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Dear Editor,

It is with dismay that I read Stabroek News' article on the government's default on the US$20m bonds issued to finance restructuring activities of the bauxite company. The default on government issued bonds is a serious matter and should be treated with concern by all Guyanese and businesses alike. Apart from ethical issues, such a default poses a major setback to capital markets in Guyana and to the creditability and credit worthiness of the government in both local and international capital markets.

Additionally this can potentially shatter investors' confidence, not that the government has a very good record in attracting major investors to Guyana, nonetheless, it has serious implications for future development.

Government issued bonds by their nature are supposed to be a secure investment instrument and therefore investors put tremendous confidence in them.

I have argued before that government and corporations in Guyana should utilize the bond market more often to raise capital for financing activities.

Some financial analysts have argued against the principle of government's involvement in the bond market since governments have a tendency to profligate financial market discipline. However if the government defaults on the bauxite bond, no one will trust the bond market in Guyana.

The government's explanation that "it is seeking better terms on the bond....that if it cannot go to full Paris Club terms it must at least approach Paris Club terms," as put forward by Mr. Robert Persaud MBA, is ridiculous at best.

What do Paris Club terms have to do with the capital markets in Guyana? The bond issuer's ability to make coupon and principal repayments as assessed by the market, and the percentage of the principal and coupon payments which holders can expect to recover at maturity does not depend on terms by international financial institutions, not that the Paris Club is an international financial institution, it is an informal group of creditors who by conscience determine or renegotiate the terms of debt owed to them by developing countries, and therefore does not bear on or determine local interest rates in any country, much less capital markets. The inability of the government to repay local debts due in part to external debt which may have come due is a different issue altogether.

The government should have known in advance of its financial debacle and should have at least sought to renegotiate the indenture of the bond rather than to default, especially the repayment period, thus assuring creditors' confidence.

The government of Guyana should have had information on the liquidity of the financial system and what it needs to do to reach its obligation. But to put forward such a poor and bogus argument is incredible and shows the government's lack of seriousness in dealing with financial matters and development and as such proves its incompetence.

The financial market in Guyana should treat this issue seriously and should put pressure on the government to reach the terms of the bond indenture.

The financial markets cannot be held to Paris Club terms since the Paris club is not a legal body and has no legal status. It is merely an ad hoc group with the backing of powerful countries.

Holders of these bonds must make sure that the government fulfils its obligation, if even it requires this matter reaching the courts.

Government cannot be allowed to bully investors. Bonds are a tradable instrument and investors must be assured of the safety of their investment especially when it is in the hands of government.

Yours faithfully,

Dennis Wiggins

Stabroek News
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