I REMEMBER IT like yesterday, a conversation between a young fellow and me in a managerial banking capacity.
Banker: “You owe me $100 my friend, your loan is up to date, but recently you seem to be under pressure since you have been paying me in soiled $1 bills.”
Customer: “Well really, that is why I am here this morning. I am not going to waste your time – I can’t continue paying you and looking after my family too.”
Banker: “So what you propose?”
Customer: “I could pay you at a reduced rate.”
Banker: “No dice! You signed a contract. Even so, the interest rate will be higher.”
Customer: “Contract hell! You want me to stop paying altogether in these hard times? You want to take this through a lengthy court battle when you get nothing in the interim? Don’t you have obligations too? To besides, higher interest rate is out of the question.”
Banker: “Then I put you on a blacklist.”
Customer: “Are you a bully or a vulture? See how a blacklist is going to help you get back your money. You not watching Greece?”
The Wild Coot remembers the conversation well. He eventually agreed to a reduced payment as the better and wiser course of action. Debt reconstruction, according to my friend Charlie Skeete.
Ever since the Wild Coot has been saying to the public that Cyprus has set an enviable precedent. It said to its citizens, for good or for bad, we the government have incurred serious debt and have spent it on everybody. We are now asking you not to insist on the 100 per cent repayment, but to accept 60 per cent in cash payment and a 40 per cent cut in the money that you have been saving in the interim, be it in later cash or government securities – bonds.
Hear a citizen: “You can’t do that.” Hear the government: “Take us to court, like the CLICO people. You prefer devaluation. What will be the intrinsic value of your precious savings?” Debt exchange! It has already started in Barbados, citizens. You have been paid your tax refunds and VAT refunds with your own savings – that is, borrowed money from you, not collected taxes.
Watch the situation in Greece. The Greeks may have been living off the hog when the mortgage crisis in the US hit them. Having provided a market for all other European countries, it now says that it cannot pay its debts. What can the lenders do? They will find some way of facilitating because they cannot allow so many billions of loans to go “unserviced” for a long time just like in the case of my customer above. For the investor it is better to take ten cents than insist on one dollar. Debt restructuring. Investors will yield to Greece. France and Italy already have.
The worst that could happen for Barbados in the case of debt reconstruction is that the debt being relatively small in the portfolio of a lender, he may sell the debt at a discount on the open market. And just as how the ladies on Bush Hill may not be too fastidious about their wardrobe, Barbados may have to tolerate the world seeing a few naked cracks for the time being in its reputation. In any case, the word is out as its bonds are junk bonds anyway.
Barbados is not like Greece. The threat of evicting it out of CARICOM is not available to lenders even if Trinidad is one of the lenders.
Barbados’ previous good reputation still counts for something, but current investors and investors who are not simply vultures will have to see viable policies in place first before conceding to any reconstruction. Barbadians, knowing the effects of devaluation, should be willing to be involved in debt exchange looking at the alternative result of devaluation when they visit their neighbours. Actually the fervent buying of bonds is an unwitting agreement to debt exchange.
There is something wrong in telling us that there has been a vast improvement in our foreign exchange position, that it would be unwise to stock up foreign exchange for stocking up sake, and then ‘dead’ and ‘lef’ it, making the statement knowing full well that in a few days’ time, debt repayment in foreign exchange will deplete the reserves seriously. This is not even political.
The fact of the matter is that an accumulated balance, even if we had it, if kept in the US would give very little yield. This is part of the losses problem at the Central Bank. But Wild Coot, how you know all of these things? Ah boy!