Go Lean Commentary
All you parents of grown children already know this, right?
Your grown children – married or not – will come to you for financial help when “push comes to shove”.
This is true for families and countries.
This is especially actuated right now as the Coronavirus COVID-19 Pandemic has been devastating communities, economies and healthcare systems around the world, and even more so here in the Caribbean.
Your sons and daughters can turn to you fathers and mothers for help – if you are able.
Who do countries turn to?
For the 30 member-states of the Caribbean, the answer is:
Inter-American Development Bank (IDB)
The Inter-American Development Bank (IADB or IDB or BID) is the largest source of development financing for Latin America and the Caribbean.[1] Established in 1959, the IDB supports Latin American and Caribbean economic development, social development and regional integration by lending to governments and government agencies, including State corporations.The IDB has four official languages: English, French, Portuguese, and Spanish.
…History
At the First Pan-American Conference in 1890, the idea of a development institution for Latin America was first suggested during the earliest efforts to create an inter-American system. The IDB became a reality under an initiative proposed by President Juscelino Kubitshek of Brazil. The Bank was formally created on April 8, 1959, when the Organization of American States drafted the Articles of Agreement establishing the Inter-American Development Bank.[2]Member states
Borrowing members in green, non-borrowing members in red
The Bank is owned by 48 sovereign states, which are its shareholders and members. Only the 26 borrowing countries are able to receive loans.
- Borrowing: Argentina, The Bahamas, Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Suriname, Trinidad and Tobago, Uruguay, Venezuela
- Non-borrowing: Austria, Belgium, Canada, China, Croatia, Denmark, Finland, France, Germany, Israel, Italy, Japan, Korea, The Netherlands, Norway, Portugal, Slovenia, Spain, Sweden, Switzerland, United Kingdom, United States.
…
Governance
The IDB is governed by its Board of Governors, a 48-member body who regularly meets once a year. In March 2010, reunited in Cancun, Mexico, the Board of Governors of the Bank agreed on a $70 billion capital increase, along with full debt forgiveness for Haiti, its poorest member country, devastated by an earthquake that had destroyed its capital, Port-au-Prince, two months before.The developing countries that borrow from the IDB are the majority shareholders, and therefore control the majority of the decision-making bodies of the Bank. Each member’s voting power is determined by its shareholding: its subscription to the Bank’s ordinary capital. The United States holds 30 percent of the Bank’s shares, while the countries of Latin America and the Caribbean combined hold 50.02 percent but with another 20% from Europe the US can veto decisions.[5] This arrangement is unique in that the developing member countries, as a group, are the majority shareholders. Though this arrangement was first viewed as risky, it is believed by some that strict peer pressure prevents the borrowers from defaulting, even when under severe economic pressure.
Source: Retrieved October 5, 2020 from: https://en.wikipedia.org/wiki/Inter-American_Development_Bank
———-
About Us: Inter-American Development Bank
We work to improve lives in Latin America and the Caribbean. Through financial and technical support for countries working to reduce poverty and inequality, we help improve health and education, and advance infrastructure. Our aim is to achieve development in a sustainable, climate-friendly way. With a history dating back to 1959, today we are the leading source of development financing for Latin America and the Caribbean. We provide loans, grants, and technical assistance; and we conduct extensive research. We maintain a strong commitment to achieving measurable results and the highest standards of integrity, transparency, and accountability.
The IDB prioritizes social inclusion and equality; productivity and innovation; and regional economic integration in its development work across Latin America and the Caribbean. In doing so, it addresses the cross-cutting issues of gender equality and diversity; climate change and environmental sustainability; and institutional capacity and the rule of law. Learn more about the Institutional Strategy here.
Source: https://www.iadb.org/en/about-us/overview retrieved October 5, 2020.
Yes, the Caribbean is Banking on the Bank, the IDB.
The IDB doesn’t lend to anyone else other than these Latin American & Caribbean (LAC) member-states. It’s a ” personal piggy-bank”, just for its members – membership has it’s privileges.
Look here at the Bahamas; they are hurting very bad, due to the pandemic and also 2019’s Category 5 Hurricane Dorian; so all they have to do – all they are doing – is ringing up their personal banker and getting their requested money … on demand:
VIDEO – [Bahamas] Government To Borrow $1.3B – https://www.facebook.com/OURNewsREV/videos/251591122579990/
Posted May 27, 2020 – The Minnis administration will seek parliamentary approval to borrow $1.3B in the 2020/2021 fiscal year. In his Budget Communication today, Deputy Prime Minister and Minister of Finance Peter Turnquest said the fiscal deficit is budgeted at some $1.3B, or 11.6% of GDP.
Yes, the Bahamas is Banking on the Bank, the IDB.
Despite the tune of this writing, this easy access to cash, loans or debt is not a good thing. The money is not free and not cheap.
It must also be repaid in US Dollars – OUCH!!!
The perils of this fiscal practice is evident in this news article here, describing how the Bahamas, in an attempt to source funds cheaper than their IDB options, have issued bonds for public consumption with a return rate of 9.25 percent. (To me, this means that IDB lending must be even more expensive). See the article here:
Title: Gov’t offers high-yield bond
By: Chester Robards
The government of The Bahamas has issued its $600 million, 12-year unsecured foreign currency bond, with a 9.25 percent yield, telling a tale of the Moody’s June credit rating downgrade to junk bond status, and the country’s continuing dependence on a depressed tourism market.
Guardian Business caught a glimpse of the government’s offering synopsis. The offering was reportedly released on Wednesday.
The government has gone to international markets in hopes of covering half of its projected $1.3 billion fiscal deficit for 2020/2021, brought on by the devastating consequences of Hurricane Dorian and the economic stopping effects of the global COVID-19 pandemic.
The government listed its use of proceeds as “general 2020/2021 budgetary needs and the repayment of $248 million under 2020 bridge facility”.
The bond matures in 2032.
The government announced last month that it had already closed on about half a billion in financing over July and August, and revealed then that it would go to capital markets to access more financing when market conditions were right.
The government received $200 million from the Inter-American Development Bank (IDB); a $40 million facility with the Caribbean Development Bank; and in August accessed $248 million, as part of a $300 million bridge financing deal approved by Parliament for the fiscal year 2020/2021 budget.
CFAL Senior Financial Analyst Angelo Butler explained to this paper that this most recent bond’s interest rate has likely been set at a high 9.25 percent to attract sufficient investors to make the offering successful.
He added that the high coupon could compensate for a low pool of potential investors as a result of the country’s recent downgrade; uncertainty surrounding tourism and our dependence on it; a deterioration in government finances; and growing foreign debt as a percentage of total debt and gross domestic product.
“Fortunately, the rate is attractive and should attract investors,” said Butler.
“Interest rates are very low in developed markets, thus fund managers and banks are having to search for yield to meet investment targets.”
The government’s past 2029 and 2033 bonds have taken a hit this year with price declines of close to 30 percent earlier in the year. The 2033 bond is trading at about 8.7 percent.
Cruise ship companies, which have also had to go to the markets to raise money as they have been shut down most of the year, have also placed high-yield bonds.
Source: Posted and retrieved October 9, 2020 from: https://thenassauguardian.com/govt-offers-high-yield-bond/
It is so sad that the Bahamas is Banking on the Bank, the IDB. They are in desperate need of alternative funding schemes, ones that mitigate debt. This theme, that debt is bad for Caribbean member-states, aligns with many previous commentaries from the movement behind the 2013 book Go Lean … Caribbean; see a sample list here:
| http://www.goleancaribbean.com/blog/?p=19572 | MasterClass: Economics and Society |
| http://www.goleancaribbean.com/blog/?p=11647 | Righting a Wrong: Puerto Rico’s Bankruptcy |
| http://www.goleancaribbean.com/blog/?p=7601 | Beware of Vulture Capitalists |
| http://www.goleancaribbean.com/blog/?p=7268 | Detroit’s ‘debt reality’ giving schools their ‘Worst Shot’ |
| http://www.goleancaribbean.com/blog/?p=5183 | A Lesson in History – Troubles from Mexico’s Unpaid Debt |
We are not limited to the Status Quo for Debt Management in the Caribbean. The challenge is money … or capital. We can be Better. We must be Better.
The Go Lean book presents a plan to reboot the region’s fiscal and monetary landscape. The starting approach is to form a cooperative among the region’s existing Central Banks, branding the cooperative as the Caribbean Central Bank (CCB). Then facilitating and regulating the Capital Markets in the region. (The Go Lean book – on Page 200 – identifies 9 different Stock Exchanges in the region).
The example from the United States is that of Treasury Bonds and Municipal Bonds trading on Wall Street with bond rates and “coupon rates” lower than 2% – see example here; compare this 2% to the 9.25% in the foregoing news article:
The Go Lean book, serving as a roadmap for the introduction of the Caribbean Union Trade Federation (CU), presents an actual advocacy to present the strategies, tactic and implementation to Better Manage Debt. See here some of the specific plans, excerpts and headlines from Page 114, entitled:
10 Ways to Better Manage Debt
| 1 | Lean-in for the treaty for the Caribbean Union Trade Federation (CU) & the Caribbean Central Bank (CCB).
This treaty allows for the unification of the region into one market, thereby creating a single economy of 30 member-states, 42 million people and a GDP of over $800 Billion, according to 2010 figures. The CU will reboot the economic engines of the region with investments in infra-structure and business inducements. Many times these projects require up-front capital but the returns will be garnered slowly over time. These projects therefore require debt, from the capital or lending markets. The issue of debt not only concerns governments, but individuals as well. The CU will impact this dynamic by mastering credit ratings and offering to buy back foreign debt for local C$ financing and CCB controls. This tactic lets the CCB function as a local IMF, fostering a new regime for the economy. |
| 2 | M1 & The Interest Economy
The CU seeks to consolidate the currency of each member-state around the Caribbean Dollar (C$); then by inducing more electronic transactions as opposed to paper currency, there will be more lendable funds in the money supply (M1). Plus having viable capital markets will allow governments, institutions and businesses to get the capital they need, and investors/lenders can garner interest income for the use of their funds. Most Pension funds depend on this model. |
| 3 | Public Financing
Every independent country in the Caribbean is a member of the IMF, only the Overseas Territories are not engaged in this arrangement. Why not? Their host countries (US, UK, France and the Netherlands) provide the capital access that the island territories need. The CU quest is to shift this dependency to a Caribbean source, not European or American. |
| 4 | Bonds & Add-on’s (Warrants) |
| 5 | CU Federal Bankruptcies |
| 6 | Credit Reporting – Sharpening the Tool |
| 7 | Retail Credit Reboot and New Engines |
| 8 | Student Loans Sensible Dynamics |
| 9 | Mortgage Loan Sensible Dynamics |
| 10 | Crowd Sourcing – Community Capital Sharing Mitigates Debt |
The points of fostering best-practices in Debt Management is not a “magical formula”, but rather a viable technocratic plan. It is conceivable, believable and achievable to accomplish these goals.
It is just heavy-lifting …
… and trust …
… and cooperation.
Let’s get busy … and make our homeland a better place to live, work and play. 🙂
About the Book
The book Go Lean…Caribbean serves as a roadmap for the introduction and implementation of the technocratic Caribbean Union Trade Federation (CU) and the Caribbean Central Bank (CCB), for the elevation of Caribbean society – for all member-states. This CU/Go Lean roadmap has these 3 prime directives:
- Optimization of the economic engines in order to grow the regional economy to $800 Billion and create 2.2 million new jobs.
- Establishment of a security apparatus to ensure public safety and protect the resultant economic engines.
- Improve Caribbean governance to support these engines, including a separation-of-powers between the member-states and CU federal agencies.
The Go Lean book provides 370-pages of turn-by-turn instructions on “how” to adopt new community ethos, plus the strategies, tactics, implementations and advocacies to execute so as to reboot, reform and transform the societal engines of Caribbean society.
Download the free e-Book of Go Lean … Caribbean – now!
Who We Are
The movement behind the Go Lean book – a non-partisan, apolitical, religiously-neutral Community Development Foundation chartered for the purpose of empowering and re-booting economic engines – stresses that reforming and transforming the Caribbean societal engines must be a regional pursuit. This was an early motivation for the roadmap, as pronounced in the opening Declaration of Interdependence (Pages 12 – 13):
xi. Whereas all men are entitled to the benefits of good governance in a free society, “new guards” must be enacted to dissuade the emergence of incompetence, corruption, nepotism and cronyism at the peril of the people’s best interest. The Federation must guarantee the executions of a social contract between government and the governed.
xvi. Whereas security of our homeland is inextricably linked to prosperity of the homeland, the economic and security interest of the region needs to be aligned under the same governance. Since economic crimes … can imperil the functioning of the wheels of commerce for all the citizenry, the accedence of this Federation must equip the security apparatus with the tools and techniques for predictive and proactive interdictions.
xxiv. Whereas a free market economy can be induced and spurred for continuous progress, the Federation must install the controls to better manage aspects of the economy: jobs, inflation, savings rate, investments and other economic principles. Thereby attracting direct foreign investment because of the stability and vibrancy of our economy.
Sign the petition to lean-in for this roadmap for the Caribbean Union Trade Federation.