An Economist on the Talking Stool

About the Hole We’re In, from a friend-economist

Aruba has a massive national debt nearing 5 billion florins. None of it can be forgiven, and it will not go away magically … and Holland has been explicit about NOT helping with that.

So as it stands Aruba will have to pay every year about 600 million florins in principal and interest, for the next 20 years.

Aruba does not generate even 1 florin in surplus that is needed to bring down that debt (and its interest).

If Aruba should fail on ANY debt related payment, we risk DEFAULT. That means the 600 million per year arrangement ceases, and the full national debt becomes payable immediately.

Think about that for a minute. It’s the size of the economy. The Central Bank will be left with zero reserves.

Every single property holder and corporate investor will have to reconsider staying on this island. Banks and hotels may have to relocate; everybody will be hurt. Crime …

I know the default sequence-scenario very well… it is the most horrible scenario.

COVID19 was the black swan that brought us face-to-face with defaulting. We had over $250 in debt payments to make, but … all the ports closed, inflows ceased, one rating lost and capital market investors were fleeing from weak economies.

Huge uncertainty worldwide made COVID19 into a liquidity crisis.

And there is little Aruba with its massive debt, no economy and holding one investment grade rating by the skin of its teeth.

Holland was again very explicit …”go help yourselves”. Their help is always welcome. But they did not want to assist with the debt-payments. So that the $253 million deal is not a new debt or extra debt. Aruba needed this deal if only to avoid default…on top of COVID19.

And we managed, against great odds. LONG days and nights, for weeks, nameless people, working hard, and we got it all at a 0.5% increase over the average price.

That deal is an important signal to all our investors that Aruba will not fail. Even in COVID19.

Worldwide the secret service is seldom acknowledged for terrorism acts that they thwarted. In this case default was prevented. A handful of people knows how close we came, and they shall remain anonymous.

They’d rather keep silent and shared only with investors, publicity is not in their sphere of influence. But you should know what went on!

(Another economist friend promptly informed me that Aruba could have gotten a conditional loan from the IMF: Reduce your overhead by 20% and we’ll give you a 1% loan. Goa did not want to go that way.)

 

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June 27, 2020
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