Saving the Savers but Controlling the Public Debt

Vincentians do not often get in trouble over investments. Some will say it is because we do so little investing. The biggest investment most Vincentians make is their house. One just has to look around to see the large number of beautiful homes. This investment is usually sound. House prices tend to rise over time. When we build our house from our own savings, we are being both savers and investors.{{more}} However this is not always the case. One set of people save, say in the bank, and another set borrows from the bank to do the investing. In a word saving and investing are not the same thing.

In recent years many Vincentians have amassed more funds than they need to build a home. Their problem has been where to put these funds. Traditionally our banks have not paid high rates of interest as they usually had more funds than they could lend. The insurance companies, Clico and British American, stepped into the breach offering not insurance, but banking products. Money deposited with them for one or two years yielded good returns. The rates of interest proved so attractive that these companies collected over $1 billion in the OECS states. This money was in turn invested mainly in property in Florida. When property prices there crashed, the companies came a cropper. Governments could not stand idly by. Savings are necessary for the investments which make it possible for our country to develop. And so savings have always to be encouraged. Led by our Prime Minister, OECS Governments, therefore, set up a new company to rescue the savers. Ironically if the Government had sought to borrow money from these same savers to build the airport many of them would probably not have come forward. Instead they put their money with the two insurance companies which lost much of it in foreign ventures that could not possibly benefit St Vincent or the neighbouring islands. It all goes to show that investments with Governments are often the safest. Our savers should get in the habit of buying Government Bonds.

The Opposition agrees that the Government did the right thing in trying to rescue the savers. Government and Opposition are, therefore, ad idem on one of the three major items in the Capital Budget. As far as the second major item, the Argyle Airport, is concerned, the position of the Opposition is not so clear. If I understand Dr. Friday correctly, the airport would be OK if it could be financed. The NDP had itself taken preliminary steps to try to build an airport. This is not all that different from the position of the Government. It has argued that with the aid of the coalition of the willing, in particular Cuba, Taiwan and Venezuela, it is now able to get the funds to finance the airport. Tomorrow’s sun may never rise. If ever the old adage of striking when the iron is hot were applicable, it is now.

Last week an interesting event took place. The Brazilian Government opened an embassy here. The Ambassador is most welcome. Like us, the Brazilian population is a mixture of the descendents of Africans, Portuguese and Amerindians, among others. Brazil has been indicating its interest in the Caribbean area for some time now. Today we are all falling over ourselves to assist Haiti, but for many years before the earthquake, Brazil has been making a serious effort to help get Haiti going. So much so, it has even been said that when Brazil’s President Lula steps down from office, he will probably lead the UN mission in Haiti.

Brazil is expected to be the world’s fifth largest economy by the year 2014. It has a population of 188 million in an area of 3 million square miles. It is among the world’s largest exporters of almost everything: coffee, corn, rice, soya beans, sugar, livestock and minerals. It has a booming motor industry. Long self sufficient in oil, in 2007 it discovered lots more of the stuff, as well as gas, offshore. So well adapted to the tropics are its manufactures that I still use some of the items I purchased when I visited the country over 35 years ago.

To return to the Budget. Living as I do on Earth, and not on Mars, I am aware that, the world over, deficits and the public debt have ballooned. A 60% debt – to – GDP ratio was considered acceptable. Today few countries are able to keep it as low as that. In fact in many developed countries, the ratio is expected to reach 100%. Some have already gone past that figure. This, as we all know, has been due to the financial crisis. Led by the banks, the private sector went into recession. Governments (the Public Sector) had to come up with stimulus packages if we were to avoid a great depression similar to that of the 1930s. To fund these packages, Governments worldwide had to borrow and so we now have these much higher debt-to-GDP ratios in most countries. The issue now is how and when to unwind without bringing on the very depression we sought to avoid in the first place.

I have long emphasized that the construction of the Argyle Airport has been our biggest stimulus package. We are fortunate to have planned and even started to implement it even before the onset of the recession. Public Works (Construction) has long been recognized as the big stimulus. The problem is that when we have to start them in the midst of a recession, we are often in such a hurry that we select the wrong projects and implement them wastefully. In St Vincent we have managed to avoid this problem.

For the Prime Minister to have managed all this and still keep the Public Debt to 60%, when 100% is threatening to become the norm, is indeed remarkable.