Forte urges moratorium on credit, rents

Government should pass a law to ease people from a range of credit payments and obligations including mortgages, rent and loans for a specified period as the COVID-19 pandemic continues to create major economic fallout for individuals and businesses, a Barbadian economist based in Canada, Carlos Forte, has suggested.

He told Barbados TODAY the payment holiday law should also make it mandatory for utility companies to provide a discount of up to 30 per cent to customers directly affected by the pandemic.

Forte argued that like elsewhere, there were a number of people and firms here that would be finding it difficult to make ends meet in the coming months as unemployment benefits dry up and little to no revenue comes in even with further opening of the economy.

He said by creating “a regulatory framework to defer a wide range of financial obligations within the economy” it could provide those individuals and companies with the ease they need to get back on their feet.

Forte told Barbados TODAY: “I am talking about residential and commercial rents and leases, mortgages, loans, car purchases and hire purchase agreements. There are many other obligations or contractual arrangements that existed before the advent of the containment measures related to the COVID-19.

“To the extent that regulatory framework could be created to compel economic agents – institutions, companies and so on – to defer those types of obligations, if you understand the economy carefully, one person’s cost is another person’s revenue and so on, it gives individually and collectively across the economy, various financial agents and households the ability to reduce, over a temporary period of time that can be determined, their obligations and therefore they are then in a position where they need less revenue to service obligations that they would have committed to before.”

He said while those measures could become contractionary, it should be understood that the “this is no ordinary downturn and it is one in which we should be looking first and foremost at mitigation, essentially cushioning the adverse impact of the downturn where possible so that various economic agents can ride out the downturn for as long as possible”.

Beginning in April, commercial banks in Barbados agreed to waive maintenance account fees for senior accounts, not to charge over-the-counter fees for pensioners over 70 and waive maintenance account fees for the youth accounts.

The commercial banks and credit unions had also agreed to a six-month moratorium on existing loans and mortgages for individuals and businesses directly affected by the pandemic.

Questioning if six months would be enough, Forte said the current “extraordinary times” called for “extraordinary measures, unconventional or unorthodox intervention”.

He said he understood such a measure would come with risks, but he believed it was worth looking at.

He said: “Certainly, institutions by their very nature were allowed to continue operating, banks and utilities for example, and the food supply chain because those are essential, why should they profit to the extent that the wider economy has contracted and there is lower activity and others’ revenues have gone to zero in some cases as a consequence of being closed?

“So to the extent you can contribute to assisting them to weather the storm over what will be a temporary period that helps you as well looking forward to be able to maintain a customer base that will be beneficial to your bottom line. It is a case of cooperative interest and recognizing that your customers are of some value to you.”

The Canada-based economist said other measures in such a regulatory framework should include a discount on utility bills.

“So all utility companies whose services are still needed notwithstanding the shutdown, so electricity, water and telecommunications, should also be, through legislation, required to provide discounts ranging from up to 30 per cent,” Forte suggested.

Unemployment claims have reached close to a record 43,000 in Barbados as a result of the COVID-19 pandemic, resulting in the Government having to pay out millions from the National Insurance Scheme (NIS).

Forte said while Government was constrained in how much it could do, it was critical to assist those individuals and businesses in need.

A part of this support, he said, would include providing income support through the NIS “as much as possible”.

Forte added: “I think the Government will have the obligation to utilize its financing, essentially borrowing money to pump into its social system, and ultimately that is what the Barbados Government may have to do. There have already been some discussions about pandemic bonds being issued going forward to assist the National Insurance Scheme in doing just that. That would be a good example of income support.”

Pointing out that not everyone qualified for unemployment benefits including self-employed individuals, Forte said notwithstanding the programmes implemented to offer assistance to vulnerable families and small businesses, Government will need to boost its social welfare spending “or create mechanisms for providing additional income support” for Barbadians.
marlonmadden@barbadostoday.bb