Ince warns of ‘dangerous’ debt crisis

A former Democratic Labour Party (DLP) senator and economic advisor to the Freundel Stuart administration, is charging that Government jumped the gun when it opted to default on the debt to its 11 foreign creditors.

Jeptor Ince declared that Government has placed the country in a dangerous economic position, which grows more perilous with each passing day that a deal is not struck with the foreign creditors.

Delivering the Astor B Watts lunchtime lecture at the DLP’s George Street headquarters this afternoon, Ince argued that even though the Barbados’ foreign reserves stood at just over $400 million, well below the recommended 12 weeks of import cover, when the Barbados Labour Party (BLP) came to power last May, the country was still in a position to pay its debts.

“I hope you all realise that Government cannot go to the international markets and borrow anymore money. That is a reality from the moment you sent out that default notice and have an IMF programme.

“We sent up our hands in the air and sent out a default notice when we could have paid these debts. In addition the local loans were already on a downward trajectory.”

According to Ince, Barbados is not in a very good bargaining position. With an anticipated shift on certain international market conditions, that position will worsen in the coming months, he said. It was no surprise, he added, that creditors rejected Government’s most recent offer.

Declaring that the Government “must treat this matter with urgency”, he said: “The Minister of Finance needs to invite the principals to Barbados and have round table discussions.

“This whole idea of running those large arrears on those external loans is a poor decision and these are not institutions you want to play with. The longer it drags on, the more difficult it is going to get.”

The former senator further explained: “The first thing that a bank likes to tell you is to deal with your arrears first then we could look at proposals.

“You have to consider that US Federal Reserve Bank is looking at the possibility of cutting interest rates further down in the year because of this trade war with China. So if the Federal Reserve cuts interest rates then you do not want to be caught in a default tail spin.”

He pointed out that when interest rates on bonds and notes are cut, there is a big movement in the equity market, as face value of the bonds decline

In its latest offer, Government said the “combined proposal” assumes that Barbados will offer holders of its 7.25 per cent Notes due 2021, a 0.25 per cent cut and repayments in 2022 instead.

The proposal also suggests that holders of the 6.625 per cent Notes due in 2035, which are collectively considered the “Eurobonds”, and the Credit Suisse 2018 and 2019 loans options, would exchange their existing instruments either into new “Amortising Step up Notes” due in 2033 and “issued at a discount”, or for new 3.25 per cent Amortising Notes due in 2044, issued at par.

Offer one would see the creditors getting a new 14-year bond issued at 66.67 per cent of the face value, with 24 equal repayments twice yearly, denominated in US dollars. There would be a two-year grace period on principal and a natural disaster clause would be attached.

This option would see external creditors getting a coupon at a fixed rate of 3.5 per cent for years one and two, and then a fixed 7.5 per cent per annum for years three to fourteen.

Scenario two would see US dollar bond holders getting a 25-year bond with 29 equal repayments twice yearly. This scenario, which also carries with it a natural disaster clause, comes with a 15-year grace period on principal and creditors would get coupon at a 3.25 per cent per annum fixed rate throughout.