MIDEAST DEBT-Tunisia c.bank takes bold step with loan crackdown
* Banks must offset new consumer loans with reserves
* C.bank aims to curb inflation, limit luxury imports
* But move may have political impact before elections
* Some Tunisians angered by blow to living standards
* No sign of pressure from government, politicians
By Tarek Amara
TUNIS, Nov 14 (Reuters) - Tunisia's central bank has clamped down on a consumer loan boom - a step that may be prudent economically but risks angering many Tunisians struggling with unemployment and poverty, and could have political implications.
Since last month the central bank has required commercial banks to hold back reserves equal to the amount of new consumer credit they provide - effectively making it more expensive for the banks to extend such loans.
Its motives are benign; it wants to rein in inflation by preventing the economy from overheating, ensure bank loans go primarily to productive projects, and limit imports of luxury goods that have sapped Tunisia's foreign currency reserves.
Its actions may reassure foreign investors that the central bank remains willing to make unpopular but economically necessary policy choices in the wake of last year's Arab Spring uprising, which toppled president Zine al-Abidine Ben Ali.
But the decision to curb consumer lending is politically sensitive. The uprising was fuelled by mass frustration with economic conditions; by restricting credit, the central bank risks being seen by some Tunisians as part of the problem.
Voters' perceptions of the economy will shape the results of parliamentary and presidential elections due next June, which will determine the fate of the current government led by the moderate Islamist Ennahda movement. Ennahda came to power through Tunisia's first free elections in October last year.
Mohammed Banour, a 26-year-old technician at a telecommunications company in Tunis, says he is one of the people affected by the central bank's decision.
In the wake of the new reserve rules, his bank refused to extend him a 20,000 dinar ($12,600) loan to pay for his wedding, which he says may now have to be cancelled.
"I feel frustrated...My wedding date was expected to be April 30 next year but it seems that this date will be delayed or may be cancelled if I do not get a loan to cover wedding costs," Banour said.
"I've been waiting to get a loan to buy furniture for the house and pay the costs of the wedding hall and provide for the needs of my fiancee. Now none of this looks possible."
Central bank governor Chadli Ayari says he realises the bank's policy is painful for many Tunisian families, but that he was forced to act to protect the economy, which faces a rise of inflation and currency depreciation - factors which could reinforce each other if they get out of control.
Inflation hit 5.7 percent in September; the central bank is not targeting a particular inflation rate but the most that should be tolerated is 5 percent, Ayari told Reuters.
"Inflation worries me very much. I will fight it with monetary instruments," he said.
Another worry is the level of Tunisia's foreign currency reserves, which fell to the equivalent of 94 days of the country's imports in October, the weakest level in decades, from 120 days a year ago and 145 days two years ago.
Ayari said he was concerned that excessive consumer lending could be spent on imports, draining reserves further.
"Credit growth is around 9-10 percent but 80 percent of that growth goes on consumption and only 20 percent into equipment and investment," he said.
"If credit growth was 15 percent but mostly went to investment, I would not do anything."
So far, the government and powerful politicians do not appear to be putting any pressure on the central bank to change its policy.
But mindful of public criticism, the central bank issued a statement at the end of October stressing that its "ultimate objective is not to put pressure on Tunisian households with respect to their vital and basic needs." It promised that banks would still be allowed to extend overdraft facilities against customers' future salaries.
FRUITS OF REVOLUTION
The central bank's justifications for its policy carry limited weight with Tunisians who have turned to banks to finance purchases from computers to holidays and sheep to be slaughtered for the recent Eid Al Azha festival.
After the economy shrank 2.2 percent last year because of the turmoil caused by Ben Ali's overthrow, investment and tourism have started reviving. The government predicts growth of 3.5 percent this year and 4.5 percent in 2013.
But because of high inflation and unemployment, officially estimated at 17 percent, many Tunisians feel little improvement in the economy.
At a bank in the capital's suburb of Lafayette on a recent day, 40-year-old Wassil, a teacher, spent 20 minutes unsuccessfully trying to persuade a bank manager to give her a loan of 5,000 dinars to repair the walls of her house, which she said had cracked after heavy rain.
"Prices have risen like crazy...My salary and my husband's salary are no longer enough to meet living costs, and only pay for food and study expenses for the kids," she said.
"Where are the fruits of the revolution?...We hate Ben Ali, but the economic situation in his rule was not as bad as it is now. Loans were easier."
Some private economists also criticise the central bank's policy, saying it will hurt growth.
"Consumption is the locomotive of economic growth and should not be reduced while the disruption of investment and exports continues, because of the lack of clarity in the country's political situation and the economic crisis in Europe," said Moez Abidi, an economist and former central bank official.
Abidi also said the crackdown on consumer loans at banks could force financing business to migrate to informal moneylenders, which could end up hurting banks.
An official at Banque International Arabe de Tunisie, a major commercial bank, said: "We do not support the decision to restrict consumer loans - surely it will cut the bank's profits and cause us embarrassment with our customers.
"But we are obliged to implement the rules, which we expect to stop after there has been a clear decline of inflation."
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