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WILD COOT: The lion’s mouth

HARRY RUSSELL, [email protected]

WILD COOT: The lion’s mouth

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NOT BEING ONE OF THE LATTER-DAY BANKERS who rely on the computer to offer a decision, the Wild Coot has always advised customers to come into the bank and negotiate with the manager.

The Wild Coot has been scrambling his brain, now in need of jellyfish oil, for a possible solution to the fix in which Barbados has now landed. The modest stillness and humility of our peace has been broken. He recalls the legal advice given to him by his now departed friend Alfred Clarke: “Go and negotiate when your hand is in the lion’s mouth.”

One of the main things that is going for Barbados now is that most of its debt is in Barbados dollars. (Remember my article on what Cyprus did, it made the savings repay the debt – your savings come from the money that created the debt.)

Among the “debtor” are (1) the continuous support for the public servants and the statutory corporations, (2) the bonds, (3) the Central Bank, (4) National Insurance and (5) various refunds. All of these can be renegotiated, even dictated. The difficulty comes with the foreign debt. Here is where the negotiations involve lessening the burden of repayment by extending the terms of the debt and the amount of the repayment tranches. Most creditors will negotiate, but with a penalty for negotiation and interest.

Having done the negotiation, this must be undertaken with haste and expertise using whatever inducement we can offer. This would place us in a position of truly assessing the actual state of financial affairs. The way going forward would depend on whether or not we decide to accept foreign help in the form of an investor willing to lend the whole amount of the debt, or if we decide to negotiate with the International Monetary Fund (IMF).

There is a problem in accepting a repayment of our full debt by an investor in as much as we would be transferring an obligation to pay in Barbados dollars to the repayment of foreign currency, when the inflows of foreign currency could not be guaranteed. This type of renegotiation would have to take cognisance of that factor.

Our negotiation with the IMF for interim support, so that there is no catastrophic destruction of the social landscape, has to acknowledge, however, that IMF terms are going to cause social pain. There is disconnection between what we are spending both locally and internationally, and what we are earning (especially since there is uncertainty of international business).

Provision must be available for the most vulnerable in our society. Where there may be a reduction in the public sector, including the statutory corporations, care has to be taken that family structures are not entirely destroyed.

There is no doubt that political fallout would affect the Government when tailoring its employees is involved. The question that makes uncertainty of all of this contribution requested is: do the decision-makers have the resolve and will the Prime Minister face the blast of war in his ears?

These are some of the ideas running around in the head of the Wild Coot. To him the best way to look at the local debt is to consider closely what was done in Cyprus. In his article published as far back as May 2014, he said: “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 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 face of printing money and thereby upping the deficit.

Use some of the savings to retire debt. It will cause a fuss, but it is better than devaluing. 

• Harry Russell is a banker. email: [email protected]