the balance of payments. "It is important to narrow the widening of trade deficits," Mr Narube said. He further agreed on the need to have growth projection of 4per cent. He however outlined that a large portion of economic growth depended on tourism. "The 4per cent growth is agreed on. It all hinges on the tourism growth," Mr Narube said. He said the Reserve Bank was not allocated a budget. Mr Chaudhary said a major challenge was to reverse the widening trade deficits and stabilise Fiji's foreign reserves position.

Chaudhry wants measures implemented

The 2007 national revised budget maintains the broad thrust of policies, which have been put forward by governments in the last 10 years, an economist said yesterday. University of the South Pacific's Dr Biman Prasad said the budget involved public sector reforms, developing an export strategy for growth and containing the debt levels and excessive borrowing to reduce the deficit. "In terms of sectoral emphasis, like the previous SDL budgets, it lays emphasis on tourism, agricultural and light manufacturing," he said. He however said the difference with the revised budget was that the interim finance minister Mahendra Chaudhray emphasised the urgency of implementing some of the measures. In his keynote address on Friday Mr Chaudhary said he planned to bring the level of Government debt down and the revised budget restricted the Government deficit to 2per cent of the Gross Domestic Product in 2007. He did not agree with the idea of spending more and letting the deficit rise to pump the economy. Dr Prasad also agreed that Fiji could not have had a larger deficit to encourage economic activities. "The increase in deficit could have been effectively used to improve infrastructure such as ports, airports, roads, many of which are in a dilapidated conditions around the country," he said. "Another 1per cent or 2per cent deficit would have allowed the Government to engage in more productive expenditures, which would have allowed it create employment in the short-term as well as improve the prospects of long-term growth." Mr Chaudhary gave a signal to the Reserve Bank of Fiji to change its tight monetary policy and help increase liquidity into the system and bring the interest rate down. Dr Prasad said it is not prudent to have tight fiscal and monetary policy in a period of economic decline."

After reading all that if one asks whether the Government can "enforce" compliance by the Reserve Bank of Fiji in this day when central bank independence is promoted and sought. The answer is a resounding YES! There is a provision under the Reserve Bank of Fiji Act which requires the Reserve Bank of Fiji to implement policy directions of the Government of the day. So, we are definitely looking forward to reduced lending rates again after more liquidity is pumped into the financial system.

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