The revelation in today’s edition of the highly respected Financial Times, further reported on here, is just cause for concern that the rapacious pace at which the Government embarked on an urgent economic rescue mission was perhaps too far too fast.
The firm at the centre of the FT’s report, which has drawn the ire of creditors holding devalued government paper, has had an enviable track record at negotiating better terms for the repayment of sovereign debt in three Caribbean nation’s – St Kitts and Nevis, Grenada, Belize.
We have been particularly struck by how Basseterre was able to crawl out of crushing debt – amounting to almost 110 per cent of GDP in 2010, according to World Bank figures – before White Oak negotiated a debt-for-land swap, opening vast tracts of land left fallow by the end of sugar production there almost nine years ago.
But we have no such riches to bestow on creditors in lieu of cash. And we are left to wonder who or what caused the fee of $54 million (US$27 million) for White Oak’s advice to amount to the same as Greece with whom we have been paired in our relative level of indebtedness.
The only problem is that although our $14 billion debt is a crippling 160 per cent of the nation’s total economic output, it is still 40 times smaller than Greece’s default debt when the administration came to office last year.
The Government’s assertions are duly that the deal has saved the Barbadian taxpayer and his succeeding generations as much as $1 billion in interest payments.
We get that something drastic needed to be done to staunch the flow of blood from a badly haemorrhaging economy.
But the news of fuming foreign creditors who thought they were backing Bajan securities as safe as the proverbial houses is unlikely to elicit words of commiseration from domestic creditors who have endured a haircut that eroded many of the gains that would have been made by interest.
At a time when we are paying twice as our old water bills for garbage collection that comes but once every three to four weeks, when public funding of the nation’s health care system is being slashed millions, the knowledge that dozens of millions are going to pay a fledgeling economic advisory firm is a bitter medicine in need of large spoonfuls of sugar.
We share the concerns of noted economist Jeremy Stephen who told Barbados TODAY: “The process in and of itself has been messy. Unconventionally, the foreign investors have been left out to dry for nearly a year. At the same time, we are going into a stage where foreign investment is going to drive our recovery. The talk around medical marijuana and our competitive tax rates and the ways being used to revive our international business industry, tourism and tourism spend.
“A lot of that is driven on the basis of investor confidence. The unfortunate thing is that whoever owns the narrative and can make it seem from a global perspective that the government is anti-investment that will put dampers on attracting credible investors.
“You’re going to get investors, but they may not be credible or may not have the resources to make a positive impact on the growth potential or future growth potential of Barbados.”
Now the Government finds itself losing the PR battle exactly a week after emerging from bad press. But it’s more than just a matter of image or message. If Citigroup, one of the world’s largest financial institutions, could arrange to renegotiate $18 billion ($9 billion) of debt for a mere $6 million ($3 million) fee, the payout to White Oak requires more than just a spirited defence.
The Government has clearly lost the moral high ground, and certainly any deal-making advantage, as it seeks to renegotiate its foreign debt portfolio.
As Stephen said: “This smacks of a major embarrassment no matter how you want to look at it from a political angle.“Even if it’s true that it may be a subverted tactic, it’s a case where they would have had for some period of time clear warning that the external credit committee would try to own the narrative. If they feel discontent, they are going to air it and they have better relationships with global bodies, which can distort the global community’s perception of Barbados.”
Government needs to act swiftly and adroitly to fix long-fractured relations with external creditors. But it should do more to make sure the Barbadian taxpayer is kept on-side in its communications.
$54 million is a lot of beans.