A potential solution to help reduce the cost of funding Government debt and strengthen Bermuda's economic stability through the issue of Government bonds was put to the Ministry of Finance almost one year ago by the Bermuda Chamber of Commerce, The Royal Gazette can reveal.

But despite some major investors declaring an interest in investing in the scheme and there being a significant market for local investors, Finance Minister Paula Cox rejected the idea as a matter of policy.

That is according to Peter Everson, chairman of the Chamber's economics committee, who spoke out about the issue at the Chamber's Power Breakfast the Monday after the Minister's Budget Statement was announced.

Historically Government has borrowed from overseas through the international banking community due to having only a small pool of domestic savings, eroded over time as a result of mandatory retirement plans.

Over the past 25 years, Bermudians have become overly reliant on income from domestic real estate either directly via rental income or mortgage advances or indirectly through deposits, as well as holding shares in Bermuda Stock Exchange listed companies and relying on dividends to supplement their income, with the banks making up the largest market value.

Many of their returns have been impacted by the economic downturn, with rental income under downward pressure as residential prices decline and office space is still readily available and coming on line, and Butterfield Bank requiring a $550 million capital injection from mainly foreign investors as it writes off its toxic assets.

Mr. Everson stressed the importance of investors not putting all of their eggs into one basket but rather to diversify, offering up the concept of the Government bonds as a viable alternative.

"Because of the absence of Government bonds, we have got an over exposure to the mortgage market, which is dangerous because if there is a downturn in the real estate market the value of those loans and income from them will be reduced," he said.

"I made a proposal to the Ministry of Finance last year and it was supported, so I was surprised not to see anything in the Budget speech on it.

"On the Monday at the Budget breakfast I asked the Minister about it and her response was it had not happened and it was not going to happen - it was a policy decision."

At the time the idea was first presented, Mr. Everson pointed out the benefits of Government supplementing its traditional funding sources through issuance of the bonds to the public, including the ability to reduce borrowing costs and foreign currency debt servicing payments, while offering greater stability for Bermudian investors through asset diversification.

"In summary, it would help reduce Government costs and also increase the financial stability of the Island because of its diversification of risk," he said.

"It is something that could have been done a while ago and is long overdue and would help to put Bermuda on a firmer financial footing."