Do not confuse private individual consumption and private sector consumption, said the central bank Governor Daw Tenzin stressed at a conference with the private sector yesterday, here in the capital. He was referring to the cause of Indian Rupee (INR) crunch exacerbating by the day for which the private sector was assumed scapegoat.
Private consumption does not limit to merchants, traders, construction companies and entrepreneurs but includes the general public like civil servants, self employed people, farmers and people from all walks of life.
He also highlighted that the media is creating unnecessary hype and panic by listening to a few individuals.
Secretary General of BCCI Phub Tshering said the private sector has been made the scapegoat by the government and assumed guilty by the public for the shortage of Indian Rupee (INR).” We are involved in the economic and overall development of the country and that involves monetary transactions”, he said in his welcome address.
Daw Tenzin said, the conference was called for clearing doubts in the minds of the entrepreneurs and not a forum for debate. “Nowhere in the world does monetary policy come under public debate forum”, he explained.
The Governor said each and every individual is responsible for the INR shortage. “We didn’t blame the private sector. Private consumption includes every individual in the country,” he said.
He said it is important to study, analyze and understand situations of this kind.
INR 48.5bn was spent on private consumption through excessive credit by banks. This, the Governor said can also be because of the additional commercial banks, an insurance company and other financial institutions. Bhutan is the only country that allows lending by insurance companies and pension fund.
He said, the central bank borrowing from a commercial bank (SBI) is not a good trend. “A central bank using overdraft facility at an interest rate of 10% from a commercial bank to bail out private sector consumption is happening only in Bhutan”, he explained.
The Governor also cautioned the experts and economists commenting on newspapers on the issue which fueled panic across the country. He said the media, both print and broadcast are being misled by the so called economists and experts. He blamed the media for publishing news items based on comments that lacked proper research and analysis.
“Gossips and informal talks at bars doesn’t sum up to becoming experts or economist”, he said.
Certain quarters of the nation blamed RMA and the government for delaying action and implementation of austerity measures to tackle the situation. The Governor defended RMA stating that the central bank has been working closely ever since the issue began to surface in 1993 when the first borrowing of INR 100mn was made through Government of India’s (GoI) line of credit (LoC).
He said, it was important for RMA to enhance the payment system and huge investment of time and expenses were made to improve the system.
On certain groups of people blaming the central bank stating that RMA has stopped banks from lending, the Governor said “Money with the banks doesn’t belong to the banks, the shareholders nor the government but the depositors. The directive by RMA has been aimed to protect the depositors”.
“Public and individuals borrows from commercial banks at 10% to build houses or buy cars. RMA borrows INR at 10% interest rate to make raw materials available, profit goes to bank’s pockets and the hit is on central bank’s balance sheet”, he added.
Though our country is tiny, we are independent and one among the 187 members of the International Monetary Fund (IMF). RMA’s monetary system has to come through IMF. “We are signatory to the IMF articles of agreement “, Daw Tenzin said.
Some experts also suggested unpegging the Nu from the INR. The Governor said, anything to do with the peg parity has to be carried out with IMF. “We are not allowed to do it. Our Nu has been pegged with the INR in the exchange arrangement with IMF”, he said.
He said exchange arrangement and restriction by the IMF needs to be understood by the so called experts and economists in town.
In accordance to the IMF’s classification, ours is a conventional peg. The reason for pegging to the INR is because 95% of Bhutan’s import is from India. This is to preserve value of the currency and promote trade.
The Governor also highlighted the responsibility of RMA which is to take care of the government’s reserve, printing of bank notes, act as the last resort of lender, banker to the banks, and banker to the government.
“Earning INR is not RMA’s responsibility. To earn or spend INR is the responsibility of public and government”, he concluded.