#BTColumn – Debt Act: a major concern

The views and opinions expressed by the author(s) do not represent the official position of Barbados TODAY.

by Dr Ronnie Yearwood

I have just reviewed what I think is one of the most worrisome economic policies that this Government is about to make into law, the Debt Settlement (Arrears) Act 2021 to issue Series J bonds.

Let us start by simply understanding what a bond is. A bond is an IOU. Governments issue bonds as a way to borrow money.

Therefore, a bond is a loan to the Government and people usually decide if they want to lend the Government money.

However, in these Series J bonds, the Government is not asking people to lend it money but can compulsorily issue bonds for cash it owes to creditors.

The Debt Settlement (Arrears) Act states that the Government can issue bonds to persons it has acquired land from, persons with legal claims against the Government, arrears the Government has with people (including Public Servants), and in respect of “any outstanding liabilities of any kind of the Government”.

Normally, if we lend money, we expect to get paid back with interest. However, the Series J bonds pay no interest.

The amount of money you lend, or rather the amount the Government compulsorily takes from you, is what you will be paid back when the bond matures or comes to an end.

You will receive your money at the end of 42 months or three and a half years. But unlike a normal bond where you get all your money back, in Series J, you will get your money in drips over another three and a half years. That is a total of seven years before full repayment of your money.

It could be longer if there was a natural disaster as the Government can defer payments for two years, meaning that it could be nine years before you get your full money back.

Even when the money is due, nothing is stopping the Government at that time from giving you more bonds as payment.

This bond issuance amounts to a default on current Government debt for payments that are imminent and a deferment of payment of up to seven years.

This issuance also signals that the Government may not have the cash to make multiple payments for things that are due even though it borrowed over one billion dollars in the past financial year. No wonder the Minister of Finance would not bring a budget!

Obviously, the issue affects everyone who is owed money by the Government but what does this mean for Government employees? It means that, after all your hard work, the Government could pay your gratuities partly or all in bonds.

Many people schedule their affairs so that the gratuity pays off the mortgage and car payments, with some leftover for home improvements or to pay for overseas education for grandchildren, to help their children pay mortgages, or to pay for important surgeries, cover medical bills or take that trip of a lifetime. You cannot take bonds to the supermarket in effect!

The Government gets to arbitrarily decide who will get cash and who will get bonds, as the Debt Settlement (Arrears) Act does not set out any criteria for making the determination, nor any limits of the liabilities that Government owes you that will be turned into bonds.

The Prime Minister, as Minister of Finance, can then pick who will survive and who will not, whether intended or otherwise. That is the effect of these bonds.

Many businesses have cash flow problems, and often the Government will be a major buyer, so how does offering bonds help small and medium-sized businesses that the Government owes money to?

Those businesses cannot pay their workers in bonds. And given that the Government defaulted before, no one wants to invest in Government bonds voluntarily, hence this compulsory, cash grab approach.

If the people you owe need cash, you cannot give them bonds and tell them that you are waiting on the Government. So you are still in debt for the next seven years while you wait for the full return of your money. Also, what if you have to pay income or corporation tax on the bonds received as payment? Where are you supposed to find that cash? BRA will not accept a bond from you!

So let us take the whole picture.

The Government recently printed 125 million dollars, posing as a bond issue, after walking the hills and valleys of this country, criticising the last government for printing money during the last great depression following the 2008 financial crash.

As the IMF will not let the Government print money, the issuing of bonds is just a workaround. Is this what we taxpayers are paying all the Prime Minister’s financial advisors to do – find ways to take advantage of us!

In my last column, I said “ . . . the Prime Minister does not seem to understand the basics of banking, and loan and financial risk as carefully and clearly explained in another section of the regional press…

“This BLP Government, interestingly, has transformed before our eyes to the party of borrow and spend as the economic competence of the Arthur years is frittered away, looking like a very distant memory.”

For those of you who think that comment is harsh, consider the alternative.

The Prime Minister has embarked on a policy of populism by spending to try to ensure victory in the next election. However, history has shown that it’s a short-term approach used by leaders to stay in power, but it then has a devastating effect in the long term that can possibly end in a failed state.

The Debt Settlement Act essentially wiped out all monies owed by the Government to Barbadians, with the Government arbitrarily deciding who can receive cash or bonds.

These J bonds are the equivalent of the paper used in making paper mâché. We can only assume the government would like us to use the J bond paper to sculpt the things we would normally buy with money.

Dr Ronnie Yearwood (yearwood.r.r.f@gmail.com) is an educator, lawyer and social commentator. The views and analysis here are his own and not of
any institution or organisation he is affiliated with.