The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The complete absence of effective corporate governance within the Government “is solely responsible for the financially disastrous situation” the Bahamas now faces, a well-known attorney charged yesterday.

Carey Leonard, the former Grand Bahama Port Authority (GBPA) in-house lawyer, urged the Bahamas to immediately implement a proper corporate governance culture, and appropriate oversight mechanisms, within the public sector to prevent this country suffering further rating downgrades and a currency devaluation.

Addressing a Bahamas Institute of Chartered Accountants (BICA) conference in Freeport, Mr Leonard said the nation’s high crime and unemployment levels, plus low educational achievement, could be traced directly to the lack of transparency and accountability in government.

Now a Callenders & Co attorney, he argued that “compliance with corporate governance is lacking in almost every area” in the Bahamas, both in theory and the practical application.

“This brings me to the area that no one seems to discuss, but is now screaming for corporate governance; the area that is completely out of control because it has absolutely no corporate governance whatsoever, and is solely responsible for the financially disastrous state that this country finds itself in today,” Mr Leonard said. “The area of our economy that I refer to is Government.”

Pointing to numerous Auditor-General’s reports, which had uncovered a litany of fraud, financial abuses and wastage in agencies such as the Post Office, Post Office Savings Bank, Road Traffic Department and the Port Department, Mr Leonard suggested it was incredible that no one had been held accountable for the damage inflicted on Bahamian taxpayers.

“The entire reason this country has high unemployment and little foreign direct investment is because no one in any ministry of government is accountable,” he argued.

“Over the last few years we have seen one newspaper report after another setting out details of theft, misappropriation of funds, cost overruns, construction work handed out to people who do not meet requirements and nobody, but nobody, is made accountable.”

The construction reference likely alludes to the absence of insurance for the burned down BAMSI dormitory, and Mr Leonard also pointed to admissions by the chief medical officer that 25 per cent, or $100 million, of the Government’s $400 million annual healthcare spend goes to waste, as further strengthening his case.

He also suggested that governance weaknesses within Government were also responsible for the Bahamas’ constant slippage in the World Bank’s ‘ease of doing business rankings’, and the failure to introduce Fiscal Responsibility-type legislation to track government spending.

“This is what happens when you have no corporate governance,” Mr Leonard argued.

“In case it has escaped some people, the running of a country is a business. The more successful the business is, the better off its people are.

“Take a look at Norway and the other Scandinavian countries, for example. Yes, they have some of the highest tax rates in the world, yet their citizens are some of the most content in the world. They have a very high degree of corporate governance in the way their run their countries. They have transparency and accountability in government.

“If many Bahamians want to find out why there is high unemployment, poor education and high crime, they don’t have far to look. The answer is before them every day, and it is the various ministries of government who are to blame.”

Mr Leonard said tentative efforts to reform the public sector by ministers in previous administrations had been met with “fierce resistance”, and a lack of support from other Cabinet ministers, with “certain high-ranking” civil servants unwilling to change the status quo.

The Bahamas, he added, was now “paying the price” because of its lack of will to reform, with the effects emerging in an “out of control” government Budget, poor educational achievement and downgrades of the country’s creditworthiness.

With the Bahamas now one notch away from being downgraded to so-called ‘junk’ status, Mr Leonard said few Bahamians understand the impact this would have on their own lives.

Suggesting that Greece was a good example of the fate that will befall the Bahamas unless it changes course, he warned that a ‘junk’ downgrade could provoke both a ‘sell-off of the Government’s debt securities and raise its borrowing costs on the international markets to 9-10 per cent - double the interest that the country is paying now.

“Now, that may not immediately affect the man in the street, but what will certainly get his attention will be the devaluation of the Bahamian dollar,” Mr Leonard said.

“Now because of the Government’s total lack of accountability and total lack of transparency, I am left to rely on what information I can get with respect to a devaluation of the Bahamian dollar, but I believe that devaluation is almost certain to occur soon after a downgrade.”

John Rolle, the Central Bank governor, recently reassured that the Bahamas’ one:one peg with the US dollar was under “no imminent or medium-term threat of devaluation”, with pressures on foreign currency reserves that stood at $993 million at end-August also absent.

However, Mr Leonard said he had received advice that the foreign currency reserves were “all a shell game”, given that their health was dependent on attracting sufficient tourism and foreign direct investment inflows.

Should these two sources prove insufficient, he added that the Bahamas would have to borrow to both support the peg and the reserves, meaning they were propped up with funds that eventually have to be repaid in foreign currency. This, in turn, drains the reserves.

Quoting what was told to himself, Mr Leonard said: “Some (internal) economists calculate that if we have a ‘Come-To-Jesus’ reckoning of the reserves and the economy, the Bahamian dollar is worth only 35 cents American.”

He then told his BICA audience: “Can you imagine that second hand car that you saw in Florida for US$10,000 will cost you B$28,571.43? Inflation will become a very real problem as we import virtually everything. And there will be pressure to resist any salary increases as that would only fuel inflation further.

“So it is fair to say that the implementation of corporate governance in the public sector must be done right away. Unless we want a downgrade and the resulting disaster to our economy that will almost certainly follow, we must start the implementation right away.”

Mr Leonard said the system, rather than the people in it, was to blame for the Bahamas’ predicament, and questioned why the public sector could not match the private sector’s efficiency in producing Value-Added Tax (VAT) returns within 15 days.

He added that hope for reform lay in the pressure being exerted by the likes of the International Monetary Fund (IMF) and credit rating agencies, and efforts to produce a National Development Plan.

“They really must be shaking their heads, as they have done everything that they can do to prevent the Bahamas from going down this road to disaster,” Mr Leonard said of the IMF and agencies.

He added that the permanent secretaries, the senior civil servants who head government ministries, had to assume as much responsibility as the politicians for the governance woes.

“To bring our sick and ailing economy back to health we must, must introduce best practices in all of our ministries, departments and government corporations,” Mr Leonard said.

“The economic ship is leaking hundreds of millions of dollars a year. The rise of our national debt makes it clear that we are sinking. The private sector can no longer cover the burden of these ever-increasing losses. Something has to be done before the Bahamian economy finds itself in the Intensive Care Unit of the IMF and the World Bank.”

He continued: “Often times a chief executive and his management have to make difficult and unpopular decisions in order to save the company. Our politicians and the permanent secretaries are at that very point.

“They must act quickly or the patient will get worse, and they will force upon their fellow Bahamians hardships and suffering that could have been avoided. They can put an end to the out-of-control spending, to the various government departments of Road Traffic, Customs, Passport Office, Post Office, Public Hospitals Authority, in their respective ministries, by making those responsible for the losses publicly accountable. They can save a downgrade from occurring and a devaluation of the Bahamian dollar occurring.”