| With the Belize economy in recession, and US currency as scarce as a ham leg on Christmas Eve, the chamber of commerce today looked to financial advisor Ervin Perez for advice. He holds quarterly sessions with private sector stakeholders and today the subject was government's financing of domestic debt with treasury bills and notes. Now, to the layperson that may sound about as exciting as watching grass grow, but Perez says it could translate into lower interest rates on lending from commercial banks, and lower interest expense for taxpayers:...
Ervin Perez, Managing Director - Lagacy Fund
"It's important for us especially in this current economic time that government's financing of debt is the more efficient. This also translates to the private sector because government debt and the cost of government paste is kind of like the bench mark on what private sector has to pay. Simply put, the private sector always have to pay a risk premium over government debt rate. So if government pays 5% on some treasury note, private sector will normally have to pay 5 plus a premium of 3-4% more on a same instrument of a same maturity."
Daniel Ortiz, 7News
"Is the government right on target on their recommended amounts of treasury notes and treasury bills it has issued or currently issued? Or is there any dangers in your mind that we should be aware of?"
Ervin Perez, Managing Director - Lagacy Fund
"Well I would say that the government has been very conservative as how they should be but I think there is more room and more need for a greater allocation of domestic security. So right now the maximum T bill and treasury notes is about 850 million dollars. I think to steer our economy out of this mild recession and to stimulate economic growth and all the things that needs to be done, we have to have that ceiling go to about 2 billion dollars' worth of both T bills and T notes that can be issued by the government. So we're talking about 3x where we are."
Reporter
"How receptive has the government been in considering what you have been saying regarding the interest rate on the T bills and the T notes?"
Ervin Perez, Managing Director - Lagacy Fund
"Well we have seen that the treasury notes, the rates have fallen so there has been significant savings. Previously before the lobbying effort started, you had interest expense upwards of 24 million dollars a year. That's down now to about 19 million dollars so you're talking about 5 or 6 million dollars in savings. so interest rate on the treasury notes have fallen about 3 percent to 2 percent but what we are saying is that those risks need to go much lower than they are right now to stimulate economic growth and you are talking another 2 or 3 percent on the treasury notes. that also translates to allow private sector to borrow more and that has to take place because as we say in this current point in time, government is being conservative and is slowing down on public spending so that has to be replaced by private sector making the investment."
Perez estimates that government could save 13 to 15 million dollars a year less in interest expense if it would put its treasury notes out to auction.
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