Dear Source,
Holmes-Norton, Mapp, Mills and myself fundamentally agree that insolvency means you have a government in deep do-do. I prefer that the issue be framed: "What does insolvency mean to the Virgin Islands electorate?" This way, perhaps the responses could awaken that sleeping giant to recognize the connection between insolvency and enslavement.
A bond is a note of indebtedness. When the V.I. effects a bond issue, it means the electorate is borrowing money which has to be repaid at a specific rate of interest, at a specific time. In other words, the borrower has sold a part of its financial future, based on the proposition that it will be able to repay the note. A failure to repay, otherwise known as a default, will seriously impede — if not eliminate — the ability to further borrow until no additional borrowing is possible. Hence, insolvency.
It means that life's choices are restricted, controlled by outside forces, and somewhat mandated by them. As a political unit, the V.I. may not be able to provide certain services to the electorate. Choices become subservient to the service on the debt. Services needed and desired by the electorate may be curtailed or eliminated. Imagine the future of a place with unaccredited schools, unable to afford to upgrade the level of its educational systems, because the funding needed has to go to service debt.
Bondholders are creditors who can assume the position of being able to direct the choices that an otherwise free electorate can make. Reference countries indebted to the International Monetary Fund. Sparrow refers to the condition as "bound by economic chains." Just take a look at the recent happenings in the State of California. That state can hardly borrow more money, it is in such debt. Choices are being made that will not only affect the quality of education that electorate can afford for its children but even something as personal as whether individuals can afford to pay the ownership tax to be able to own a car.
It is unclear what the discussion between Mills and Mapp regarding the rating of V.I. bonds is about. Clearly, the rating of a bond is a measure of the risk assigned to it by the marketplace. Puerto Rico bonds are obligations of the federal government and carry a triple A rating. Nevertheless, they are perceived in the marketplace to be "riskier" and therefore Puerto Rico is forced to offer higher rates to attract investors. Why V.I. bonds would be rated any differently than those of Puerto Rico, when both should have the same guarantor, is an open question.
Nevertheless, the use of a bond issue to borrow money to use as working capital is a sign of fiscal desperation and capitulation to the inability of government to control spending. Essentially, borrowing is being effected to pay expenses — going into debt to pay debt — rather than to fund a revenue-generating stream, e.g., investment. To depend on gross receipts to provide an income stream for repayment may look beyond the fact that there must be receipts, at a level to accommodate repayment. Future development of other areas in the Caribbean, as well as the opening of Cuba, holds what future for expanding receipts?
As the ability to borrow contracts, the inability to effect increased consumption expands, thereby reducing receipts. Like Mills, I want the electorate to know where they are. They shouldn't have to wait until the hammer hits them on the head to know it's going to hit hard, and with serious pain.
José A. Gomez
Clayton, N.J.
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