Spice Island Is Case Study In Debt Traps

The small Caribbean island of Grenada offers a salutary lesson on the dangers of loading up with debt for governments tempted by easy money, the Financial Times reported. Since defaulting on close to $200m of international bonds in 2013, Grenada has been trying to negotiate a restructuring deal with its creditors. Now, according to sources close to the discussions, a deal may be approaching following meetings between the government and its creditors in Washington last month. But Grenada’s debt woes go far beyond the hundreds of millions it owes in US dollar bonds. To understand the full extent of the Spice Isle’s debt problems you need to go further into the country’s finances. The $193m that Grenada defaulted on last year was the product of an earlier brush with bankruptcy in 2005 following a devastating hurricane, which led the country to push back the date of debt repayments to 2025 in a “light restructuring”. On top of this external debt, borrowed in US dollars, Grenada also stopped servicing XC$184m (US$68m) in local currency debt, borrowed in Eastern Caribbean dollars. The government also has outstanding debts with numerous creditors, including the Paris Club, which were restructured in 2006, and is locked in a legal battle with the Taiwanese government-owned Export-Import Bank of the Republic of China, which is pursuing the government of Grenada through New York courts for a payout on four loans provided in the 1990s. Read more. (Subscription required.)