Posted: Monday, December 14, 2020. 4:33 pm CST.
By Aaron Humes: In the long-term, is it a good idea to default on national debt? Some say yes, including economist Dr. Justin Robinson, according to the Barbados Advocate.
Robinson, the acting director of Sagicor Cave Hill School of Business at the University of the West Indies (UWI), believes that the long-term costs of a country defaulting on its debt repayments are very low, citing several economic studies concerning debt issues.
“You lose capital market access immediately, but typically within three months to three and a half years you regain full capital market access, and the GDP losses are not that great,” said Dr. Robinson at a lecture presented at the UWI Cave Hill campus. The inaugural Faculty of Law Lecture was delivered by Dr. Annamaria Viterbo, Associate Professor at the University of Turin, Italy, and it dealt with debt issues.
Professor Robinson noted that the answer to questions of why countries choose not to default and why actively try to repay is one of reputation, especially considering that there is no collateral or external facility for enforcing payments of these debts.
Among regional countries that restructured debts are Barbados, Antigua and Barbuda, Belize, Dominica, Grenada, Guyana and Jamaica; Trinidad and Tobago, St. Lucia and St. Vincent and the Grenadines have not. Recent defaulters on debt include Barbados, Jamaica and Belize; in Belize’s case it was negotiated with bondholders to free up cash tied to repayments for assistance in fighting COVID-19.
Nonetheless, Robinson commended the presentation as insightful in trying to craft an international financial architecture that covers a much broader range of countries and countries facing a much broader range of circumstances.
The new People’s United Party administration has committed to saving funds to pay down Belize’s debts which stand at $4 billion or more after recent borrowings.
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