Importance of specialized banks in,The process of development & monetary policy [Archives:2005/882/Business & Economy]

October 3 2005

Mahyoub Al-Kamaly
Yemen is presently seeking to back up specialized banks as a major step for pushing forward the process of economic and social development ad specifically in the sectors that require the role of the state through establishment of infrastructures supportive of sustainable development and to encourage the private investment.

Maybe what characterizes the Yemeni economy is that it has experienced complicated transformation circumstances stemming from the combination of the necessities of economic reform and within the framework of free market and the need for the continuation of the state's economic role in ensuring requirements for structures of basic infrastructures for comprehensive development. In order to have those government planning efforts successful in the realization of the purposes and policies there should have been a beginning in the balanced project of the program of economic, financial and administrative reform along with the first five-year plan 1996-2000 then the second five-year plan 2000-2005 and now preparation is underway for the third five-year plan 2006-2010 for economic and social development. All the five-year plans are founded on three major axes represented by straightening the existing economic and financial disorders, achievement of the economic growth and benefiting from the relative privileges of available human and economic resources.

Specialized banks have had their increasing role in the period 1990-1999 that has extended it its coverage all the governorates. Among the important banks in this regard are:

– The cooperative and agricultural lending bank: its activity included the provision of improved seeds, fertilizers, insecticides, modern production technologies and providing easy financing for farmers as well as offering of financing and technological facilities for fishermen and those working in the field of animal wealth and poultry. It has also focused on offering credit facilities to productive families and small farmers. He banks network has expanded to include 26 branches in governorates centers and some districts.

– The lending bank for housing which offers its services to citizens through offering easy loans especially to those of limited incomes to enable them build their own houses. It has also financed the construction of many residential complexes to alleviate the crisis of housing in the capital and provincial capitals of some governorates.

However those banks are in need of more support and funding in order to perform their role in the investment area and encouragement of increase in agricultural production and other areas.

What is absent in the Yemeni banking activities is the inability f the treasury bonds, one of the important tools besides the interest price and legal reserve that the monetary authority (Central Bank) uses for the implementation of the monetary policy in establishment of the essential market and the financial market in a manner guaranteeing provision of additional financing for many establishments and the ideal allotment of revenues.

The Yemeni economic and financial reform program has also included the shift from servicing the budget deficit, through currency issuance or what is known as inflationary financing, to financing through issuing treasury bonds as a non-inflationary and to absorb surplus monetary liquidity at the banks means, institutions and individuals. After it has acquired confidence of various parties of customers, the central bank moved from issuing treasury bonds of monthly payable to others payable in longer periods ( three, six months and one year). Nevertheless, the efforts for the establishment of a stock market in Yemen are still floundering.