The government has officially declared last October that the Belizean economy is in a state of recession, which is formally defined to be two consecutive quarters of negative GDP growth. If you will look carefully at the economic history of Belize, this won't be the first time that the country experienced a recession. Around the start of 2003 and the middle of 2007, the country experienced it as well.
What's different about this recession is that the predicted negative growth is three percent, definitely larger than those of the previous recessions--and even slightly larger than the predicted 2.5 percent negative growth rate of Honduras, which already has its own internal problems right now.
Usually, when an economy is seeing very small or negative growth, the first line of response to counter this is to reduce interest rates, which is the responsibility of the central bank. The idea behind this is to reduce lending rates so that it becomes easier for citizens to borrow money, which in turn is used to stimulate spending and investment that would be beneficial to the growth of the economy. In the United States, the interest rates are almost nil, and there are no plans yet of increasing that anytime soon.
That makes us wonder. With Belize in recession, why are interest rates still set at 4.5 percent?
Of course the Belizean economy cannot force commercial banks to reduce their interest rates, but it certainly can put a downward pressure by reducing its own foreign and domestic savings rate. 4.5 percent is something that you cannot see in the highest-yielding TDs in the developed world, so it does not make sense why the Belizean central bank is willing to pay that much. If this continues, we are going to see more business closing and more people suffering from the recession.
Jacqueline Goldwin of BelizeNews.com recently had a short chat with the Central Bank Governor Glenford Ysaguirre to ask why the central bank is not acting on it. Be surprised with his answers.
