External Debt Default WATCH!

On another BU blog it was highlighted the decision by the Financial Services Commission (FSC) to cease trading in government securities – Financial Services Commission Issues Cease Trade Order on Government Securities immediately after winning the government on the 24 May 2018. The FSC communication indicated the decision was informed by government’s decision to default on foreign debt payments. To be expected the ‘bold’ decision caught the country by surprise against a background of an unblemished repayment record and smashed to smithereens the boast of Barbados NEVER defaulting on a foreign loan payment.

Prime Minister Mia Mottley has announced a large team to support the Barbados Labour Party (BLP) campaign strategy to stabilize the country’s declining economy comprised of Dr. Clyde Mascoll, Marsha Caddle, Ryan Straugn, Avinash Persaud and the controversial White Oak Advisory Limited. The finance team is part of a large Cabinet appointed by Prime Minister Mottley that has attracted loud public comment. Particularly there has been rising concern about the role of little known White Oak- not much is known about the company except that the London-based independent financial advisory firm to act as a financial advisor in the debt-restructuring exercise.

Two observations from the blogmaster which have arisen from the decisions taken so far by government and agent the FSC.

There is a reasonable expectation that the impact of the decision by government to default on debt repayments will impact business customers differently to individuals. For what it is worth the blogmaster reminds whom it may concern that Barbadian individual investors were encouraged and assured by the Central Bank of Barbados to invest in the country by purchasing savings bonds. The financial advice was supported by the former government eliminating the minimum savings rate offered by commercial banks. In another market there might have been a prima facie case of collusion. A discussion for another time.

To state the obvious, any decision to reduce yields/rate of return on bonds held by individuals and non personal entities will have significant consequences.  The Prime Minister has promised she will be transparent about the engagement with the IMF. After 10 years of belt tightening there is no relief insight for the immediate future. Who said how did we get back here?

The other issue that has surfaced is the advice by all and sundry to withdraw their monies from commercial banks and place in credit unions. The blogmaster has no problem with supporting the credit unions, the movement has played a significant role in the development of working class Barbados and has the potential to do more. However, a few questions are worth repeating.

  1. How will credit unions sustain existing interest rates of up to 2.5% in a market where there is a low appetite for borrowing?
  2. Why has the credit union league been unable to secure deposit insurance for members?

Two credit union employees from the City of Bridgetown and Barbados Workers Union discussed the competitive position of credit unions compared to the banks. To be honest, the blogmaster was not persuaded by the arguments.

Have a listen and form your conclusions to the 15 July 2018 podcast.





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