The Trinidad Bonds, Warnings, and the Public Debt

The Trinidad Bonds, Warnings, and the Public Debt

The UWP Cabinet and Government were warned by the regional and international community that Dominica could not afford “the Trinidad Bond Issues”.  They were warned not enter into “the Trinidad Bond Issues” because Government’s revenue and the economy were on a downward spiral, the Government would not be able to pay for the Bonds, and that the Bond Issues would break the back of the country’s public finances. They were also advised by the then Chief Technical Officer in the Ministry of Communications and Works that the proposed “international airport” was not technically feasible.  His advice and frustrations became notoriously public, and have since been proved totally accurate by subsequent reports from the World Bank and European Union.    The international airport was, and remains, a huge blue elephant created as an election edifice! The UWP simply ignored the warnings of the International Monetary Fund (“the IMF”), World Bank (“the WB”), Eastern Caribbean Central Bank (“the ECCB”), and Caribbean Development Bank (“the CDB”) on the financial and fiscal consequences of “the Trinidad Bond Issues”, and plunged the country into disastrous debt which it must endure for decades to come! 

The IMF

At paragraph 15 of the Staff Report for the 1999 Article IV Consultation dated December 15 1999 the IMF said: “ the airport and the stadium projects will require borrowing of nearly US $100 million in the near term, which would substantially increase debt service obligations in the period ahead, particularly if obtained on commercial terms.”  And at paragraph 18 the IMF continued: “The execution of the large investment program envisaged by the authorities would likely magnify the problem of low public saving and could peril the ability of the government to meet its financial obligations.”

The Oxford Policy Management

The catastrophic effect of “the Trinidad Bonds” on the government’s finances, fiscal condition, and economy, is reflected in a number of reports. Two important reports are the Interim Report of 12th October 2001, and Final Report, prepared by Mr. Allan Roe of the Oxford Policy Management. Under the heading MAIN ISSUES in the Interim Report Mr. Roe states; “Stock of Public Debt has Risen Rapidly (74%-100% of the GDP in FOUR years.” Four years from October 2001 includes the financial years 1997/1998, 1998/1999 and 1999/2000, the last three financial years under “the management” of the UWP Government. 

And under the heading MAIN FAILURES IN DEBT MANAGEMENT Mr. Allan Roe stated; “Ill-advised borrowings for major projects since 1999 large amounts at high interest rate for projects with questionable pay back possibilities.” (Underlined for emphasis). The projects referred to by Mr. Roe are the international airport and stadium proposed by the UWP Government. 

In the EXECUTIVE SUMMARY of his Final Report Mr. Allan Roe reemphasized some of the critical points made in his Interim Report.  He stated; “As of September 2001, the total stock of public debt (external plus domestic) was in excess of $EC 700 million. This is more than 100% of the country’s GDP. Especially alarming is the speed at which the debt has risen during the past five years. The consequences of this very high and still rising debt burden are extremely serious and multi-facetted.” (Underlined for emphasis). Later on in the EXECUTIVE SUMMARY Mr. Roe in clear and unequivocal terms said; “ The debt problems we see at present are highly concentrated on the new forms of external debt (e.g. the Trinidad Bonds) and the messy domestic debt in the form of arrears of payment, the increase in the NCB overdraft and the non-payment of interest on some debentures.” (Underlined for emphasis)

Two Observations

There are two observations, which must be made of the Oxford Policy Management Reports. The first is that “the $700 million dollars” public debt referred to by him included the MILLIONS in arrears on the Domestic Debt left by the UWP, and the debts incurred by amongst others “the Trinidad Bond Issues” entered into by the UWP.  Mr. Roe specifically fingered  “the Trinidad Bonds Issues” as the real and significant trigger of the country’s present core debt problems. As far as Mr. Roe was concerned, “the Trinidad Bonds Issues” were the root cause of the country’s present debt problems, and that the “intended” UWP projects were not feasible or worth the debt! Mr. Roe’s conclusion on the projects in 1999 was confirmed by the European Union and World Bank reports that the “international airport” was not feasible.

As far as the DOMESTIC DEBT, arrears, overdrafts, and nonpayment of interest on Debenture Bonds mentioned by Mr. Roe are concerned, the facts are that when the Coalition Government took office on 1st February 2000 the arrears on Domestic Debt accumulated by the UWP Government were in the TENS of MILLIONS. The UWP Government also left Government owing MILLIONS to the NCB, other commercial banks, and the Private Sector.  The overdraft at NCB was several MILLIONS over the legal limit, and the arrears to Social Security were also in the MILLIONS. Added to that, were the $53 MILLION in uncleared cheques at the Treasury, and other miscellaneous loans and debts.  Further, the full extent of the Government’s obligation to repay MILLIONS in Debenture Bonds issued locally by the UWP to persons, companies, and financial institutions with interest is slowly coming to light!

The second observation is that the five-year period referred to by Mr. Allan Roe in his Final Report of October 2001 began with the financial year ended 30th June 1996 and continued up to the month of October 2001. The UWP came to Government in the financial year June 1995/ June 1996 and continued up to the date they left Government on 1st February 2000; half way through the financial year 1999/2000. In other words, the UWP was in Government for the larger part of the five-year period reviewed by the Mr. Allan Roe in his Reports.

The Trinidad Bonds

By 1998 the UWP Government was becoming desperate for money. The roof was caving in on their political shams, brand of voodoo economics, and fraud of tou pas touism. The UWP Government  leaped blind folded into “the Trinidad Bonds Issues” with RBTT and CITIBANK at high commercial rates of interest (an effective rate of about 14%). The UWP Government incurred approximately $82,600,600.00 in debt with RBTT and $45,000,000.00 ECD from CITIBANK. As seen later, the Government did not receive the full amounts in cash of the $82,600,000.00 or $45,000,000.00 payable to RBTT and CITIBANK. Added to the high commercial rates of interest, are other managerial charges and annual trustee fees payable by the Government.  Further, the terms of the “the Trinidad Bonds Issues” are onerous and manifestly one-sided, and place the country and Government at a significant legal and financial disadvantage. To add further insult to an already egregious injury, is the undisputed fact that that huge and suffocating debt was incurred without any input from senior public officers in the Ministry of Finance in the “negotiations”, or Order required by section 4 of the Bonds and Securities Act Chap 64.04.

Annual Interest Charges

The cumulative interest rates and management fees agreed to by the former Minister of Finance under “the Trinidad Bonds Issues” means that this Coalition Government must pay about 14% interest per annum in interest and other charges and fees to RBTT and CITIBANK. In real terms, the annual interest charges on the RBTT Bond Issue amount to about $8,195,063.00, and $4,096,000.00 for the CITIBANK Bond Issue, a total of over 12 MILLION dollars a year, and for the next several years! In addition, as shown below, there are other managerial, trustee, and sinking fund fees and charges that must be paid by this Government.

Sinking Funds and Debt Service Reserve

What is most disturbing and scandalous about the “the Trinidad Bond Issues” executed by the UWP Government  is that although the Government must repay the total amount of moneys of 127 MILLION from the Bond Issues and annual interest and other charges and fees on that total, the UWP Cabinet allowed RBTT to keep $19,864,270,61 and CITIBANK $7,461,047,25 respectively; a total of over 27 MILLION DOLLARS of the 127 MILLION. RBTT kept the $19,864,270.61 and placed $14,658,618.72 in a Sinking Fund and $5,205,651.89 for a Debt Service Reserve. Citibank placed the $7,461,047.25 in a Sinking Fund.   Further, the Government is required to pay about US$500,000.00 every SIX MONTHS towards the sinking Fund created by RBTT.