LETTER: New equity-linked gilt stocks could help fix the roof
Following Mamokete Lijane's column I would like to suggest a few bold steps the government could take to fix the roof while the sun is still shining (“Treasury’s cash haul calls for wisdom or we may still go bankrupt”, February 16). It seems that we may have little time to enjoy the current spate of good financial news before the roof caves in.
The pleasing news from the Treasury on its healthy cash position, bolstered by enthusiastic gilt sales, gives us a brief reason to smile. Unfortunately, it doesn’t scratch the surface of the medium- to long-term exchequer capital requirements.
We desperately need a new funding initiative to bolster gilt sales and to fix a few other problems along the way. Index-linked gilts were introduced many decades ago but now need a substantial facelift to prove attractive once again.
Here’s my suggestion: introduce new gilt stocks linked to the equity market, say the JSE index. This is not a new device since the derivatives markets invent such strategies all the time.
The advantage of this ploy is that the exchequer would get its funding and investors, now hunkered down in bank deposits, could dive into an equity-linked vehicle without having to be too brave.
There is little to no risk for the exchequer in at least road-testing this new vehicle. It may even take off in a big way. It might even be an attractive home for the passive investment market and might even kill off a few hedge funds. This would be reason enough for me.
There are many fascinating aspects to this form of governmental funding that further examination could reveal, all positive from what I can see so far.
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