Posted on

Don’t dismiss debt refinancing


Don’t dismiss debt refinancing

Social Share

The Barbados Advocate newspaper of May 15, 2018, carried a news item under the headline, Arthur: Not The Way.

The report poured cold water on the idea of debt refinancing, and quoted the former Prime Minister [Owen Arthur] as arguing that “it is a saving of expenses, but it is not going to give you cash to spend”.

It is with great reluctance that I respond to the views expressed. However, it would be remiss of me if I remain silent, knowing that Government’s shackling of itself by not optimising the benefits of refinancing is not wise advice.

Firstly, the problems facing this economy do not allow for a single solution. It is important for Government to use as many tools as are possible while ensuring they are consistent and complementary, and taken together will help to get us out of our difficulties.

In this regard, debt refinancing should be an important approach which needs to be considered by any Barbados Government which is seeking to address our current problems.

Well-negotiated debt refinancing can serve to postpone some of our interest and principal repayments to a time when we are better able to repay them. By doing so, it frees up resources which can pay for either existing expenditure commitments or new expenditures. Commercial banks do it every day to assist clients who are encountering difficulties in repaying their debts. They advertise on television that clients can refinance with them. Banks even try to entice customers from competitor banks and encourage them to use their refinancing offers.

Many developing countries, particularly those in Latin America (I do not include Jamaica in Latin America), have advantageously used refinancing and restructuring of debt in order to assist them in getting out of their overburdened debt situations.

I would therefore advise any new government to give favourable consideration to debt refinancing and debt restructuring options, provided they can negotiate conditions which suit their objectives of easement in the very early years and will be manageable in the long term.

No single approach will get us out of our difficulties, and debt refinancing alone cannot; but it is important, and in our circumstances, an essential part of the tool-kit and should be given favourable consideration as a part of any recovery package which Government decides to implement.

It is unwise to discourage Government from using the refinancing option. There is overwhelming evidence of the benefits. While refinancing cannot be the only solution, it can release resources for meeting expenditures, including new expenditures.