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LETTER OF THE DAY: The predicament of investors in gov't bonds

Published:Saturday | January 23, 2010 | 12:00 AM

The Editor, Sir:

The Government has shown nothing but poor financial management skills and a poor appreciation for financial planning in their handling of the country's affairs. So why are we so surprised that they make little of investors' woes of having been caught off-guard in realising a loss on their investment in government bonds, instead of at least breaking even on what was supposed to be an investment endeavour?

The Government has in fact defaulted on its local debt obligation and has so led us all on the same path, at least those of us who were so naïve as to believe in its credibility.

The Government made a bad decision in offering bonds at rates which it could not afford. Now, how was the average citizen supposed to know that the Government (with the whole host of financial advisers and consultants that taxpayers were paying for) did not do a proper financial assessment of the impact of such a move? I personally assumed that was the case when I made the sacrifice to put money on the bonds.

What onlookers need to understand is that there is a cost to money and we did not go pick some money off a money tree to put it on government bonds (at least I did not). I used borrowed funds to invest because I had a financial plan that was workable (and, after all, government securities are deemed risk-free). Now, not only is there the issue of a 50 per cent cut in projected returns, but I have to grapple with the fact that the Government has clamped on to my funds for at least another four years. The only option that I have been given is to let them have it for an even longer period yet.

The loss to be incurred on the bonds will increase continually, as with the passage of time, the investor who borrowed to finance the venture, like me, will be incurring interest on the debt at a higher rate than the returns to be received on the bonds. This is not for one year, but for at least for another four years.

As bad as that is, the hardest part is going to the lender to explain that the Government has clamped down on my funds for four years so I can't repay the loan as had been agreed. The story of FINSAC can shed some light on what lenders do when borrowers default on their loan.

extravagant spending

It is interesting that the Government can afford to be so extravagant in its spending of taxpayers' money trying to place on record what went wrong in the financial meltdown of the 1990s, when they are now placing us in a similar predicament.

We may as well brace ourselves for yet another commission of enquiry in the future when a new government feels obligated to the Jamaican people to find out and place on record what went wrong in 2010 that caused the disenchantment and deprivation of investors in government securities, so that it will never ever happen again.

I am, etc.,