Jamaican Banks Favor Government-Lending
RENEE MONTAGNE, Host:
And now, a story about how governments can end up stealing money from their citizens - without even knowing it. The story comes from Jamaica. Alex Blumberg, from our Planet Money team, reports.
ALEX BLUMBERG: So you run this business, right?
MONTAGNE: Yeah, I run this business, but I work out in the sun.
BLUMBERG: And that is because this tire shop is not the kind of tire shop you see in America, with actual walls and a ceiling. It's a hand-built shack on the side of the road. It's got dirt floors, no roof. But it does have equipment, which Desoni has built by hand out of a random assortment of spare parts. For example, a tire retreader he built out of a chassis of an old car.
MONTAGNE: This is American Lincoln vehicle, I had to add to it.
BLUMBERG: Oh, so that's like a strut from a truck here?
MONTAGNE: Yeah. Yeah.
BLUMBERG: Hey, Dave.
DAVID KESTENBAUM: Hey.
BLUMBERG: So I am going to be playing the part of a banker. And you are going to be playing the part of the Jamaican government. Are you ready?
BLUMBERG: All right, action.
KESTENBAUM: I need to borrow some money.
BLUMBERG: Well, you've come to the right place, 'cause I am a banker. I see you've borrowed a lot of money from us already.
KESTENBAUM: Yeah, I have a lot of bills; trying to help out the citizens of Jamaica, health care, education and I've been borrowing to do it. And I need to borrow some more.
BLUMBERG: Well, that's convenient for me, because it turns out I have a million dollars just sitting here. I need to lend to someone and charge them interest - 'cause that's how I make money. My plan was to scour Jamaica looking for hard working entrepreneurial types who need a loan, figuring out which ones are likely to pay me back.
KESTENBAUM: You could do that or you could just lend it to me. I could borrow that whole million dollars from you right now and I'll pay you 19 percent interest.
BLUMBERG: End scene. Thank you, David.
KESTENBAUM: You're welcome.
BLUMBERG: So that little radio drama, economists call this phenomenon the Government Crowding Out Private Investment: If the government is willing to borrow massive amounts of money at high interest rates, bankers don't need to work to find people in the private sector to lend to. And this brings us to our second visit in Jamaica, not the ghetto this time - a very different part of Kingston.
(SOUNDBITE OF A HELICOPTER)
BLUMBERG: That sound you're hearing is a helicopter landing on the top of the south tower of one of the largest banks in the Jamaica, NCB Bank. I am waiting to interview the guy in the helicopter - this guy.
MONTAGNE: My name Michael Lee-Chin and I'm an investor.
BLUMBERG: Mr. LEE-CHIN Complacency - we were satisfied.
BLUMBERG: Why would you lend to anybody else? Why would you find entrepreneurs? Why would you go out and seek other investments, if you can just make your money buying government debt and - do I have that right?
MONTAGNE: You have it perfectly right. You could make more money living off government - trading government paper, than actually going out and producing.
BLUMBERG: But recently that has changed. Earlier this year, the government and the banks cut a deal. Banks agreed to reduce the amount the government owed them. In other words, to Lee-Chin's surprise, the banks all volunteered to make less money.
MONTAGNE: Had you asked me whether this would have been possible, I'd have said no.
BLUMBERG: And you - your bank owned some of this Jamaican debt, right?
MONTAGNE: Huh, we are the largest lender to Jamaican government.
(SOUNDBITE OF LAUGHTER)
MONTAGNE: So our hit was the largest.
(SOUNDBITE OF LAUGHTER)
BLUMBERG: For NPR News, I'm Alex Blumberg.
MONTAGNE: You're listening to MORNING EDITION from NPR News.
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