After repeated calls for the Ministry of Finance to make public the conditions of the government’s recent loan from the International Monetary Fund (IMF), Deputy Prime Minister and Minister of Finance Peter Turnquest said Bahamians have nothing to worry about and called the “conspiracy theories” being circulated far-fetched.
In June, the IMF approved a request by the government for a rapid finance instrument (RFI) in the amount of $252 million.
Progressive Liberal Party Deputy Leader Chester Cooper, who is also the shadow minister of finance, has recently called for the Ministry of Finance to reveal the details of the RFI, as public concern swirled that the country would fall subject to a restructuring of the economy as is typically associated with IMF financial restructuring programs.
Turnquest reiterated, however, that the RFI is strictly a financing instrument being made available at a favorable rate, which the government took advantage of for the benefit of the Bahamian people.
“The rapid financial instrument that we took advantage of from the IMF is not a financial restructuring program that we might be familiar with, one that Barbados is in currently, one that Jamaica is in currently. Those are restructuring programs where the IMF technical teams come in and they work along with the government to recommend strategies to restructure their economies. Those are more restrictive and require governments to do certain things. That is not what we’re talking about here with the rapid financing facility,” Turnquest said while appearing as a guest on Guardian Radio talk show “The Hit Back with Nahaja Black”.
“What we are talking about is basically some Bahamians will know, a loan against savings. In other words, over the years we have invested – bought shares, if you will – in the IMF, it is a fund. Every country that is a member has a certain number of shares, we call them drawing rights, in the IMF. Those drawing rights can be converted into cash if you have a need for cash. This rapid financing instrument was created by the IMF to leverage countries’ investment in the fund for quick cash in the event of a disaster or some extraordinary event where people needed cash quickly.”
In other words, Turnquest explained, the RFI is more or less like a loan against savings which is offered with a lower interest rate because the loan is backed by cash.
“Or you may have a mortgage and you need some cash and so you use the equity in your home to get cash to do something else with. So we own these shares in the IMF, they say to us, ‘You have $250 million drawing rights, we know that COVID-19 and Hurricane Dorian have given you a serious cash crunch, are you interested in taking advantage of your drawing rights?’ and we say, ‘Yeah, what’s the rate?’, and they say it’s 1.54 percent,” he said.
“The market for borrowing is somewhere around six percent before COVID-19, before Dorian. So, we say of course we’re interested, especially at that rate. What’s the catch? They say there’s no catch here, it’s an RFI using your own money and the only reason we tell you to pay it back is because we want you to remain a member. Of course, they earn a little interest on it.”
Following the approval of the RFI, the IMF issued a number of policy recommendations to the government, suggesting an increase in revenue collection through property taxation, streamlining tax expenditures as well as containing the wage bill and reducing transfers to state-owned enterprises (SOEs).
As for the terms of the loan, Turnquest said they are as straightforward as any other loan that the government has gotten with any other multilateral financial entity.
“So they have requirements, for instance, if you’re going to borrow money from anybody else, you have to let us know. If you get yourselves into a materially different circumstance you must let us know. These kinds of things. But there’s nothing in there that says you must do this or you must do that. This is not that kind of instrument. So, I want Bahamians to be confident that there are no hidden strings attached to this instrument,” Turnquest said.
Earlier this week, Cooper called for a review of all government facilities with multilateral lenders such as the Inter-American Development Bank (IDB), the Caribbean Development Bank (CDB) and the World Bank, in addition to a review of the loan agreements and attached conditions of all loans, including those executed with the IMF.