A prominent economist is warning the Mia Mottley administration that failure to be open and upfront with external creditors on stalled debt payments, could undo efforts to bring Barbados out of an economic quagmire.
Former president of the Barbados Economic Society (BES), Jeremy Stephen told Barbados TODAY that he was concerned by reports this week that some holders of Barbados dollar bonds have expressed disappointment with how debt negotiations are proceeding after the Government launched a debt exchange that didn’t include external creditors.
The former BES head explained that given the fact that Barbados was in no position to continue payment to these creditors, the
Mia Mottley administration needed to gain their confidence through meaningful
“Government needs to understand that in same manner that they have been communicating very emphatically with the people of Barbados, they have to do the same with these investors. Otherwise it could increase the level of scrutiny beyond what could be helpful to us in the short term. So the only thing Government can do is to be open with these investors.
He argued that although the external debt was smaller and would be a drain on the country’s precious foreign exchange reserves, the impact of poorly handling these creditors would be more far reaching.
The Government could essentially be shooting itself in the foot, as phase two and three of the Barbados Economic Recovery and Transformation Programme (BERT) is predicated on growth led by foreign direct investment, Stephen suggested.
“The Government to its benefit might be thinking that external credit is just under 20 per cent of the entire debt. Therefore it would be wise to take care of the larger debt, which is all denominated in Barbados dollars, and deal with the smaller debt later on.
“The problem comes if foreign investors, outside of those who have given Barbados a vote of confidence, look at this behaviour as an indicator of what could happen if the things go awry,” said Stephen.
Creditors, formed under the banner of the Barbados External Creditor Committee (BECC), on Tuesday issued a statement saying it has had “no meaningful interaction” with the Government over the past two weeks over the terms of the Extended Fund Facility reached under an International Monetary Fund (IMF) agreement announced last week.
The committee of lenders complained that Government’s decision to suspend payments came as a shock to foreign investors who had assumed they would be excluded from any debt restructuring. While the committee said that it was prepared to support a stabilization plan and to defer principal payments, it said there was no justification for a cut in interest on external commercial debt.
“Any meaningful reduction . . . would have a destabilizing effect on foreign direct investment flows and would further degrade international investor confidence,” the committee said.
But Stephen queried why the BECC would be shocked by Government’s decision, when it was clear since the beginning of the year that default was almost a foregone conclusion, based on dwindling foreign reserves, which fell to a two-decade low of USD $220 million. He argued that even if Government had been able muster foreign debt payments this year, they would have done so to the detriment of the reserves.
“Our foreign reserves were dwindling at such an alarming rate that if we had paid the Credit Suisse loan alone there would have been no reserves left. So obviously the external creditors had to be touched because by next year we would not have been able to pay them anyhow. So they should have seen it coming,” Stephen stressed.