COMMENTARY: Auction time? The disposition of maturing government bonds in St Lucia

By Melanius Alphonse

Commentary by Melanius Alphonse

A statement from the board of directors of the National Insurance Corporation (NIC) to address the “bridging finance facility” of EC$100 million to the government of Saint Lucia, for the purpose of repaying bonds maturing July 30 and 31, 2018, stated:

“The general public may have been misinformed. We would like to assure all stakeholders, including contributors, pensioners, employees, and other service providers, that we would not take any decision that would either impair the Corporation’s ability to discharge its obligations in the normal course of business, or adversely impact the long-term viability of the Corporation.”

The NIC statement raised more questions than answers, consistent with the norm for the government of Saint Lucia in general.

Conspicuous by its absence from NIC and government communications on this matter is the basis to persuade anyone of the authority to permit the ‘investment of trust funds’ on questionable terms and that the legal, corporate, governance and investment policy to facilitate such a transaction conformed to governance structures.

No analysis was provided as to whether the bridging finance facility is likely to become a short or long term loan if the government bond is not rolled over. And in the event the bond instrument is rolled over, isn’t it likewise an unfavourable financial return of 0.5 percent interest rate over 30 days, for EC$100 million to pensioners ‘trust funds’?

For the benefit of us all

Emma Hippolyte, a former director of NIC and former minister for commerce, business development, investment and consumer affairs in the previous St Lucia Labour Party (SLP) administration, shared key pointers in her letter published in Caribbean News Now:

“It is my humble view that both the tone and timing of the letter were inappropriate. The letter appeared more as a directive than a loan request. This therefore, undermines the authority of the board and investment committee of the corporation.

“Who is protecting the NIC funds and who is protecting the interest of the pensioner?

“Will the investment policy be reviewed to facilitate subsequent loans? Or is this the end of loans to government for the time being?

“Why should the director of finance, who is also the chairperson of the investment committee request a loan of such magnitude at three percent [revised to 0.5 percent] interest when the actuary has advised that the minimum returns should be in the region of five percent?

“The ministry of finance has an oversight role in the operations of all statutory corporations and all finance matters in government. It is therefore disturbing that in this instance, it is the ministry of finance that is causing the NIC, a statutory corporation to act imprudently.

“The NIC makes an annual payout of some $90 million in the economy; $5 million is paid to government as a contribution to healthcare; and $85 million is paid out directly to contributors in the form of benefits with pensioners receiving the largest chunk of $65 million or $5.5 million every month.

“If government continues to make huge demands on the fund at interest rates lower than what is recommended by the actuary, the life of the fund will be significantly reduce and this would not be for the benefit of us all.”

Cash flow issue

Further to the decision to sidestep contributors is whether the “bridging finance facility” is a huge financial risk to a government approaching, if not exceeded its maximum threshold of government lending 25-30%, from the NIC, thus commanding a high risk profile, and also increasingly a real challenge.

And then, there is reason to believe that pensioners ‘trust fund’ held by the NIC is unregulated when dealing with the ministry of finance, and by extension the government of Saint Lucia, which has an oversight function of the NIC.

Minister in the ministry for finance, Ubaldus Raymond, has accepted that government has “a cash flow issue”. To combat the fiscal constraints, Raymond is of the pie in the sky view that government bonds are not at default risk but, rather, highly favoured on the Regional Governments Securities Market (RGSM).

He is also guided by ‘inconvenient facts’ that “the economy is doing extremely well” and the sophistication of the region’s money and capital market, that EC$100 million will become available in a relatively short period of time to reimburse the NIC.

Philip J Pierre, political leader of the Saint Lucia Labour party (SLP) and leader of the opposition, explained the widening disconnect:

“The loan request must be debated in the context of the state of the economy and the financial management of the country. And would be pleased if the Board would make available to the public a copy of the latest actuarial report prepared for the board.

“Borrowing from pensioner’s savings to pay government debt seems at variance with the UWP government’s frequent announcements of increase confidence of investors in the government, increase revenue collection from VAT, the airport tax, the CIP, increase in Tourism arrivals and a general improvement in the economy.

“However, the government still cannot meet its obligation to bond owners even after having been given notice that they would be due.”

If you gamble play smart

Considering the country’s extremely high financial risk profile and overall social, political and economic mismanagement there are enormous concerns.

The executive (the ill-defined cabinet) branch of government, cannot borrow, and/or cause government to borrow, neither are they legally entitled to bind the state, without the proper authority of parliament.

Without such authority, any such transaction is highly risky for both the borrower and the lender, and if entered into is also deemed an illegal act. The silence and paralysis in challenging unconstitutional policies and practices should not become the norm.

Neither should Saint Lucians concede their power in the constitution of Saint Lucia to the prime minister, minister of finance or the Cabinet of ministers.

Melanius Alphonse is a management and development consultant, a long-standing senior correspondent and a contributing columnist to Caribbean News Now. His areas of focus include political, economic and global security developments, and on the latest news and opinion. His philanthropic interests include advocating for community development, social justice, economic freedom and equality. He contributes to special programming on Radio Free Iyanola, RFI 102.1FM and News Now Global analysis. He can be reached at [email protected]

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This article was posted in its entirety as received by stlucianewsonline.com. This media house does not correct any spelling or grammatical error within press releases and commentaries. The views expressed therein are not necessarily those of stlucianewsonline.com, its sponsors or advertisers.

4 comments

  1. This move by the government is, to date, one of the biggest threats to the island's future economic viability and hence, its social stability.

    Unfortunately, not enough of thee general population seems to get the significance of the significant increase in our nation's future unstability with this move soft-peddled to the populace as a simple transaction.

    Mr. Pierre was quoted in the column as saying, “Borrowing from pensioner’s savings to pay government debt seems at variance..." "Seems"? Huh? That particular word seems to be an absolute understatement, Mr. Pierre was exceptionally diplomatic.

    Look at the publicly available financial fundamentals of our economy.

    When the government did the transfer, the government may as well have FedEx'ed a gilded invitation to the IMF signed "Love, Alan", saying, "Dear Ms. Lagarde, you may remember me from when Air Jamaica unravelled. Please come and visit us in the next few years and bring your squad with their red pens, because I just willingly got us into a bad jam that we definitely will not get out of without the IMF's necessarily heavy-handed re-structuring and implementation of a new fiscal reality that you will have to impose on us and that will only hurt the proverbial man-on-the-street. On the bright side, because you will lend us money, because of me the IMF will own another beautiful island and its people. Minister Ubaldus Raymond will be at the airport to meet you wearing his clown costume."

    Take a look at what happen(s)(ed) elsewhere in the world where the IMF is compelled to step in because of fiscal recklessness and simple greed.

    Or perhaps this government has access to information that the rest of us do not and some type of beyond-IMF and beyond-G-6 level of expertise in fiscal management.

    On a completely separate note --- the sub-headline in the column "If you gamble play smart" --- nice work co-opting the non-copyrighted signature line used by Canada's Ontario Lottery and Gaming Commission (Google it). One thing I would differ on is that what the government did was not take a gamble --- what they did involved no calculated risk. At least when one gambles, though the house usually always wins, there are acknowledgable odds where there is a slim chance of realizing a positive outcome. There is arguably no one with sound, grounded knowledge and experience that would logically explain how NIS will see an eventual upside if or when they get the funds back.

    Best to put the IMF on the speed-dial.

    It would be very interesting to get the opinion of either a former specialist with the IMF or former specialist with the World Bank on the government's move.

    God Bless.

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  3. Melanius
    Thoroughly interesting and informative article. In plain English, at the rate the politicians are going, someone will be held holding the stick.

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  5. I am glad that this topic is coming to the fore. It shines the spotlight directly on the recurring financial blunders of past administrations that etherized millions upon millions of dollars of our precious and hard-earned earnings that brought this country no financial returns. Mismanagement stared the entire country in the face.

    Some projects too, were clearly designed and timed to gain re-election. When gross incompetence eroded "the coincidental" completion times, we saw repeated efforts to show that "something" was done. "Renamings", for example, became substitutes for "Grand Openings".

    Lest we forget, the associated debt and financial obligations persist. Some hang around the neck of Fair Helen like an albatross, as is the Grynberg Affair.

    Is it not shameful that some, even out of office, are still seeking to gain political mileage out of the financial mess they left this country in?

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  7. Once in our first-past-the-post system, the PM as the Minister of Finance has the majority votes, the financial order will become law. Absent a reliable actuarial document, the arguments made above are neither here nor there.

    The only factum that may be gleaned from all this back and forth is that the nominal interest rate for this economy stands at nearly 5%.

    Speculation is rife. Notice, that nobody after all the blather, has had the courage to say that the NIC Fund will become insolvent after the $100 million dollar transaction. Nobody.

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