CNMI - Letters to the Editor
POB is the answer
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- Published on Monday, August 06, 2012 00:00
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THE Variety’s article of August 3, 2012, “Bond to Cost NMI $30 Million a Year,” seems to miss the point of pension obligation bonds entirely.
In the article, the Variety quotes Maggie Ralbovsky, who is not a policy maker, as advocating against issuing POBs since the interest cost, according to her, would be $30 million per year, and since the fund might incur “negative arbitrage” (earning less return than paid to bondholders), while ignoring entirely the purpose of POBs.The purpose of POBs is to shore up the otherwise bankrupt NMI Retirement Fund, which the CNMI consistently has been unable to fund since the 1990s, even in the face of a court order. POBs are the ONLY viable means of accomplishing this objective today.
While it is true that, assuming a $300 million issuance and a 10 percent interest rate (which may or may not be the actual rate the CNMI would pay), interest would be $30 million in the first year, this amount would decline as bonds are paid down annually. More importantly, this ignores the growing unfunded obligation of the NMI Retirement Fund, which has grown significantly MORE than $30 million per year over the last several years. This is a debt of CNMI just as surely as the POBs would be. POBs serve the dual benefits of both replenishing the NMI Retirement Fund immediately and converting the debt to bonds, which the CNMI cannot avoid paying as it has its obligations to the NMI Retirement Fund.
The recent bankruptcy filing of the NMI Retirement Fund and the prediction that funds will be depleted by 2015 emphasize the need to address this with urgency and make the moral and business common sense choice by funding a legal debt of the CNMI, ensuring retirement benefits owed to retirees and keeping the money circulating in our economy, which we surely need.
Please join me in supporting House Legislative Initiative 17-5.
IVAN A. BLANCOCapital Hill, Saipan
Comments
The CNMI's debt rating already has "junk bond" status based on past articles by both news papers. Just as bad, the rating agencies are considering dropping it further. See: http://www.mvariety.com/cnmi/cnmi-news/local/46362-moodys-nmis-b2-bond-rating-under-review.php
Ba2 is a "speculative grade" as opposed to "investment grade." You can also call it a "sub-prime loan." Wikipedia has an easy to understand chart: http://en.wikipedia.org/wiki/Moody%27s
My understanding is that the interest rate will be set at 12-15% annual interest on the low end, but it will be closer to 20%. Therefore, this is a situation where borrowing money will make things much worse than they already are.
Please also note that the CNMI sold bonds to pay what it owes due to eminent domain takings but used the money to build the prison. That's the kind of action that ruins this government's credibility and forecloses any opportunity it has of selling bonds. Not only that, but this bond would be used to pay a debt obligation the CNMI has already defaulted on. You think Wall Street won't factor that into setting interest rates?
We are just thinking if the way you both think, as you wrote today, where would the CNMI be? You both have a very “dangerous” advice to the voters that’ll ruin the CNMI to its peril as stupendously fast to its destruction. I believed we have a better choice and we ask both of you to heed: “together go to Banzai Cliff and ask between the two of you who’ll jump first so that the CNMI will have its strong foothold rather than listen to both of what you said”. We will pray for the both of you, don’t worry. -Noel
To: Mr. Blanco:
Bottom line, Sir: If the CNMI gov't. was not able to pay its "interest free loan" and the "2009 court judgment", the plan issue of new POBs will be difficult to sell. Even a venture capital investor will not buy those POB issues unless minimum 15 percent interests are attached to those POBs. Even at that interest, the risk of default is so high and it is not worth taking such risk. Are you aware of the CNMI credit rating, Sir? "It is not an investment grade!" Let me know once you find it? Inform us here also if investors will "bid" on the plan POB issue. The CNMI gov't must restore its credibility in honoring its contractual obligations to the Retirement Fund and all the court judgments against it before you even consider floating the POBs. Thanks-Noel.
FACT: 1) Since 1990 to 2009 or 19-years in the making, the CNMI did not fulfill paying its employer contributions due to the Retirement Fund. It is an "interest free" loan. 2) From 2009 to present, even with the court judgment, the CNMI gov't. did not pay even a "penny" to this judgment. Therefore, you mean to tell me, from 1990 to present, under both scenario as you alleged, the government debts are not legal debts because only POBs are considered legal? Baloney, Sir!
Even unpaid vendors accounts, unpaid salaries, unpaid taxes, unpaid credit card charges, unpaid car loan, unpaid mortgage loans, and other related unpaid accounts are all considered "legal debt". You mean to say, these are not legal debt because these debts are not POBs? C'mon, where did that definition come from? Perhaps, I missed that in business school! Please educate and teach me on your new definition of legal debt? /Cont'd... by:-Noel