By Christos P. Panayiotides
I do not belong to any political party or alliance so I can afford to be open and forthright. The essence of the great clash between the government and the opposition over lending to businesses to cope with the economic impact of the coronavirus mainly focused on the opposition’s stand that the lending should be undertaken by the government itself. The government’s position is that it does not have the necessary infrastructure to properly judge which businesses qualify to receive such loans. For instance, are the prospective borrowers in a position to properly utilise the borrowed funds and are there reasonable prospects of the loans being repaid? It also argued it did not have the mechanism needed for securing the prompt repayment of the loans.
Instead of the government becoming involved in the assessment of the borrower’s credit worthiness in the administrative management of the loan and in activating the collateral in the event of default, the government proposed using the banks as the vehicles for handling the process, given that the banks already have the necessary infrastructure for doing this properly and have the necessary liquidity for financing the loans. If the excess liquidity currently held by the banks is not utilised, the non-utilisation of the funds would be to the detriment of the bank depositors, given that no interest can be credited to them if it is not collected from the bank’s borrowers.
To address the possibility that banks may be unwilling to assume these risks in their entirety, the government offered to provide guarantees in favour of the banks to cover the borrowers to the extent of 70 per cent of the amount borrowed and to subsidise the applicable interest rates. This arrangement which would enable the government to exercise control over the interest rates charged, thus ensuring that the cost of financing is kept to the minimum). Such an arrangement would also protect the interests of depositors of the banks because bank loans given to customers are financed by more than 80 per cent by funds deposited with the bank.
I confess that I was really surprised to see the opposition demanding, en block, the involvement of the government in the lending process, as if it were a lending institution. Following the shocks generated by the collapse of the co-ops, where a huge savings institution was led into bankruptcy as a result of providing “non-repayable” loans to “our boys”, the attempt of the opposition parties to set up a new system for providing “non-repayable” loans is truly outrageous. This is particularly so since there still exist non-performing loans given to politically exposed persons who diligently and stubbornly remain disguised and concealed.
Also outrageous is the opposition’s suggestion to give new loans to people who already have non-performing loans on their plate. This is certain to result in taxpayers or the bank depositors being called upon to foot the bill. In fact, I heard the opposition claiming that their objective is to support the small and medium size enterprises, implying that these are the businesses that mainly need the financial support and that without it their closing-down is imminent. I consider this as grossly unfair as small and medium size enterprises often exhibit an impressive robustness, an unbelievable flexibility and an ability to survive, in contrast to the larger concerns.
One does not need to go very far to identify a plethora of cases confirming this. I cite the first names which spring to mind in both the public and private sector: co-operative movement, Cyprus Airways, Orphanides Superstores and, of course, our two large banks, the Bank of Cyprus and Laiki Bank. Regrettably, the irresponsible attitude of the state which – either through its actions or through its omissions – led to the generation of the big economic crisis 10 years ago is being revived today and is threatening the survival of Cyprus. The government is obliged not to yield to the ballot-focused cries of the opposition.
Similarly striking is the insistence of the opposition parties on involving the auditor-general in the process of administrating the “non-repayable” loans. I honestly fail to understand how it is possible to participate in taking a decision and then to serve as the auditor of that decision. And don’t mention the pseudo-argument that the proposal is for the government auditor to participate in the process as “an observer”. I ask you: if in a given case, the government auditor keeps his mouth shut at the stage of taking the decision to grant the loan, do you think he will be in a position to blame himself, at a later stage when the scandal is exposed, and to admit that he wrongly kept his mouth shut? These practices are called self-service audits and they are nowhere to be found in properly run states.
Perhaps, we need to remind all the political parties that the loans granted with state guarantees, the loans granted directly by the state and, of course, all the state grants come out of the pocket of the taxpayers and occasionally out of the pocket of the bank depositors. No political party has the right to disburse these funds for the purpose of fishing votes. In this sense Finance Minister Constantinos Petrides, and Disy are to be congratulated for resisting this unacceptable political pressure on the part of the opposition, the role of which is to monitor the work of the government and not to replace it.
Christos Panayiotides is a regular columnist for the Cyprus Mail, Sunday Mail and Alithia