Savenaca Narube: Financial innovation and monetary policy in Fiji
Opening address by Mr Savenaca Narube, Governor of the Reserve Bank of Fiji, Westpac American
Express® Credit Cards Launch, Suva, 17 April 2007.
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Ms. Jane Kittel, Westpac Pacific Banking General Manager
Ms. Ng Siew Choo, Vice President and Regional Head, Global Network Services, American Express,
JAPA
Mr. John Cashmore, Westpac Fiji Chief Manager
Distinguished Guests
Ladies and Gentlemen
Introductory remarks
Good evening.
I am pleased to participate in launching the Westpac American Express® Credit Cards. I also
participated in the launching of Westpac's MoneyGram® Worldwide Money Transfer Service in
October 2006. A lot has happened since then. This evening, we are celebrating the new partnership
between Westpac and American Express. I congratulate Westpac and American Express on this
initiative and wish you all the best with this new facility.
Westpac American Express® Credit Cards
Fiji has had a long association with Westpac. It was established in 1901 as the Bank of New South
Wales and is the first Australian bank to open a branch in Fiji on 12 August 1901. Westpac is
considered as Fiji's longest continuing bank. It was the first bank to introduce telephone banking in Fiji.
No doubt, Westpac has played a valuable role in advancing Fiji's financial system and its economic
development.
I am told that in April 2006, Westpac Pacific Banking signed an independent Operator Agreement with
American Express (Amex). This agreement gives Westpac exclusive license to issue local currency
credit cards in the seven locations in the Pacific including Fiji. Fiji dollar credit cards will be issued in
Fiji. The other Pacific Island countries where Westpac will be launching the same cards are Vanuatu,
Cook Islands, Solomon Islands, Papua New Guinea, Samoa and Tonga.
This agreement also means that Westpac will be the acquirer for Amex local merchants in the seven
locations in the Pacific. In Fiji, all Amex transactions will be done through Westpac's systems including
transactions made on other banks' EFTPOS and ATMs.
I understand that this product is in response to demand by customers who have made known many
times that they need a Fiji dollar credit card. This new Fiji dollar Amex credit card will give Westpac
customers a competitive edge against those of other banks that offer Fiji dollar credit cards.
Financial innovation
The Reserve Bank always welcomes the introduction of new financial products into the market. These
products add to the services that are available to the customers. I must say that the Fiji has seen
many of these products coming on stream in the last ten years. Very quickly we have seen the
introduction of ATMs, phone banking, internet banking and other services. I must acknowledge that
Westpac has been at the forefront of bringing these new technology and products to Fiji which have
helped modernise our financial system.
Later on this year we will launch a new real time gross settlement system which will make the
clearance of cheques between commercial banks more efficient.
New currency notes
Let me briefly mention our new currency notes. We put into circulation the new currency notes last
Tuesday. They have been well received by the people. The visually impaired welcomed the different
lengths of notes so they can easily identify the denomination. There were comments on the difficulty of
getting to change the $100 note. These were the same comments that we got when we introduced the
$50 bill some 13 years ago. Let me say, that even prior to the issue of the new $100 bill, taxi drivers
and market vendors have difficulty breaking even a $20 bill and that is not in Fiji only. The solution is
simple. We do what we have been doing all along - make sure that we have smaller change before
getting into a cab or going to the market. The $100 and the $50 bills are obviously not meant for small
transactions. They make large transactions much easier.
I thank the commercial banks for their support and cooperation in the smooth distribution of Fiji's new
design currency notes.
Monetary policy
Let me say something on the economy and monetary policy. We all know that the economy is going
through a very difficult time. It is extremely important that everyone understand two things. First, we
need to clearly understand the real state of our economy. Only then can we appreciate the urgent
need to execute adequate and lasting solutions to these problems. Tinkering at the margin will not
work for us any longer. Second, we should also appreciate that the solutions that will last are not
without costs. There will always be a cost to correcting economic imbalances particularly of the
magnitude that Fiji is facing.
To me the key economic challenge that we face is to correct our widening trade imbalance. Our
exports continue to be dismal. Sugar is earning $100 million less than its peak year. Garment has lost
even more than that. Gold production has now disappeared and that's another $60 million. Tourism
numbers and yields have now dropped. Oil price remains at around US$60 a barrel. The trade deficit
continues to widen.
It is therefore essential that the Reserve Bank do all it can to safeguard the external financial position
of Fiji. Since May 2004, we had progressively raised interest rate and tightened liquidity. We had also
highlighted back then the need to lift our exports. Unfortunately, exports have yet to respond. In fact,
with gold production and the sugar reform uncertain, there is still no light in the tunnel.
We have tightened monetary policies progressively. Some say that we should have moved more
aggressively at the start. I do not agree with this view. Introducing harsher measures at the beginning
would have discouraged growth which was the last thing we need. It would have been an over kill. It
makes more sense to tighten progressively and as much as possible allow room for investment and
the economy to grow.
In December last year, we had to introduce a ceiling on private sector credit. We also reduced the
delegated limits given to foreign exchange dealers on selected overseas transactions. Recently, we
announced changes to borrowing guidelines for non-residents individuals and companies.
There have been some concerns on higher interest rates particularly from individual borrowers and
investors. We understand these concerns. But again we ask that you appreciate the seriousness of
our financial situation. When things are tough, we must safeguard the bigger picture. We cannot be
reactionary. If we do not take care of the bigger picture, the smaller picture will suffer even a lot more
than what we are facing now. There are lessons from around the world that we should heed.
When we compare the interest rates in Fiji with countries like Australia and New Zealand as well as
some of our Pacific Island neighbors it clearly reveals that they are relatively low in Fiji. For example
the lending rate in New Zealand is 12.25 percent, in Papua New Guinea 10.7 percent and Samoa 11
percent. This compares with 9.34 percent in Fiji. While these are the weighted average lending rates
and the rates will obviously differ for individual borrowers they are the best gauge of the general level
of interest rate between countries.
This comparison of interest rates throws up two interesting observations. First, all the countries that I
have mentioned are performing better than Fiji including Samoa and Papua New Guinea. Yet their
lending rates are higher than us. It implies that there are other factors that are important for investment
and growth than interest rates alone. Second and perhaps more pertinent, these countries do not face
the degree of economic challenges that we currently face in Fiji. For instance, Papua New Guinea and
Samoa have better levels of foreign reserves in months of imports than Fiji has. Yet their lending rates
are higher.
I wish to take this opportunity to thank the commercial banks for their understanding and support in our
effort to address the economic challenges before us.
With the credit ceiling in place, the Reserve Bank has allowed liquidity to rise. Liquidity has risen by
over $50 million since February this year. In addition, we are reducing the statutory reserve deposits
by one percentage point from 1st of May which should pump an additional $29 million into the system.
This should take liquidity to a very comfortable level.
We are already seeing the impact of this easier liquidity on wholesale deposit rates which have fallen
sharply to 5 percent from around 15 percent late last year. With this liquidity condition, one would
expect commercial banks and other lending institutions to pass this lower cost of funds through to
lending rates. And here I must congratulate Westpac for taking the lead and reducing its lending rates.
Lower rates will help support growth and investment in this difficult time.
In support of investment and growth, the Reserve Bank now considers commercial banks' lending to
investment, small and medium size businesses and to exporters to be outside the credit ceiling. Since
December last year, the Reserve Bank has approved over $70 million of loans above the credit ceiling.
Economic projection
As you know, we project that the economy will fall by 2.5 percent this year. There are some important
factors that will determine the final outcome. First, what happens to tourism is important. There are
mixed signals coming from this important industry. The latest visitor arrival figure shows a decline of
around 7 percent in January compared to January the previous year. A survey we conducted recently
of a few major hotels show a low occupancy rate of around 30 percent and not much higher going into
their forward booking.
The second factor is gold. The current forecast does not include any gold production. But with the
change in ownership of the Vatukoula mine, we hear that production may commence in June.
The third factor is the possible industrial action by the trade unions. It appears to me that all trade
unions are seeking strike mandates. I hope that the situation is amicably settled. The fourth is the
uncertainty in the European Union's support for the important sugar industry reform. We all hope that
the discussion in Brussels this week is fruitful for Fiji. Lastly, the effects of the recent floods on sugar
and other agricultural products will worsen the economic decline projected for this year but their impact
is still being assessed.
Looking ahead, for 2008 the economy is expected to rebound by 2 percent. A similar growth rate is
expected for 2009. This is encouraging. But we obviously need to grow faster perhaps toward the five
percent mark. We can achieve this. We do not lack the potential. But to realise those potential we
need to prepare the ground now by accelerating reforms. Some progress has been made. But it is now
time to re-energise our resolve to address these long standing issues - like sugar, land lease, public
enterprise, public service and resource based industries. If we take action now, we can look forward to
a better economic performance than what we currently projecting.
Concluding remarks
Finally, I would like to thank Mr. Cashmore for inviting me here today. I congratulate Westpac and
American Express on this joint initiative and wish you both every success.
Official launching
I have much pleasure in launching the Westpac American Express® Credit Card.
Thank you.