Monday, October 19, 2009
SOLVING THE NATIONAL DEBT CRISIS OF BELIZE DEBATE
SOLVING THE NATIONAL DEBT CRISIS OF BELIZE
By Ray Auxillou, Oct. 2009.
There is just starting to be some debate about ways to resolve the debt crisis of Belize. The current UDP government is looking to re-structure in a new BOND issue some of the debt we owe. About $3 Billion Bz currency worth. ( Exchange rate of $2 to $1 usa ) Of this amount, $125 million USA currency, is to be issued in a new BOND at a rate of 9 ½ %. The goal is to postpone the payment of principle on the bond and only pay the interest. The super bond $3 billion worth comes due on principle payments in August, ten months away and will totally cripple the government. The interest proposed is actually higher than that we currently pay on existing BONDS. If there is any advantage, it is to postpone the payment of principle out another nine effective years.
The Amandala newspaper has started the ball rolling with an article in the issue of October 18th, 2009,.
Essentially heavy national debt, by Keynesian Economics, requires you to stimulate your down sliding economy with borrowing. The borrowing has to go to growing the GDP. In Belize, we have two types of GDP growth. That of the private sector, exporting for foreign exchange type and the other type is government spending on infra-structure to pump salaries and the economy. The latter is partially non-productive and the only real way to absorb the national heavy debt load is a growing GDP through manufacturing and agro-processing exports. There is a third way being proposed which is totally disastrous, and that is using the borrowing to expand socialist programs. This whole borrowing to increase GDP growth is a delicate instrument. Which would mean heavy emphasis on newer ways to stimulate new businesses. Which in turn means a new bureaucratic attitude to small businesses to let them start, experiment and grow over time, with less harassment, more sympathy and leeway and support, than currently available from civil service bureaucracies. Politics being about votes, means politicians do not have the luxury of time, to wait for results and demand instant voter gratification, which is a drawback. USA Economists in discussion panels have debated this approach of Keynesian Economics on television. Astute panel media people asked the ticklish question they didn’t want to hear. What happens if you don’t get the GDP growth from pumping in borrowed loan money you expect? There was for a moment total silence and then one courageous proponent of Keynesian economics answered truthfully.
“You are going to be in a lot worse shape than when you started.”
That should give the UDP government Cabinet people pause for thought, when they consider borrowing to extend current BOND requirements from lower interest rates to higher interest rates to push out the balloon payment due date, by a BOND restructuring for only a nine years, capital principal breather. Sometimes it is better to bite the bullet, no matter how hard and distasteful and get things over with quicker and so you can make a fresh start, instead of postponing the inevitable? I'd be in favor of just defaulting. Our bonds are HIGH RISK anyway and lenders should absorb some of the costs, or losses involved.
Currently the Belize bureaucracy is so dysfunctional, most needed serious services are not available, or at least not available within a decent productive time frame. New investor requirements of prompt land titles, transfers and immigration residency and citizenship processes are far too long, to attract the smaller and middle level investment Belize needs. There is also a mind set in newer bureaucrats of political patronage persuasion, chosen not for their skills but for their voting party allegiance, to harass existing businesses, particularly the small businesses that cannot afford legal defense lawsuits, with permit and fines, as a way of raising money for the government in straightened times. This is counter productive to growing the GDP the proper way with more businesses and economic activity by the private sector. In fact, it accelerates people giving up in disgust, with the government harassment and going out of business. It happened to me recently and I have since heard it has happened to others that have spoken to me. The number of small businesses closing because of bureaucratic harassment is rising.
Ignorance goes across political party lines. It is not isolated to even find PUP ex Cabinet Ministers with the wrong idea of what growing the economy through GDP growth, to solve the National Debt crisis is about. The IMF has come out against this new BOND at higher interest rates idea.
Keynesian economists say you must GROW your GDP way out of debt. The idea of borrowing is to stimulate GDP growth. In the past, the GDP growth came artificially, from past party politics on spending on wasteful non-productive things. The idea proposed by the UDP is that this new BOND will release in the short term, some necessary cash flows from tax revenues in a shrinking economy. What is alarming though, is that the proposed use of these released, or rescued cash flows will be used for socialist programs. The amorphous fighting poverty rhetoric, which means nothing at all other than misuse by party politicians in a grab bag, or health care, or education programs, or security as in more police. All these things are WRONG things. You can only grow your way out of debt with an increasing GDP from the productive, private sector, as in more exports and more new businesses. To use this release of funds through a higher interest rate BOND replacement exercise for SOCIALISM programs ( even if we would like them ) is self defeating and can only dig the hole deeper for debt. SOCIALISM must be paid for out of productive economic activity taxes, not from borrowing loans. We understand the current crop of politicians lack ideas, for new businesses and what they are promoting while sounding good political rhetoric, in agro processing publicity, needs more activity in the entrepreneurial field. Since bureaucrats do not do private sector business, it is hard for them to change the verbal encouragement sounds bites they spout, into action. One idea coming to mind is a VENTURE CAPITAL investment fund, to buy shares in new businesses. Usually existing successful small businesses want to expand into newer and more businesses but lack the capital. While the idea of borrowing loans route is the only thought of our current townie politicians, it is enterprises like the Bamboo furniture people, Channel 5, Bowan and Bowan, Briceno’s who sell shares in their business ideas, that are doing the real right thing for GDP growth for the country. There has to be a fundamental shift in thinking among both bureaucrats and political hopefuls on how you encourage business growth and exports in Belize. Businesses need all the help they can get. Part of that is a sympathetic and prompt service for bureaucratic requirements. Less harshness and confrontations from bureaucrats to do with the way businesses are run. BAHA came under attack in recent newspaper articles, and I thought it was well deserved. Certainly the Belize Tourist Board are legislatively correct, but improperly administered by the clerks in the offices with grand sounding titles. Many small businesses only work, because they are family run and mostly unpaid for labor. The large numbers of them though, keep the economy greased and operating and money circulating, which is very important as a national function, due solely to the large number of them. In fact, it is the Mom and Pop businesses that are seemingly unimportant that are the blood in the veins, driving our economy. Rather than arbitrary application of regulations and laws in the way of permits, licenses, and fines to struggling marginal enterprises, we need a more understanding and cooperative bureaucracy and certainly a more pro-active political cabinet. New clerks lack the experience how to administer the legislation. Legislation is used as a guide, but discretion and wisdom is needed not to hamper the blood flow of our nation, represented by small Mom and Pop businesses. Without which, the economy will die very quickly. My two cents on this GDP growth expectations debate from borrowing loans decision by the CABINET.
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