`...it's a wonderful agreement and it will bring much needed relief to some people. It will take a burden off their heads and they can go back to production and they can continue with their lives' - President Jagdeo

THE Government and the Guyana Association of Bankers yesterday reached agreement on a rice sector relief package, with the banks agreeing to write off all unpaid interest on non-performing loans.

They are also to write off 25% on outstanding amounts owed by small farmers, once the banks are satisfied with how they are servicing their restructured loans.

The Guyana Rice Producers Association (RPA) immediately welcomed the move.

"We are especially pleased to note that 100% of the unpaid interest will be waived and 25% of the principal will be suspended and pending satisfactory debt servicing, written off," the association said in a statement.

Making the announcement after the agreement was reached just after lunch yesterday, President Bharrat Jagdeo said the relief package "could make a big difference in people's lives and help to restructure an industry that is vital in terms of foreign currency earning for this country and in terms of economic growth."

Some 1,300 farmers owe the banks about $11B, because of floods and periodic droughts, market constraints, millers not paying rice farmers and other factors, officials said. The agreement applies to some 1,200 farmers with loans of $10M or below.

Under the accord the banks have agreed to waive unpaid interest on non-performing loans at or below $10M as of August 31, 2001.

They have also agreed to suspend 25% on the amount of money that an individual farmer owes. That 25% will then be written off at a time agreed upon by the farmers and the bank, once a farmer services his debt satisfactorily, according to the agreement.

Further, the farmers will now have up to 10 years to pay back the money they owe the banks. Additionally, they have been extended a moratorium on payments to December this year, meaning they have until that time to start paying back the banks.

Since the interest accrued would have been written off, the outstanding amount owed by a particular farmer will now be a new loan. So, a new interest rate would have to be calculated under the agreement.

The banks have agreed that the new interest rate would be a minimum of 10%. This could be revised every six months. Under the agreement, a moratorium has been extended on interest payments to June 2002.

BREATHING SPACE
"We note also with satisfaction that restructuring will be over a 10-year period at 10% per annum. This will greatly benefit the industry and will provide breathing space necessary for the revival of rice farmers and millers, " the RPA said in its statement.

The new agreement does not stop the banks from giving the farmers new category loans, but this will be up to a maximum of $3M.

President Jagdeo pointed out that once the loans are restructured and the bad loans start performing, the banks will receive back the some $600M they have deposited with the Bank of Guyana as bad loan provisioning.

"They don't need to provide any more for these loans because they become performing loans now. So they would have $600 million that will be released based on the FIA (Financial Institutions Act) guideline Number Five," he explained.

Under the agreement, the banks will not have to pay the corporate tax on the money that will be released back to them. Furthermore, the banks will also receive corporate tax relief on all payments made on the restructured loans.

President Jagdeo said the Treasury will not lose out in any way from the tax breaks that was offered to the banks.

"Assuming there was no repayment, we would not have received any taxes, because it's already non-performing loans. So the tax benefits that I'm giving will not have been there if the loans were not performing," he explained.

To benefit from the agreement, individual farmers who owe the banks will have to sign an agreement with their bank. The standard format of this agreement has been agreed to by the Government and the bankers association.

Clients against whom judgements have been obtained will have to make an arrangement with the bankers under which the judgements will not be executed.

For farmers to benefit from the relief package, they would have to agree to allow the banks to immediately realise their collateral - in other words collect the security assets pledged by the farmers, if they fail to service their restructured loans.

"I must make this absolutely clear to everyone. For you to benefit from this agreement, you have to commit yourselves to servicing the loan," President Jagdeo stated.

The rice relief package was arrived at following extensive discussions between the bankers association, the Ministry of Finance, the Ministry of Agriculture and the Attorney General.

The agreement also allows for some existing performing loans to benefit from some of the arrangements, except for the waiver on unpaid interest and the 25% suspension of the principal amount, so that those farmers too can benefit from having their loans restructured.

Pointing out that it will be studying the agreement in depth and will make a more detailed response soon, the RPA said farmers and millers will welcome this move.

For the 100 borrowers outside of the agreement, the banks are willing to work along with them individually.

IDEAL AGREEMENT
"Should they reach agreement, I am prepared to look at how the Government can also help. I'm not saying it will be under the same conditions, because these are small borrowers. But I'm prepared to look at how the Government can help.

"Should they reach an agreement with the banks, it would be done on a case-by-case basis," President Jagdeo said.

The Head of State called the agreement an ideal one, saying that it benefits all involved.

On the benefits to the banks, he said, "it will reduce a lot of the administrative burden they have about having to go to court after 1,200 persons for small sums of money. So it allows (them) only to focus on the big accounts."

"These loans were not being paid in any case, so now there is a possibility of some payment taking place," he added.

"The farmers also benefit, because if they comply with the new agreement, servicing would be at a significantly reduced level now. Their collateral would not be at a threat," the President pointed out.

According to Mr. Jagdeo, the banks have agreed to explore the possibility of extending this agreement to small people in other sectors that have had similar difficulties.

"I think it's a wonderful agreement and it will bring much needed relief to some people. It will take a burden off their heads and they can go back to production and they can continue with their lives. It allows the bankers to move forward with the possibility of getting some money back.

"And from the Government side, we are just giving tax credits, that may never have materialised if we didn't have such an agreement. So it benefits everyone," President Jagdeo said.