—- Promises to Lower Interest Rate From 20% to 9%
IPNEWS: Economic powerhouse, and political leader of the movement for progress change, Simeon Freeman, has promised to tackle taxation and the prolonged borrowing practiced by past and current financial experts in fixing Liberia’s age-old economic struggles.
Freeman stated that the continue interest rates are simply – the cost of borrowing and rate of return on savings remains the primary causes for inflation.
Central Banks use Interest rates to: Fight inflation, Regulate consumption, Business investment, and Etcetera
The MPC Economic powerhouse stated that the central Bank of Liberia policy for addressing interest rate is very high for borrowing cost – Interest rate will continue to stall economic growth and hurts jobs for ordinary Liberians.
“Certain comments in my previous post suggest that Interest rate is influenced by volume. This is economically untrue. Interest rate is purely a lending rate or the cost of capital imposed by the Central Bank in any economy. Other comments also believe Liberia’s Central Bank cannot fix interest rate on the US Dollar. This is also untrue. Liberia uses a dual currency monetary policy and is the determinant of the interest on lending.
The very high interest rate makes it extremely difficult for, especially Liberian businesses to be competitive. If any of the G7 countries were charging 20 to 25 percent interest rate, their private sector would have collapsed. Extensive economic growth and increased private sector job growth is heavily influenced by low borrowing costs.
If a borrower in Liberia loans US$50,000 from a commercial bank at 20% interest rate, the borrower would have incurred a US$62,500 liability payable in one year. US$12,500 of this value results from high interest rate. Meanwhile, similar borrower in a G7 country borrows US$50,000 at an interest rate of 3 to 7 percent or a liability of $1500 to $3500, totaling US$51,500 to $53,500. The lender earns a profit of between US$1,500 to US$3,500; while in Liberia, the lender takes up equity in the borrower’s business by earning US$12,500 on a US$50,000 facility.
High lending costs undermine business competitiveness. No wonder Liberians failed so miserably in commerce, while bad business practices are part of the reasons, high interest rate forms an integral part of the reason for massive failure.” MPC Freeman maintains.
Freeman cautions that any serious government, desirous of creating jobs in Liberia, will quickly tackle the very high lending costs that’s at the heart of business failures and low private sector job creation.
He stated that as President, his number one priority will be to tackle these difficult economic issues if Liberia economy must get back on track.
Mr. Freeman stated that while a 9% interest is high, it is far better than the 20 to 25 percent current rate regime that has persisted for decades and will surely spur economic growth. There’s also an urgent need to increase bank capital requirement to at least US$40 million dollars. A second write-up will deal with this in more depth.
“Every major developing or developed economy embraces a single digit interest rate regime to realize outcomes such as increased borrowing for business growth, Increased private sector job creation, Decreased cost of goods, Increased consumption of goods and services, Increased multiplying effect of money, Increased loan repayment capacity, Decreased bad loan portfolio, Increased circulatory effect of money, Increased economic activity, and Possible lower government taxation caused by increased business activity and volume. “ Freeman told Journalist in Monrovia.
The MPC Political leader further noted that high borrowing costs and high taxation are responsible for the very high goods and services costs, that’s making living unbearable for our people and this must be tackled urgently.
I will fix our economy by tackling taxation and borrowing costs as President of Liberia.”
