Two simple words “hair cut” are now dominating the economic and financial landscape in Grenada.
The words took on major proportion after the February 2013 general elections in which the new leaders of the New National Party (NNP) took charge of the affairs of the nation from the National Democratic Congress (NDC).
New Prime Minister Dr. Keith Mitchell, announced almost immediately that Grenada would have to default on its debt payments to all creditors and that a “hair cut” is needed from all creditors as part of efforts to resuscitate the island’s ailing and sick economy.
There is now a cat and mouse game taking place between government and its international creditors on the “hair cut” that these financial lenders would have to take as part of the 3-year homegrown Structural Adjustment Programme (SAP) initiated by the NNP rulers to deal with the fiscal situation.
THE NEW TODAY expects the negotiations between Grenada and its creditors to intensify after the Mitchell government finally signs the much-talked about “Letter of Intent” with the fund to get the promised millions as part of the effort to revive the ailing economy.
The foreign creditors have already formed themselves into a single group and indicated to the authorities in St. George’s that any agreement on debt restructuring in which “hair cut” will be a major talking point will only take place if the IMF is involved in the process.
This was the most clearest of hints from the creditors that they want the IMF to be involved if any agreement reached with Grenada would worth the paper on which it is written on.
Locally, THE NEW TODAY is picking up the vibes from some of our trade union leaders about their concerns of the issue of the “hair cut” will soon reach on the doorsteps of the state-controlled National Insurance Scheme (NIS) which is a major creditor of the cash-strapped government.
This is a major issue that the 15-month old Mitchell government needs to address because it has serious implications on the pension of thousands of workers in the country.
The NIS will be on the radar if government is asking the Paris Club and other creditors to take a hair cut on the estimated EC$2.4 billion debt owed by Grenada.
The obvious reaction from the foreign creditors is that “shared sacrifices” must not only be directed at them but all of Grenada’s creditors including the NIS.
The implications of any “hair cut” on NIS could be similar to the manner in which the collapse of British American Insurance Company and CLICO affected thousands of workers and businesses in the country.
The BAICO and CLICO debacle is still affecting thousands of persons who have not been able to get back millions of dollars tied up in the two insurance companies that were controlled by Trinidadians.
Thousands of ordinary workers in this country have their life-long pension tied up with NIS and should pay attention to the efforts to be undertaken by government to get a “hair cut” from all of its creditors.
Indeed Grenada is in a very difficult situation in addressing its crippling debt problem.
A statement on the government website indicated that the Mitchell administration has floated a proposal which calls for a 60 percent reduction in face value on its $194 million of defaulted bonds originally due in 2025 to a group of international creditors.
As part of the idea put out clearly as a bait by the Grenada government, it was dropping hints to the creditors that it intended to pay them a 6.5 percent interest rate on the balance of the funds with coupon payments.
The second option floated by the Mitchell government calls for a 50 percent haircut to creditors and a 5 percent interest rate following a two-year grace period.
The authorities in St. George’s affirmed in the statement that, “The indicative options do not at this stage constitute an offer,” but are “intended as an indication of the type of restructuring terms that the government believes are required to bridge the multi-year financing gaps.”
This newspaper is doubtful that the international creditors will accept anything like a 50 to 60 percent “hair cut” from government on their investment dollars.
As far as THE NEW TODAY is concerned debt restructuring with the creditors and the associated “hair cut” will be more relevant to the future of Grenada in the foreseeable future than all the talk of “Project Grenada” and the building of a so-called New Economy.
The sweeping austerity measures that have been introduced in the past six months will have serious implications on the level of disposable income in the country and the spending power of the Working Class as the architects of “Project Grenada” seem not to understand.
All the measures will come to naught if the current government or the one to succeed them in office fail to understand that a major part of the solution lies in the word that none of them would like to hear – RETRENCHMENT.
There is no way that a country like Grenada with an economy that is lacking in serious resources like oil and gas, and minerals like gold and diamond can maintain an expenditure of EC$50 million per month and hope to raise as much in revenue in a 30-day period so as to balance the books and the budget.
It might take much less than another 20-year period for the government of the day to go back cap in hand to creditors to beg for another “hair cut” in the build up of debts.