Economist Dr Vaalmikki Arjoon is appealing to the Government not to dip into the Heritage and Stabilisation Fund (HSF) to pay local contractors who are owed $2 billion, even as he admits that failure to pay outstanding bills to contractors could make the recession worse.
Arjoon said there are other ways the Government can access funds to settle with contractors. One of those is an IPO—an Initial Public Offering in which a company is floated on the stock market—similar to what took place with the state-owned FCB and Phoenix Park IPOs.
He also suggested consortium financing, where local banks can work with Government to lend money for projects.
Chinese Ambassador to T&T Huang Xingyuan has complained that Chinese construction companies which had done work or were doing work in T&T were owed million of dollars by the Government.
Huang said companies that were owed were not in a position to pay wages. Earlier the president of the Contractors Association of T&T, Mikey Joseph, disclosed that local contractors were owed $2 billion.
He warned that if the situation was not addressed soon, T&T could face “clear rippling effects” in the economy going forward. On Friday, Joseph refused to talk about the issue raised by Huang.
“I have no comment. Let the Chinese handle their own stories,” was his curt response.
Recession
could worsen
Arjoon said the Government could raise billions of dollars through an IPO.
“We had two very successful IPOs lately. We have several state enterprises, why not just select five of them and have an IPO and put a minority of its shares for sale on the stock market, so businesses with a strong financial backing can invest. This helps to keep the money into the local economy and also the ownership of companies.”
“Another option the Government has was to utilise the banking institutions, through consortium financing, where a group of banks come together and supply a small chunk of money for a specific project which they can offer the Government in order to repay the debt.”
He said the Government could repay the banks over a specific period and at an agreed interest rate.
“That excess liquidity in the banking system is actually generated from the private sector. So this is where the whole issue of public/private partnership comes into play.
“By getting the intervention of the private sector, the excess liquidity in the banks, which stands at about $3 billion, now can definitely be used via consortium financing or via public/private partnership by getting the private sector involved to meet the financial obligations.
Governemnt can also avoid debt by approaching a group of commercial banks for “consortium financing,” where they provide money on loan for a specific project, and through an initial public offering (IPO) where shares at a state enterprise are sold to institutional investors.
If the debt was not settled soon, Arjoon said, workers might be laid off, which could fuel further unemployment.
Arjoon said contractors who were not paid were unable to meet their financial obligations to suppliers and banks.
“It might come to a situation where they may cease to operate which can exacerbate the country’s recession.”
Banker: Govt
should use HSF
President of the Bankers Association of T&T Darryl White disagreed with Arjoon that Government should not touch the HSF.
“You have to ask the questions do you prefer not to pay your debt when they are due. The worst thing for anybody is not to pay your debt.”
White said Government could also approach the Inter-Development Bank for funds since they had good lending rates.
“It’s an organised type of lending with lots of terms and conditions, but the pricing attached is very good.”
In his address to the nation last month, Prime Minister Dr Keith Rowley revealed that Government would be splitting the HSF into two funds, which would become the Heritage Fund and the Stabilisation Fund.
Rowley disclosed that approximately US$1 billion would be taken from the Stabilisation Fund, while the Heritage Fund would retain the bulk of its funds.
Questioned on Saturday if commercial banks awere willing to offer consortium financing to the Government, White said this was an avenue Government had already looked at.
“As a matter of fact the Minister of Finance had already said he had conversations with the banks in that regard. That was said after a meeting with banks a couple weeks ago. So this is an option.”
He said he was in support of Government looking at all options to raise financing in a bid “to find solutions.”
White also explained that liquidity in the banking system declined from $8 billion to $3 billion.
White agreed with Arjoon that IPOs were one avenue money can be raised, but said that given the nature of the country, some entities were better off not being privatised.
Risk of investors’
and capital flight
Arjoon said local companies that were reliant on these affected Chinese firms were also likely to feel the repercussions as well.
“This can worsen the confidence of other Chinese merchants operating here...mainly those in medium enterprises such as supermarkets. Many would feel that the economy is not a comfortable one. Don’t be surprised if we see some of them making an exit. China will now pay careful attention to their investments in T&T and spending decisions in the future.”
Arjoon said “the last thing they should do is incur debt or dip into the HSF in order to make these payments.”
Arjoon questioned if the Government owed other foreign companies which operated in T&T.
“Ideally, this can weaken investors’ confidence further, affect bilateral agreements and worsen foreign reserves. They (investors) may just start putting their money elsewhere,” Arjoon said.