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We mek it to Forbes Magazine


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#1 bajanempress

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Posted 19 December 2013 - 01:51 PM

A dubious honour to be sure.


http://www.forbes.co...art-i-the-cure/

James S. Henry, Contributor
I report on global issues as an economist, attorney and journalist.

BUSINESS | 12/18/2013 @ 7:09PM |2,654 views
Postcard from Barbados -- a.k.a. "Cyprus West"
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South coast of Barbados, West Indies. (Photo credit: Wikipedia)
Barbados, the Jewel of the Caribbean, the tiny easternmost island in the Lesser Antilles with 288,000 year-around inhabitants and lots of very rich foreign visitors and investors, is in the throes of a financial meltdown.
While its entire GDP is now only worth about $4.2 billion, and its population is smaller than that of Duluth Minnesota, this crisis is worth examining closely. For here we have a very precise example of the finance curse, where excessive dependence on high debt, an aggressive offshore haven industry, very low tax rates for high-net worth investors, foreign companies, and banks, and high tax rates for everyone else, have essentially brought this little country to its knees.
Economists revel in grim statistics, especially at Christmas time. In recent weeks Barbados current account deficit has soared to 12 percent of GDP, and the island is down to 10 weeks of reserves, compared with 16.4 weeks last June which was already the lowest level since 2008. Deficit spending is 6 percent of GDP and headed higher.
At 94 percent, Barbados ratio of public debt to GDP, already the Caribbeans second highest, is fast approaching Cypriot levels.[I]



Not surprisingly, in October, a $250 mm Bajan bond offering in the US market had to be yanked after it was greeted with howls of derision. In late November, S&P downgraded the long-term rating on Bajan bonds for the third time in two years to BB-, below investment grade, the same rating as Gabon and Nigeria.
That is very bad news for 126,000 long-time contributors to Barbados National Insurance Fund, who depend on it for old age, disability, unemployment, and severance benefits. [ii] At least 60 percent of the Funds $2 billion is invested in this dodgy Bajan junk it now finances a third of Barbados entire public debt.[iii]


To fix this unbelievable mess, the Bajan government, led by PM Freundal Stuart of the Democratic Labor Party, has lately adopted the same orthodox IMF playbook that has worked so many wonders everywhere else in the developing world. Appropriately enough, the high-level IMF team concluded a week-long emergency mission to Bridgetown on Friday December 13. [iv] Shortly before its departure, Finance Minister Chris Sinckler announced the islands first IMF structural adjustment program since 1991.[v]


Structural adjustment is an IMF euphemism for an economic phlebotomy. Under the terms of Sincklers IMF-approved program, 3000 out of Barbados 26,000 government workers will be fired by March 1. All new government hires are frozen for 5 years. Senior officials get an immediate 10 percent pay cut; other civil servant will remain subject to a wage freeze. The government has also announced cuts in government travel budgets and college tuition subsidies, the suspension of an important medical clinic project, [vi] and increased VAT taxes. The Barbados Chamber of Commerce expects the private sector to fire an additional 1000 workers, in an economy where unemployment is already 11 percent. All these layoffs and other afflictions will soon be felt by least 20-30,000 Bajan families. And this is just the beginning.


Given the IMFs key role here, there will undoubtedly be more spending cuts and tax increases to follow. Indeed, as discussed in Part II, theres a chance that the IMF might actually be able to force through some badly-needed tax reforms. Given the IMFs track record elsewhere, however, as well as the overwhelming opposition of elite interests both at home and abroad, were not betting on it.


The other disturbing news from this tropical paradise is that Barbados also now intends to borrow up to $225 million from Credit Suisse AG Cayman on an emergency basis, in order to shore up its reserves, maintain the sacrosanct 1:1 peg of the Bajan dollar to the $US, and continue funding various pet projects. The terms are usurious: $3 million in upfront fees for the bankers; IMF conditionality; a waiver of sovereign immunity; and variable interest rates up to 775 basis points over LIBOR,[vii] which Credit Suisse and other global banks have recently been accused of rigging.[viii]


But even these generous terms may not be easy to syndicate. The price of existing Bajan bonds has noise-dived, and investors are now effectively demanding more than 9 percent a junk bond rate.[ix] If the ultimate terms are even more costly, unless this loan is extraordinarily well spent, it may only aggravate Barbados fiscal problems debt service already consumes a third of the government budget.


All told, all these measures remind us of the desperate 1991 IMF intervention, when 4000 government layoffs and sharp real wage cuts were also imposed. It took Barbados real per capita income level and unemployment rate more than six years to recover from that phlebotomy.



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#2 Solidus

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Posted 19 December 2013 - 02:04 PM

Classy.

 

2:1 peg*

 

Besides that they have it covered.

 

What I don't get is how the government continues to borrow in USD and only institute local (BDS) measures to fix it.

 

Sigh

 

 

Oh, they also misspelled Freundel, but ... honestly, does that even matter?


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#3 The Serpent Ouroboros

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Posted 19 December 2013 - 02:05 PM

They also typo'd on "nose-dive" [noise-dive]. That's the only thing I can correct in there, the rest is just gloomy looking figures.


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#4 bajanempress

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Posted 19 December 2013 - 02:24 PM

I found the mention of the retracted bond sale interesting. Didn't the government try to play that off ?
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#5 Solidus

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Posted 19 December 2013 - 02:24 PM

Try?


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#6 bajanempress

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Posted 19 December 2013 - 02:28 PM

Lol true. They acted like they just decided not to do it. I didn't realise it was pulled due to unfavorable response.

This is the dangerous thing because they controlling the narrative and people don't realise how truly we in potta.
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#7 Sly.Maverick

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Posted 19 December 2013 - 02:36 PM

What has been read...

...cannot be un-read.

Damn.


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#8 benenoach

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Posted 19 December 2013 - 04:09 PM

Lol true. They acted like they just decided not to do it. I didn't realise it was pulled due to unfavorable response.

This is the dangerous thing because they controlling the narrative and people don't realise how truly we in potta.

 

When I heard the explanation, I wondered how stupid they really thought Bajans were. Then again, most people don't even pay attention. 


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#9 Mama Dlo

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Posted 19 December 2013 - 04:29 PM

New word for me

 

phlebotomy = bloodletting


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#10 bajanempress

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Posted 19 December 2013 - 09:45 PM

New word for me
 
phlebotomy = bloodletting


And so appropriate.

A woman on FB say she gotta tek this article with a grain of salt.
I confused. What is unbelievable about this? Isn't most of this what we all know to be true about the situation?

What makes it difficult is seeing all the flub ups in one spot.
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#11 anomaly

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Posted 19 December 2013 - 10:15 PM

Basically anyone can write for Forbes, articles are often full of opinions and incorrect facts.

 

Not saying there is anything wrong with this article, it is just what I have heard about Forbes.


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#12 bajanempress

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Posted 19 December 2013 - 10:31 PM

Sure but reading the article it is a compilation of information that has been made public in Bim.
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#13 Ric

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Posted 19 December 2013 - 10:33 PM

I'm no denying anything in this article, we've all read it before but I'm going to ask - What is the purpose of this? Why not let the article have a positive spin, like it's still a great place to invest because of the educational structure, location the number of well educated professionals? Why even focus on Barbados at all?


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#14 bajanempress

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Posted 19 December 2013 - 11:25 PM

Because Bim was a model for so long of a developing nation doing it right. Oh how the mighty have fallen and all.
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#15 benenoach

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Posted 20 December 2013 - 08:05 AM

 

New word for me
 
phlebotomy = bloodletting


And so appropriate.

A woman on FB say she gotta tek this article with a grain of salt.
I confused. What is unbelievable about this? Isn't most of this what we all know to be true about the situation?

What makes it difficult is seeing all the flub ups in one spot.

 

 

I agree with you. But, that said, it always hurts the credibility of an author when he/she has spelling errors and factual inaccuracies in his/her work.


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#16 Red

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Posted 20 December 2013 - 04:13 PM

The other disturbing news from this tropical paradise is that Barbados also now intends to borrow up to $225 million from Credit Suisse AG Cayman on an emergency basis, in order to shore up its reserves, maintain the sacrosanct 1:2 peg of the Bajan dollar to the $US,  and continue funding various pet projects. The terms are usurious:  $3 million in upfront fees for the bankers; IMF conditionality; a waiver of sovereign immunity; and variable interest rates up to 775 basis points over LIBOR,[vii] which Credit Suisse and other global banks have recently been accused of rigging.[viii]

 

 

Anyone see the Parliament resolution for this loan? Have a look for yourself http://barbadosparli...225 000 000.pdf


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#17 Joy & Happiness

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Posted 20 December 2013 - 04:39 PM

LOL

 

that there so cause a bit of disturbance in the force last week yuh...


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#18 Chow

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Posted 21 December 2013 - 06:31 PM

The terms of the loan included:

 

In the event of a downgrade of the Government's foreign currency debt by any international or regional credit rating agency below BB - (by Standards and Poor's or Fitch ratings) or below Ba3 (Moody's), the Applicable Margin shall be increased by 50 basis points (bps)...
 
With the rate of downgrades and a negative outlook, this loan could get pricier...also it seems the downgrade to Ba3 by Moodys was anticipated.

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#19 bajanempress

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Posted 21 December 2013 - 08:16 PM

Holy crap!
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#20 Red

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Posted 22 December 2013 - 08:18 AM

Just now we have to be cutting off arms and legs to pay for these loans.


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