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WILD COOT: Doing it Cyprus’ way?

Harry Russell

WILD COOT: Doing it Cyprus’ way?

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“All that glitters is not gold.” So said some rah rah body a long time ago. What the Cyprus government did was to capture part of the vast savings of its people in order to repay debts that the country (substitute the people) owed.
By raising the ceiling of treasury bills, bonds, debentures, tax certificates and so on, the government is surreptitiously attacking the $8.6 billion-odd that the citizens have in the various banks. But Wild Coot, how?
Reluctant as they may be, the banks have no other outlet in this time of recession for their holding of savings, fixed deposits and demand deposits. As their liabilities increase as people try to defend themselves by further savings, the banks are obligated to support the Government (by law) by increasing their treasury bills holding; likewise the National Insurance Scheme (NIS) that cannot say no. Lending for the banks, the major earner, is down $2 billion on January 2013 – a reaction to the downturn. Thus the people’s savings have to participate in the farce of printing money and thereby upping the deficit.
Are we doing what Cyprus did? The only difference being that government Paul is being paid from citizens Peter’s savings – the NIS and the money people have in the banks? You ask yourself, to what end? The fact of the matter is that it is not easy to legally get rid of 3 000/4 000/5 000 people and obligations for redundancy and so on. It is costly. In the meanwhile, your total debt obligations are rising, and the pit gets deeper without commensurate growth and increase in taxes take. The Wild Coot is not an economist, so he does not have a third hand of reasoning.
What are we avoiding? Countries that borrow excessively internationally, such as Jamaica did, face the problem of being asked to repay their debt in foreign currency. When they cannot, the lender becomes frustrated and sells the debt at a discount on the open market. The vultures (remember the article?) that buy the debt, take one of several courses.
Either they carry the country to an international court for the full amount of the debt, or they demand payment or a consideration locally from the central bank/government. This could be to the detriment of the local situation, as the demand could upset the local market, be it in tourism or other business. I have dealt with “debt for equity swaps” several times.
Our Government must be candid with the people. If it has run out of ideas, then raising the limit for survival leaves the next government and the people in deficit do do.
The oversubscription of demand locally for investment opportunities in government paper now, has nothing to do with attractiveness of the investment to banks, people and corporations. More so, it has to do with options, as Government dilly-dallies in moving forward, and the general public braces for hard times, salt sucking and sore nipples.
The explanation on Page 4A of the May 14 MIDWEEK Nation under the headline Loan Limit Set For $4 Billion, that “it may happen that your requirements for the month are higher . . .”, is like a sweets shop planning. The rest of the quotation shows thinking within the box. There is an endemic problem. Sufficient taxes are not being generated through mainly lack of growth, and the failure of the Medium-Term Fiscal Strategy.
This is the time that vultures will appear. Therefore it is not only when your foreign debt is in shambles, but also when you have internal problems and your domestic debt is in shambles. We will watch and see which vultures are going to make proposition to Government and try to take advantage of our position, especially of our position in the tourism industry.
The Wild Coot warned in an article on April 21 that the Central Bank would have to be laying off staff; long before the brouhaha erupted.