Governments, even micro administrations of tiny jurisdictions, have the ability to raise finance, to an exponentially greater degree than individuals and small businesses.
In the aftermath of the September 2017 natural disasters that devastated the Virgin Islands economy, borrowing heavily to stimulate economic growth is not an option.
The British Virgin Islands requires at least 3 billion dollars in infrastructure spending over the coming 5 years to get the economy back to pre Irma GDP. Most of this cash will come from deficit spending, another name for borrowing.
However, borrowing must be tied to a long term strategic economic plan. Financial management of the borrowing that drives Post Irma economic recovery, must be part of a vision for the country, transparent, efficiently administered, and effectively audited.
Now, there have been assertions that borrowing from local institutions is a better option for the country than external borrowing. Why? Because interest payments on local loans means revenues remain in the territory.
Consequently these local institutions are strengthened financially. The preceding keeps cash working in the local economy as the loaned cash is sourced and utilized locally. This cash increases the velocity of transactions in the internal market economy which is a form of economic stimulus.
The question must then be asked: have those institutions the capital requirements and cash reserves that offer them the ability to lend government the hundreds of millions required for short to medium term disaster and economic recovery?
And how would lending government the cash impact the bottom line and mandated operations of these organizations? How would becoming lender of last resort for government change the specific call and nature of these organizations?
There are voices that state that caution, and a gradual approach to borrowing, is what is appropriate at this time, and not taking on borrowing from external sources that have no interest in the welfare of the Virgin Islands.
Government can borrow locally gradually, over a longer period of time. Doing the preceding, and adopting a gradual approach to borrowing for redevelopment, is more sustainable, than heavy external borrowing for swifter economic stimulus and disaster recovery.
All of the preceding assertions and arguments are worthy of detailed analysis and assessment.
To be Continued
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