Aleem Khan

T&T's chil­dren will in­her­it low­er pub­lic debt if a plan by Min­is­ter of Fi­nance and the Econ­o­my Lar­ry Howai comes to fruition. He con­firmed this in e-mailed re­spons­es to ques­tions from the T&T Guardian.Howai said Gov­ern­ment would hold in a "debt sink­ing fund," the US$1.175 bil­lion it made from the sale of Cli­co and CL Fi­nan­cial's stake in Methanol Hold­ings Trinidad Ltd (MHTL) to Ger­man con­sor­tium Con­sol­i­dat­ed En­er­gy Ltd (CEL).The plan was first re­vealed in an Op­pen­heimer (in­vest­ment bank) Oc­to­ber 15 re­port "for in­vestors on­ly." Op­pen­heimer an­a­lysts wrote the re­port af­ter meet­ings with gov­ern­ment of­fi­cials from T&T, Aru­ba, Pana­ma, Cos­ta Ri­ca, Paraguay, El Sal­vador and Do­mini­can Re­pub­lic, who were at­tend­ing the In­ter­na­tion­al Mon­e­tary Fund (IMF) and World Bank meet­ings in Wash­ing­ton from Oc­to­ber 10-12.

Howai, who led the T&T del­e­ga­tion to the IMF-World Bank meet­ings, said: "We are in the process of putting the arrange­ments for debt re­duc­tion in place. The chal­lenge that we face is that if we pay off debt now it will re­sult in an ex­oge­nous in­crease in the mon­ey sup­ply which will in­crease the lev­el of liq­uid­i­ty and will raise the spec­tre of in­fla­tion risk. "We are there­fore con­sid­er­ing es­tab­lish­ing a sink­ing fund which will off­set the debt but not in­crease the lev­el of liq­uid­i­ty in the sys­tem." A sink­ing fund is formed by pe­ri­od­i­cal­ly set­ting aside mon­ey for grad­ual re­pay­ment of a debt or re­place­ment of a wast­ing as­set.Howai said: "We are de­vel­op­ing the struc­ture to fa­cil­i­tate that (a sink­ing fund) when the Cen­tral Bank be­gins the process of re­pay­ment, as the funds are now with Cli­co, which is un­der the con­trol of the Cen­tral Bank. For the time be­ing the funds (from the MHTL sale) have been placed in Trea­sury Se­cu­ri­ties by Cli­co."

That ex­plains why Op­pen­heimer said the gov­ern­ment would re­ceive the mon­ey in part cash and in part se­cu­ri­ties.Op­pen­heimer told in­vestors: "The gov­ern­ment ex­pects to re­ceive US$1-2 bil­lion pay­back from its sup­port to Cli­co (in­sur­ance com­pa­ny that col­lapsed in 2009 and rep­re­sent­ed a sys­temic risk for the coun­try) in the com­ing 12 months; part will be in cash and part in se­cu­ri­ties. "As a con­se­quence, in­ter­na­tion­al re­serves will in­crease from the cur­rent US$10.4 bil­lion," or 35.1 per cent of gross do­mes­tic prod­uct (GDP) and over 12 months im­port cov­er–one of the high­est in Latin Amer­i­ca and the Caribbean.Asked about the new high­est-ever, record-set­ting for­eign ex­change re­serve lev­el that the coun­try will reach with the in­flow of the mon­ey from the MHTL sale, Howai said: "The lev­el of for­eign ex­change re­serves has in­creased as the funds came in to the Cen­tral Bank last week and rep­re­sents part of our strat­e­gy to build our fi­nan­cial buffers giv­en the in­creased risk in en­er­gy mar­kets."

Op­pen­heimer al­so looked at the bonds T&T tax­pay­ers will have to re­pay up­on ma­tu­ri­ty and said: "While the gov­ern­ment does not have big ma­tu­ri­ties com­ing due, au­thor­i­ties are con­sid­er­ing us­ing part of these funds to re­duce net gen­er­al gov­ern­ment debt by four per­cent­age points to 40 per cent of GDP by es­tab­lish­ing a debt-sink­ing fund."T&T's next bond ma­tu­ri­ty date is No­vem­ber 30 when $700 mil­lion of pub­lic funds will be paid to bond­hold­ers who fi­nanced the gov­ern­ment in 2006 at a coupon rate of eight per cent for eight years. There­after, around $84 mil­lion will be­come due on Feb­ru­ary 18, 2015, to bond­hold­ers who took the of­fer of the T&T gov­ern­ment in 2000 to buy in­to an 11.4 per cent coupon rate 15-year bond that start­ed off as $153 mil­lion.

Gov­ern­ment has been bring­ing down the out­stand­ing bal­ance. The coun­try's next US dol­lar bond ma­tures on Ju­ly 1, 2020, and was debt sold by the gov­ern­ment of the time–June 2000–at a rate of 9.75 per cent for 20 years. On Ju­ly 1, 2020, bond­hold­ers will be ad­vised by the Lux­em­bourg ex­change to col­lect US$500 mil­lion from T&T.Con­sis­tent with in­dige­nous in­vest­ment plans al­ready an­nounced by En­er­gy and En­er­gy Af­fairs Min­is­ter Kevin Ram­nar­ine, Op­pen­heimer said, with re­gard to T&T's state en­ter­pris­es gov­ern­ment, "au­thor­i­ties are con­sid­er­ing how to boost Petrotrin cap­i­tal ex­pen­di­ture but no de­ci­sion is ex­pect­ed un­til af­ter next year's leg­isla­tive elec­tions."On an­oth­er top­ic, Op­pen­heimer said Re­pub­lic Bank Ltd (RBL) "was trans­formed" in­to a state en­ter­prise up­on the Cli­co res­cue, "but the gov­ern­ment in­tends to dis­in­vest from the bank in a re­spon­si­ble man­ner."