No benefit

Our middle-income country’s financial instruments do not benefit from the liquidity arrangements that large countries do.

Special Envoy to the Prime Minister, Professor Avinash Persaud made this comment during Financial Services Commission session, “Financial Resilience and Debt Sustainability” event recently.

During a Zoom virtual meeting, Persaud explained that the liquidity premium is not stable and it fluctuates.

“In good times, it is very slow and in times like this, it is very high,” said Professor Persaud.

He also referred to repo markets noting that there is high quality collateral and it can be posted at a Central Bank and the institution will provide fairly inexpensive liquidity. But he added that Barbados could not participate in this exercise.

“Barbados does not have high value collateral,” said Professor Persaud.

The economic expert suggested that for middle-income countries there is a need for only high quality participants – large asset managers – who are committed to investing in climate resilience.

“Here are a set of bonds that are financing climate resilience. But they come however from a set of countries that do not have liquidity in their financial instruments. Let’s have a repo market where we only have high quality participants who want to invest in climate resilience...” said Professor Persaud.

He proposed this as a way of shrinking the liquidity premium which has “exploded” during COVID-19 and become a significant problem in today’s environment.

His views came after the Executive Secretary, LAC Debt Management Group, IDB, Joan Prats presentation.

The Financial Services Commission session “Financial Resilience and Debt Sustainability” event was a part of the Distributed Sovereign Debt Research and Management Conference (D-DebtCon), featuring ten events hosted by ten institutions in nine countries across five time zones.

The September 7-18 conference series is an urgent response to the ongoing global public health crisis that magnifies persistent sovereign debt problems and poses new ones of unprecedented scale and scope.

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