Some Help Is Better Than No Help by Humphrey Metzgen

On Wednesday night Prime Minister David Thompson spoke about the BNB, noting that Government will sell its shares in the majority Trinidad and Tobago owned BNB and commit a “substantial amount” from that sale to assist in development of “the enhancement project”, ie the enhancement of the Queen Elizabeth Hospital.   He also announced that the […]

By Peter N. Boos

March 15, 2010

On Wednesday night Prime Minister David Thompson spoke about the BNB, noting that Government will sell its shares in the majority Trinidad and Tobago owned BNB and commit a “substantial amount” from that sale to assist in development of “the enhancement project”, ie the enhancement of the Queen Elizabeth Hospital.   He also announced that the government had started to put together plans that will ensure Barbados emerges from the current global economic crisis.  Part of this has involved a reshuffle at Cabinet level and as well as the strengthening of manpower in key departments.

What will be the economic master plan be?  We will have to wait until Monday when the annual Estimates of Revenue and Expenditure are debated.  High on the agenda will be the nation’s debt and how the government plans to service this commitment.

The selling of the BNB shares may be a clue.  This will certainly raise some cash but whether it will be sufficient is doubtful.  The possible sale of the Grantley Adams Airport, the Barbados Port or CBC Television would have been a more attractive proposition to creditors and investors.  This column ($1Billion Family Silver Lifeline published in the Nation on 27th December) recommended that a number of public assets be put up for sale with a government option to buy them back at a future date.  The article argued that this was a more economical and easier route than borrowing from the international banks, while still retaining Barbadian ownership.  It would also have raised billions of dollars in one transaction.

Other revenue generating possibilities still need to be explored.  One other possibility is to attract the support of Barbadian families and friends living abroad who in the main may have access to funds.  The sums are attractive.  One hundred thousand contributors making say $2 per day commitment over a period of one year would generate $73 million dollars; a tidy sum that should not be scoffed at.

If this is impractical, there are always the possibilities of international banks.

Sovereign nations like people enjoy financial security and prosperity.  Unfortunately this is not possible all the time; many markets and businesses do decline, new technology makes old products redundant, fears of litigation dampen new product innovations and consumer confidence waxes and wanes over time.  This invariably leads to lower output, increased unemployment and reduced revenue for the government treasury.

Faced with this situation, Barbados should approach the World Bank with a view to accessing soft loans on a preferential basis, whilst the current onerous conditions cause difficulties.  Some countries have approached the IMF with the hope of securing debt relief under the HIPC Initiative (Heavily Indebted Poor Countries Initiative).   Barbados however is not likely to be able to access this fund as it not considered a poor country.   Those countries that qualify for HIPC relief are obliged to meet certain policy and financial criteria including a commitment to poverty reduction through policy changes.

Standing up to the big banks is not a well worn path by most countries but Argentina did it after a record default on a debt in 2001.  It issued local bonds that traded as currency and directed its investment in order to develop its economy. Of course Argentina is a large country with lots of resources and can undertake this type of exercise.   Turkey on the other hand has not been able to make it work so far.  Part of the reason for this is put down to Turkey’s dependence on foreign investments which are highly susceptible to the global economic downturn.

The lesson here is not the rights or wrongs of the Argentine strategy but the determination and self help elements they had undertaken.  They recognised since the eighteenth century that governments have successfully issued bonds and sold public assets to fund public projects; generating a period of prosperity without increasing inflation or raising taxes.

The State of Guernsey, located in the Channel Islands, has also discovered the same thing and has funded infrastructure this way for over 200 years.

So has Australia.   During the First World War, when private banks wanted 6% interest, the Australian government financed the war effort at 1% saving $12 million in bank charges.  After the war this self help policy continued and funded home building, loans to local government for the construction of roads, tramways, harbours, gas works and electric power plants.

New Zealand funded their successful infrastructure programme with interest free credit in 1930. Credit issued by its central bank allowed its industry to thrive when the rest of the world was struggling with poverty.

The message is simple:  we need to create productive projects quickly and if the funds from the BNB sale represent a start in this direction, this is better than no help at all.

By Humphrey Metzgen

11th March 2010

Peter N. Boos

Chairman Emeritus Ernst & Young Caribbean (since 2004); Founding partner Business Barbados publication (1999) and the Barbados business web portal BusinessBarbados.com (2009); Co-Founder, Chairman and CEO Substance Abuse Foundation Inc. (1996 to date); Founding Sponsor (2009) and First Chairman (2009-2014) Barbados Entrepreneurship Foundation Inc.; Founder of the Peter Boos Foundation (2004), (supporting youth development, entrepreneurship, education, addiction treatment, environmental protection, arts & culture development, relief of poverty and support of various community and charitable causes); Founder, Patron and first chairman ASPIRE Foundation (Barbados) Inc. - 'helping charities help' to strengthen and expand the Barbados Third Sector (2014 to date).

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