Debt Restructuring & Economic Stimulus Plan for Tobago

On July 8th, the Tobago News ran the headline that hotels were closing.  We learnt as well that restaurants were closing across the island.  There is no doubt that the negative effects of the global recession continue to have a catastrophic effect on Tobago’s private sector and should not be underestimated. Largely unnoticed, this sector has been undergoing economic hardship since the last quarter of 2008, with both a reduction in foreign direct investment and tourist arrivals.  Today, escalating financial difficulties characterized by, among other things, the inability to generate enough cash flows to satisfy borrowing obligations and to meet working capital needs, has become the order of the day.

At present, most businesses are burdened with large amounts of debt, a result of commitments made in better times when cash flow could have serviced them.  Today, these debts are strangling the businesses.

In such a scenario, debt service payments can at best, make the turnaround of a troubled company very slow and extremely difficult, and at worst, threaten the company’s survival. Sadly, this is currently the case for most of the private sector in Tobago. Should this situation continue to go unchecked, lending agencies operating in Tobago can potentially be hit by defaults, resulting in foreclosures and loss of property for both the private sector and individuals.

The effect on employment is already apparent. Prior to 2009, many Tobagonians held down two jobs and credit could be granted to these individuals on the collective income. With the decline in employment in the private sector, individuals too, are now experiencing severe problems in servicing their debt obligations.

To treat with this serious situation, the Chamber has proposed initiatives to both the Central Government and the Tobago House of Assembly within the last year and meetings with both parties continue.

At one recent meeting with the Ministry of Finance, various proposals were discussed.  This morning I enunciate two which the Chamber believes can impact positively on the economic situation.

Firstly, a review of the Foreign Investment (Tobago Land Acquisition) Order, 2007, with imposition of which means that international investors no longer have an appropriate investment vehicle that may be traded at fair market value.  We are therefore pleased that the Minister of Finance has given his commitment to review these procedures with the aim of reducing the time taken for approvals of land acquisitions.

Secondly, for Central Government and the Tobago House of Assembly to collaborate to provide commercial banks with sovereign guarantees so that they can extend credit, provide a moratorium or debt restructuring of facilities of qualifying businesses to address their problems.  At the same time, they should collaborate with the island’s private sector to take urgent steps to resuscitate the Tourism industry which is the island’s main economic activity and the private sector’s major source of income.

These are but a few proposals that have been put on the table and we are sure there are a number of workable solutions which have gone before.  What is clear above all is that stakeholders need to urgently and genuinely collaborate to develop and implement an action agenda to rescue the economy of our sister isle.