Fri | Feb 12, 2016

What about the small creditors?

Published:Tuesday | March 5, 2013 | 12:00 AM


Hopefully, most of us will agree that NDX (JDX2) is a necessary evil. The way in which it was done, though, is cause for concern for some of us, primarily because sufficient consideration and protection was not given to the small individual creditors.

Even more cruel is the denial of timely access to their principal in times of need. This is a virtual repeat of JDX1, which many of us lamented so bitterly at the time - only worse.

Bear in mind that these individuals sought safe haven in government instruments which had traditionally been regarded as sovereign security with steady and predictable returns. Many of these investors are old, unemployed pensioners with very few years left to live and who face increasingly high costs for health care and other living expenses. These are innocent victims without a voice.

corporate cushion

Compare these with those 'too-big-to-fail' corporate investors who account for the vast majority of the Government's bond-holding indebtedness. They are, indeed, in a most favourable bargaining position. Should the sector collapse, the economy would go down with it. And a collapse of the economy would gravely undermine the sector, particularly the financial sector. They and the Government, therefore, share equal concern to ensure that this does not happen.

Added to all that is the fact that large corporate business enterprises have a much longer-term perspective than the average Jamaican investor in government bonds, on which they depend, to an inordinate degree, to see them through their twilight years.

The old-age pensioner depends on timely access to his principal, as well as on interest payments, to meet day-to-day living expenses. He or she cannot recoup losses from reduced interest rates, increased taxes and high inflation by passing them on to anybody else. On the other hand, businesses have this option.

manageable impact

Despite JDX1, for example, the financial sector in particular racked up impressive profit margins. In the aftermath of NDX (JDX2), some corporate entities considered the impact on their businesses manageable.

Individual investors' share of the Government's debt burden that the NDX (JDX2) is meant to address is miniscule when compared to that held by large institutional holders of GOJ debt. Given the other elements of the overall package of measures, one assumes that a 100 per cent subscription to the NDX was not absolutely necessary to achieve the Government's objective.

We are left to plead that, since burden sharing ought to be as equitable as possible, cannot the burden on these vulnerable individuals be ameliorated by some concessions, without jeopardising the prospects for an agreement with the IMF?