Beware, fairy godfathers!
Arthur warns that offer by british billionaires would be costly
It may appear on the surface to be the billion-dollar Christmas “gift” that all of Barbados has been wishing for.
But on the heels of yesterday’s offer by two British billionaires to provide the financial backing the island needs for a major international bond offering, former Prime Minister Owen Arthur is wagging his caution finger at the Government, advising it to politely turn down the proposal.
For one, Arthur makes it clear that what’s on offer is by no means a “gift”, but a loan, which he said would only serve to worsen Barbados’ mounting debt situation.
And while he believes that British billionaire Andrew Stewart and his business partner Stuart Fordham were “well intentioned” and may want the best for the island, he further cautioned that there were “no fairy godfather solutions” to the island’s economic woes.
“These are two men who I think love Barbados and want genuinely to help, but there are no fairy godfather solutions to the economic and financial issues facing this country. And the Government has to be clear that it is not going to have after fairy godfather solutions,” warned Arthur in an interview with Barbados TODAY.
“They are not promising to give us a grant but to help us raise money in the market. So that it would still be a loan to the Government of Barbados and potential investors will obviously, in making a decision as to whether they will subscribe to it, take into account what the ratings agencies have said about the credit worthiness of the bonds to which they are being asked to subscribe,” he explained.
In light of last week’s downgrade by Standard & Poor’s, the former prime minister and independent member of Parliament insisted that the focus of the Government must be on restoring the island’s credit worthiness, while stressing that “any potential investor would be skeptical about investing no matter who is backing the bonds, unless the credit rating is restored”.
He also suggested that if Stewart, who already has sizeable investments in Barbados, and his partner wanted to help, they would really be talking in terms of rendering more financial support to private projects at this time, “where they carry the risk and get the returns rather than ask the Government to be the borrower, transferring the risk to the Government”.
However, the former finance minister said it would be up to the billionaires to make that decision themselves on what projects they want to invest in, while also questioning the need for them to back any international loan for Barbados.
He pointed out that Government had a longstanding process in place since the 1980s for placing financial instruments in the market.
“There has been the Central Bank and the Ministry of Finance working together with Government debt management advisor Mr Jeffrey Bell since 1985,” Arthur noted.
“Government therefore has a process and an arrangement . . . to place things in the market and I would not expect that the Government would need an entity to put things in the market for it,” he said, while further cautioning that even though Stewart and Fordham had come forward and offered to assist, this was not going to change the fact that, according to the ratings agencies, Barbados’ bonds were not currently of investment grade.
“They are entities that are forbidden by law from putting for example things like pension funds in instruments that are not investment grade. So I think that they mean well, but it is not something that I think is pragmatic,” Arthur stressed, adding that “the Government should focus on doing everything that is necessary to restore the country’s credit worthiness and do not therefore look for what I call these fairy godfather solutions.
“No fairy godfather is going to help us [like] the pursuit of the correct policies for putting this country back on a stable and vibrant path to growth.
“All you will be doing is increasing the debt by a certain amount.”
Today, Opposition Barbados Labour Party advisor Dr Clyde Mascoll also commented on the offer by the two British billionaires, saying it would not make economic sense and that the cost of servicing such debt would be too high.