Eternal debt
By Hilbert Haar
I am not an accountant and not a financial wizard, so I share my thoughts with our readers about rather diffuse topics like debts and refinancing on a personal title.
The Netherlands loaned St. Maarten 316.4 million guilders ($176.8 million) during the course of the corona-pandemic. Those loans have to be paid back in October but it goes without saying that the country does not have that kind of cash to spare.
The solution seems so simple: refinance the bloody lot and everybody can sleep peacefully again. Really?
State Secretary Van Huffelen has made a seemingly attractive offer to St. Maarten: an interest-only loan. The way I understand it, this is a loan whereby you pay only interest and you do not repay anything on the principal. This way, the debt stays on the books like forever but the treasury has to fork over between 9.8 million ($5.5 million) and (in the worst case scenario) 25.3 million guilders ($14.1 million) in interest every year.
This doesn’t really make a dent in the national budget but still: these millions cannot be used for sorely needed investments or for fighting poverty, to name just a few examples.
The liquidity loans are not the only ones hanging over St. Maarten’ head. The Netherlands will also extend a 600 million euro loan ($642 million) to save insurance company ENNIA. That money will also have to be paid back but chances that the Netherlands will ever see a penny are at best remote.
The thing is that our government does not even control what will happen with this loan, because under the agreement with the Netherlands, Curacao and St. Maarten will extend this money as a loan to ENNIA. As Van Huffelen pointed out in a letter to the Dutch parliament: the entrepreneurial risk is for the account of Curacao and St. Maarten. In other words, if ENNIA for some reason defaults, the two countries are on the hook for that money.
The question is now: is the government willing to take that risk? It feels a bit like playing with fire. I figure this is another loan that requires refinancing further down the road.
What does that really mean? It means that you are unable to repay a loan and that under a refinance-agreement you are going to pay less, but longer. So in the end you pay (much) more.
If I borrowed twelve hundred guilders, planning to repay it, with interest, within a year only to find out that I won’t make it, two things could happen. I could go bankrupt, or I could make a new agreement. Now I will pay the money back in three, or four years. The amount of money I have to pay every month is now affordable, but I will have to keep this up for 36 or 48 months instead of just twelve.
If I had repaid the loan in twelve installments of 100 guilders (not counting the interest), I would be off the hook after a year. Now I have to pay 36 or 48 installments of, say, 60 guilders. You do the math.
The lesson everybody, including the government, can learn from this is simple. Borrowing money is a bad idea. You have to pay it back and you have to pay interest.
Interest payments represent money that you cannot spend on other things. This is true for households, but it is also true for governments.
Before 10-10-10 the Antillean islands were up to their eyeballs in debt. Right now, the mountain of debt is increasing again. Therefore I think it is wrong to say that St. Maarten has a national debt. It has an eternal debt.
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Related articles:
Dutch loan to rescue ENNIA meets with criticism
Conditions influence interest rates for refinanced liquidity loans
Knipselkrant: Fraudegat bij verzekeraar Ennia plaatst Nederland voor duivels dilemma
Tweede Kamer eist openbaarmaking CFT stukken inzake ENNIA schandaal
Adviezen van het CFT inzake ENNIA
