CAN IT HAPPEN IN BARBADOS TOO? That question was on the minds of many Barbadians as they watched with anxiety what’s taking place in Puerto Rico, a country that a decade or so ago was considered an economic success story worthy of emulation by Barbados, but is now tottering on the brink of financial collapse.
Indeed, the collapse has begun. Last Monday, saddled with more than US$72 billion in debts, a fraction of what Barbados owes investors, Puerto Rico defaulted on a US$58 million bond issue. The default didn’t come as a surprise. Governor Alejandro Garcia Padilla had earlier warned that his country simply couldn’t pay its debts.
As a way out, he proposed a moratorium on debt servicing. Interestingly, the Economic Commission for Latin America and the Caribbean (ECLAC) has called for a somewhat similar strategy for the highly indebted Caribbean states, Jamaica, The Bahamas, Barbados and their Eastern Caribbean neighbours among them. Puerto Rico was not on ECLAC’s radar screen.
When Portia Simpson-Miller, Jamaica’s prime minister, came to New York last week and addressed the United Nations Security Council, she endorsed ECLAC’s proposal for “comprehensive debt relief” that “would gradually write off 100 per cent of the multilateral debt stock”. Simpson-Miller explained: “In our view, this proposal is worthy of serious consideration and support from the international community.”
The truth is, ECLAC’s suggestion isn’t going to fly and Jamaica, Barbados, Guyana, St Kitts and Nevis, St Lucia and the other highly-indebted middle income states across the region know that’s the case. Yet they persist with what is a pipe dream.
“The multilateral institutions aren’t going to walk away from the debts owed by Jamaica, Barbados and the others,” said a Caribbean analyst and economic adviser in Washington. “It’s not going to happen.”
That brings us back to the original question: can Puerto Rico’s financial mess spread to the rest of the Caribbean?
In Puerto Rico’s case it has opted to tackle its crisis by cutting public workers’ pensions. Stated simply, as it runs out of cash the government in San Juan has thrust the interests of public workers into a collision course with United States bond holders. Peter must pay for Paul through pensions.
“We are talking about a class struggle,” charged Mercedes Martinez, leader of Puerto Rico’s teachers union.
But Puerto Rico isn’t alone.
The governors of New Jersey and Illinois tried to cut public employees pensions when they were faced with sizeable fiscal deficits and the unions hauled them before the courts, arguing that pensions were contractual obligations that couldn’t be watered down unilaterally by the government.
A similar thing happened in Puerto Rico. Three months ago, the Illinois State Supreme Court ruled unanimously that multimillion dollar cuts in public workers’ pensions violated the state’s constitution.
In New Jersey, the State Supreme Court is yet to rule in a somewhat similar case in which the governor is fighting the unions after a lower court ruled in favour of the workers and their unions which had argued that pensions can’t be cut by the executive. In Puerto Rico, the situation is confusing.
The Supreme Court first ruled in three cases that cuts were permissible but when two more cases landed before the judges, they decided that the cuts were “unreasonable and therefore unconstitutional”.
How would Barbados handle such a hot potato if attempts were made to cut public pensions?
First things first. Barbados’ financial situation isn’t nearly as dire as those in Puerto Rico and Illinois. Just as important, there is no indication that the Government in Bridgetown is considering cutting public workers’ pensions.
However, a senior jurist in Barbados, who requested anonymity was quite clear on what was permissible in Barbados.
“Before an employee is in receipt of a pension, the Government may, by legislation approved in Parliament, change whatever the concurrent formula of payment [is] for a pension,” he said.
“The Government has done it by regulation in relation to national insurance by deferring the date when you can receive your NIS pension. I would hazard a guess that the Government could do the same thing with a state pension before you are in actual receipt of it. But once you are receiving it, the Government can’t change it. In other words, yes, the Government can change the pension formula before you receive the actual pension.”
Ed Bushell, president of the Barbados Association of Retired Persons, who knows the ins and outs of public and private schemes in Barbados, agreed with the judge but added an interesting sidebar.
“In the short and medium term, what has occurred in Puerto Rico is unlikely to take place in Barbados,” asserted Bushell.
“The present strength of the NIS and individual company pension schemes makes it a possibility that it could happen [eventually] in Barbados.
“However, I wouldn’t say it could never happen because I am uncomfortable when it comes to the true state of the economy.”
