Stabroek News
March 13, 2001

President Bharrat Jagdeo said yesterday that the government would move its business from those commercial banks unwilling to work with the rice sector to ensure its survival.

The rice sector owes an $11 billion debt and the Guyana National Cooperative Bank (GNCB) is the only commercial bank so far, to have considered interest forgiveness to make this debt manageable. Many rice businesses continue to suffer and to be in danger of extinction.

Describing the current situation in the rice industry as "a bad patch", the President told reporters he was aware of cases where some unscrupulous rice players had assets abroad and could afford to repay their loans but refused to do so. But he was also aware of the genuine cases of millers and farmers who could get back into business with meaningful restructuring of their loan portfolios by commercial banks.

Jagdeo said some of the rice players overextended themselves, with the help of the banks and some of them will go under, but this would create opportunities for others to get into the sector. His concern, he said, was for the genuinely troubled millers/farmers, especially the smaller farmers.

A proposal was made to the government by the tripartite committee comprising bankers, millers/farmers and the government for the government to seek refinancing for half of this debt until such time as the other half, restructured by the banking community, was paid off by the rice sector.

But Jagdeo yesterday again asserted that when the banking sector was making huge profits, it did not call upon the government to share in those profits. He said the banks would have to restructure the rice sector's debt portfolio, and this would not

affect the health of the financial system. He said he had no trouble with the banks going after those unscrupulous millers/farmers, but expected that they would work with those persons whose cases were genuine and make special concessions for small farmers.

"I have already said that I will be shifting all of the government's business out of the banks that do not want to help Guyanese," the President said.

Jagdeo said the government was supporting the restructuring of rice farmers/millers debts being undertaken by GNCB.

GNCB, which is owed $3.7 billion, has agreed to reschedule this debt. It will reduce the interest rate applicable on debts between 1996-2000 by eight per cent and decrease future payments to 2.5% below the prime lending rate. The application of this system will be on a case-by-case basis, subject to certain conditions and collateral will be required as the bank seeks to secure itself.

This measure will cost the bank an additional $410 million in losses, but is expected to go a far way in mitigating some of the difficulties the industry players currently face.

The Guyana Bank for Trade and Industry (GBTI) has rescheduled $3.2 billion of its $3.8 billion debt, but the tripartite committee which looked at options for the rice sector in the short, medium and long term, found this to be inadequate. The committee argued that interest forgiveness was key to alleviating the sector's burden.

The National Bank of Industry and Commerce Limited (NBIC) has rescheduled a small fraction of its total rice debt portfolio, and was not pursuing any specific strategy geared to assist the sector, according to the committee. "It is pursuing a policy of business as usual and is not considering any element of interest forgiveness," the committee told Jagdeo in its report, submitted last November.

GBTI incurred the largest share of the rice sector indebtedness, followed by the state-owned GNCB and then NBIC.

The tripartite committee, which was established during the joint industry and banking sector meeting with the government on devising a way forward for the industry last year, is chaired by Komal Samaroo, who is also chairman of the Guyana Rice Development Board (GRDB).

The report said 45 per cent of NBIC's rice portfolio was classified as non-performing, and the bank was assessing all approaches from millers and farmers on an individual basis. If it deemed that an enterprise was viable and would be capable of repaying the debt, rescheduling was effected.

"However, NBIC stated that only a small fraction of its total rice portfolio has been rescheduled. For those who are defaulting and are not deemed viable, foreclosure is a definite possibility," the report to the President said. Already a host of millers and farmers have been foreclosed, but it is not clear how many of these were NBIC's clients.

The industry found itself in difficulties after it used short-term borrowing to finance long-term investments, which backfired because of adverse weather conditions, declining prices for rice, changes in the preferential access arrangements and a declining Euro.

Jagdeo noted that rice production under the PPP/Civic administration more than tripled and investment in drainage and irrigation, the lifeblood of the industry, was boosted by $6.3 billion between 1993-9. He also noted that taxes facing inputs in the sector were removed.

He said two years ago the PNC accused his government of being a rice government, because of the increased spending in the sector but pointed out that when rice, sugar, and bauxite did well, so did the economy and vice versa.

The tripartite committee recommended that in the short term, the indebtedness of the rice sector be dealt with via restructuring by the banks and interest reductions as well as by equity financing, sourced in part by the government. It suggested the establishment of a Rice Investment Fund to be financed from private funds and international concessional funding available to the government such as from the European Investment Bank. This fund would invest in individual enterprises by buying up existing debts, and make strategic investments aimed at improving productivity.

The report said the priority for the sector was working capital for millers and farmers and urged that crop financing for farmers and trade financing for millers be introduced. It said that special financing arrangements to meet the needs of the industry had to be developed through negotiations between the Ministry of Finance and the private financial sector. However, the report said the government first had to do a review of the entire credit system as it related to the rice sector and propose changes where necessary.

GNCB and the Institute of Private Enterprise Development (IPED) are already providing crop financing and the report said that these two examples could be used as models for financing the sector.

The report also said the government had to consider an interest subsidy to the commercial banks to allow them to provide loans to the rice sector at a lower interest rate, and cited Suriname as an example where this has been done. It also highlighted the need for the private development bank to provide long-term financing for the rice sector. It called on the government and GRDB to immediately begin investigating possibilities for the establishment of a development bank.

Apart from financing, drainage and irrigation is another major concern for the rice sector and the report said the first priority will be a thorough, scientific study to determine the source of the D&I system problems, so as to formulate future D&I policies.

The committee also called for total elimination of the consumption tax imposed on diesel fuel and the establishment of a system to ensure that this is passed on to consumers and not appropriated by the oil companies.

As regards marketing, the report said that Guyana had to be represented strongly at all CARICOM meetings to ensure its interests were protected and CARICOM should be requested to investigate the application of the common external tariff (CET) on extra-regional rice imports. The government was also asked to vigorously pursue the inclusion of paddy on the list for CET waiver.

The committee has also proposed medium- and long-term measures.