Governments, even micro-administrations of tiny jurisdictions, have the ability to raise finance to an exponentially greater degree than individuals and small businesses.

In the aftermath of the September 2017 natural disasters that devastated the Virgin Islands economy, borrowing heavily to stimulate economic growth is not an option.

The VI requires at least $3 billion in infrastructure spending over the coming five years to get the economy back to its pre Irma gross domestic product. Most of this cash will come from deficit spending, another name for borrowing.

However, borrowing must be tied to a long-term strategic economic plan. Financial management of the borrowing that drives post Irma economic recovery must be part of a vision for the territory, and it must be transparent, efficiently administered and effectively audited.

Now, there have been assertions that borrowing from local institutions is a better option for the territory than external borrowing. Why? Because interest payments on local loans mean that revenues remain in the territory.

Consequently, these local institutions are strengthened financially. The preceding keeps cash working in the local economy as the loaned cash is sourced and utilised locally. This cash increases the velocity of transactions in the internal market economy, which is a form of economic stimulus.

Banking questions

The question must then be asked: Have those institutions the capital requirements and cash reserves that offer them the ability to lend government the hundreds of millions required for short- to medium-term disaster and economic recovery?

And how would lending government the cash impact the bottom line and mandated operations of these organisations? How would becoming lender of last resort for government change the specific call and nature of these organisations?

There are voices that state that caution, and a gradual approach to borrowing, is what is appropriate at this time, and not taking on borrowing from external sources that have no interest in the welfare of the VI.

Government can borrow locally gradually, over a longer period of time. Doing the preceding, and adopting a gradual approach to borrowing for redevelopment, is more sustainable than heavy external borrowing for swifter economic stimulus and disaster recovery.

All of the preceding assertions and arguments are worthy of detailed analysis and assessment.

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