Here is a piece of a Government press release dated Wednesday, June 1, 2011, after an IMF delegation had met with Federal and Nevis Cabinet members jointly.
“The Government of St. Kitts & Nevis announced today that it is to seek the cooperation of its creditors in the restructuring of its public debt stock which is approximately US$1 billion (EC$2.7 billion).”
It went on to say, inter alia, that with a debt-to-GDP ratio of “almost 200%, the public debt burden of St. Kitts & Nevis is among the highest in the world and it is expected that the majority of this debt will be affected by the restructuring”.
In the said press release (which, incidentally, has the DNA of the IMF all over it), the Prime Minister is quoted as saying:
“We will soon be unveiling a set of comprehensive reforms aimed at improving our medium-term outlook, but it has become clear to us that the magnitude of our debt burden is such that reforms alone cannot restore long-term sustainability to our public finances. We must therefore now work closely with our creditors to identify and implement credible and definitive solutions to our debt difficulties with their support”.
You will note that he is no longer saying “national debt, me arse!”. At least, not publicly.
If you study carefully these quotations from the press release, you will realize that the Government is unable to pay its creditors; and that our nation is now in fact under an IMF-recommended structural adjustment.
Do not bother with him when he says that the measures are “home grown”. The main cause of the crisis is home grown, but the measures are IMF recommended. He is being cornered, but he does not want to admit it and he surely does not want you to notice.
In these meetings with creditors, the Government will ask them to forgive the debt, and if that is not possible, then to reduce the interest rates and/or to extend the maturity dates of their loans to it.
And the creditors will obviously prefer to collect less interest and to extend the payment period than to end up getting nothing. So they will agree to take a ‘haircut’.
However, with that ‘haircut’ will come suffering and sacrifice for persons who may have money invested with those creditors. So those persons will also get a ‘haircut’.
For example, the Government’s largest single creditor is the National Bank, to the tune of over EC$1.1 billion. Many individuals, businesses and institutions (for example, Social Security, with over $700 million) have money in that Bank.
Now it is true that the Government is trying earnestly to avoid reaching the point where it has to ask the Bank to take a ‘haircut, because that would be truly calamitous, not only for our Federation but (because of the size of the Bank) for the entire OECS banking and financial system and economy.
And this could not be happening at a worse time because, God forbid, the Bank’s name, and the name of our nation as an investment centre, might already be taking a hit as a result of the recent news that it is among the top three banks in the world processing payments for internet spammers.
In that regard, the Bank’s shareholders might wish to ask Management the following questions: Did the Board and Management know about this spam business? If so, why was it allowed? If the Board and Management did not know, how come? Did they consider the damage, if any, that it might cause to our Federation? How much money did the Bank earn from it? Is it still happening?
Meanwhile, and back to the general topic, I am pretty sure (although not at all happy to say this) that Central Bankers and other bankers, as well as Prime Ministers, Ministers of Finance, financial professionals, business people, teachers and students of finance and economics, and a host of other people in the sub-region are very nervous at this time because of what is happening here in our Federation as we toil with debt and structural adjustment.
And many in the region and beyond who had not previously put our Prime Minister under the microscope will do so now. They will start separating themselves from him, never mind rhetoric to the contrary.
But I need to make a point with regard to Government’s effort to protect local creditors from getting a ‘haircut’. While I appreciate the potential for deep and wide economic and social calamity in our Federation, might some overseas creditors think it unfair that they are asked to take the ‘haircut’ but local creditors such as the Bank, Social Security and other holders of accounts at the Bank, Treasury Bills holders, etc., remain unscathed?
Of course, the ECCB will be there to do what it can to prop up the situation if local creditors were to take a hit and/or if people do not roll over their Treasury Bills. As will the IMF. Indeed, I believe that this was the “virtual insurance policy” to which our Prime Minister referred recently.
That is how very, very serious the situation is. It is, as I said, a crisis, and one for which our Prime Minister and his fellow “architects of the modern economy of St. Kitts & Nevis” must take responsibility; and for once, they must come and stay clean and truthful with you all.
On the positive side is the fact that Social Security and the Bank could get lands to help bring down the Government debt to them.
However, land is not a liquid asset, and liquidity-CASH- is the name of the game for banks. So its removal from Government ownership, in one fell swoop, and in these circumstances, would deprive the Government of developmental options that it would otherwise have had at its disposal, while at the same time providing collateral but no immediate cure for severe and urgent liquidity difficulties which the Bank and/or Social Security might be experiencing.
But you all cannot say that you were not warned, you know.
Because, firstly, the IMF’s annual Article IV Country Reports on St. Kitts & Nevis have been published on the internet over the years.
And even if in some years the entire Reports were not published (which happens when leaders of nations, for political reasons, instruct the IMF to withhold the full Reports) you would still have been able to get an understanding of the looming crisis by reading the IMF’s Executive Summaries.
And over the years in its Reports and Executive Summaries, the IMF has consistently encouraged and advised the Government to do certain things, and not to do certain other things.
Dr. Everson Hull, a Nevisian economics professor in the USA, also warned you. Mr. Vernon Harris, another local economist, warned you. And others warned you.
Even I warned you.
But who was listening? I do not know if you were. I doubt it.
I am pretty certain that our Prime Minister was not listening.
He was busy doing more important things such as winning elections and remaining in power, and in the meanwhile blaming hurricanes, the closure of the sugar industry, and more recently, the global financial situation for the high national debt and our other woes.
At no time did he accept, and not even now is he accepting, any responsibility whatsoever for this fiscal calamity which our nation faces, and which has now been unmasked for even the less discerning amongst us to see.
Here is another quote from the said press release:
“Sharp declines in tourism revenue and foreign direct investment-dependent activities triggered contraction of Government revenue, and a deep economy-wide recession in 2009-2010. These adverse economic conditions contributed to a further deterioration of the country’s public debt levels in 2010.”
But that is odd, because in December 2009, he had told you all that because of his sage leadership, you had escaped the brunt of the global crisis. Was he lying back then, as he pumped up your enthusiasm to re-instate him in the January 25th, 2010, elections?
Of course, he was. He must have known that the crisis existed even back then. He must have known that it was not working. But he had an election to win. And he was given pretty much of a free pass by a weak Opposition, as he callously splurged your money and ran up the public debt and did what he did to help himself to victory.
It was only after the elections were over that he felt he could tell you how tough things were fiscally and then drop all kinds of taxes, charges and other burdens on your backs.
Then the last paragraph in the press release states that “over the last 12 months, the Government has responded to a very difficult external environment by introducing a series of corrective measures designed to stabilize the public finances”.
Did not our Prime Minister recently say that our economy was turning around and into the right direction? Did not he say at the Labour Party Conference a couple of weeks ago that Government was now in the black?
Well what on earth could have happened over the last two weeks to shift us from being in the black to a position where we are now in structural adjustment under the IMF?
Is it the “external environment” that forced this crisis on us, or is it the deception and mismanagement of our Prime Minister and his fellow “architects of the modern economy of St. Kitts & Nevis”?
My final reference to the press release will be in relation to White Oaks Advisory, an English firm which has been retained to advise the Government on consultations with creditors, and Clifford Chance, a London law firm, retained as legal advisers.
My contacts tell me that engaging North American consultants and lawyers would have been a better and more cost effective option. That said, it would be good for our Prime Minister to let us know how much these firms will be costing us and where the money to pay them will come from.
Not only that, but everything now needs to be done in full consultation with you. And while he is at it, he must go into Parliament and pass the Integrity in Public Life Act, because corruption and unscrupulousness in public office are bad economically and fiscally for a nation. Clean investors want to deal with clean leaders.
Now to the ‘Ask the PM’ radio program of Tuesday, May 31, 2011, on which, I am told, our Prime Minister said that the Government’s overdraft to the National Bank was paid off. If he said that, he should have told you that it was paid off by being converted to a loan, which means that it is still owed to the Bank. So why would he want to mislead you all?
And what is more, in quick time you can expect the overdraft to be resurrected as the Government continues to experience severe cash flow problems.
I wonder if you all understand the kind of mess that he and his fellow “architects of the modern economy of St. Kitts & Nevis” have put you in.
This, My Dear Citizens and Residents, is Haircut Time!
