An announcement by Prime Minister Dr. Keith Mitchell that his new Administration has decided to make direct approaches to Grenada’s Creditors to seek a rescheduling of the island’s massive national debt is not surprising.
It has been known for some time that the debt which the Prime Minister now estimated to be in the region of EC$2.2 billion is a
millstone around the necks of every man, woman and child in Grenada, Carriacou & Petite Martinique.
The unsustainable debts definitely left the government with only two choices – seek a rescheduling with as many willing creditors as possible or face the prospects of approaching the International Monetary Fund (IMF) for a bail out with all the severe implications
similar to what Jamaica is now embarking upon.
The country will have to wait on a more elaborate statement from Dr. Mitchell and his New National Party (NNP) administration to get a better picture of the exact nature of the debt restructuring that is being contemplated.
It cannot be assumed that the announcement might be targeted at the so-called Paris Club Creditors, comprised mainly of foreign governments, as well as those overseas financial institutions that are owed millions.
THE NEW TODAY would like to hear something more specific from government on whether the debt restructuring being sought would also include its domestic debts that were contracted over the years.
The local banks that have been doing business with the State including those that had been providing overdraft facilities would naturally be concerned to know how and if they are affected by this unfolding development.
This is a very serious situation in which Grenada has found itself at this point in time when the global recession is not showing any signs of improvements.
It is the second time within ten years that the island’s government has been forced to engage in debt restructuring.
The first was brought on by the widespread destruction caused by Hurricane Ivan in September 2004 when the same NNP was in power and had no choice but to engage in the exercise due to trying financial and economic times.
Money is in short supply in this country as hundreds of Grenadians were left in dire financial straits due to their inability to recover millions that were deposited in institutions like Capital Bank, SGL Holdings, Grenada Building & Loan Association and the BAICO and CLICO financial scandals involving their parent companies in Trinidad and Tobago.
It is true that policyholders have received some payments with British American Insurance Company but this so far has been a little drop in the wide, deep, uncertain and murky ocean.
It is only the government, which is in a position to inform the country at the right time about the kind of arrangement that it is seeking to reach on debt restructuring.
If the restructuring touches on Grenada’s entire debt obligation, will foreign creditors get preference over domestic creditors?
This might have serious implications on all those Grenadian businesses and individuals waiting on the Treasury to pay-off the $86 million dollars in unpaid claims now lying at the Ministry of Finance.
How many of the creditors might play hard ball with the government and refuse to settle for what economists and financial experts describe as “haircuts” in arriving at a second debt restructuring exercise with the new Grenada government?
It is generally accepted that private commercial banks and other financial institutions tend to be the main holders of domestic debts in countries like Grenada and the rest of the developing world.
Banks are interested in profits and not losing on their investments. A lending institution might be inclined to institute much stricter regimes in future in making funds available to a government that is forced to default on its payments twice within short order.
It is not a good position for any country to be placed in especially when debts are owed to local commercial banks and cannot be repaid on time.
Not only are the balance sheets of the banks affected but these lending institutions have less and less money to lend to others especially the private sector which is identified as the engine for growth in most Third World developing States.
Grenada also has to be extremely careful about sending the “wrong signals” on this debt restructuring issue to the world’s capital markets since this is the place where most foreign investors will have to go in order to secure millions of dollars to engage in any worthwhile project on the island in the months and years ahead.
Dr. Mitchell and his government must be mindful of this in light of their stated intent to build a “New Economy” to put Grenada on a sounder economic and financial footing as a truly independent island nation.
This is all the more reason for THE NEW TODAY and Grenadians in particular to await the presentation of the 2013 budget when the Minister of Finance who is the Prime Minister might give some more specifics on this critical issue of debt restructuring.
This country cannot afford to run the risk of being declared uncreditworthy once again as the hopes and dreams of a people for a much better and brighter day should be the commitment of all those who aspire to hold political office in the land.
All hands will be needed on deck to help bring about greater prosperity now that the credit rating agency, Standard & Poor’s has put Grenada into the very low SD Category – not a good thing for the island’s image among financial institutions.