Published On:Wednesday, June 16, 2010

THE opposition PLP thinks bad times have handed them the next election on a platter. Passing the most realistic budget in recent history will do nothing to help the FNM, they say. In fact, they are confident that most Bahamians will blame the government for their economic woes.

The statistics are dismal indeed - a 6 per cent contraction of the economy over the last two years, a 20 per cent fall-off in stopover tourists, a 19 per cent drop in new mortgages, loan arrears of 18 per cent, and a 22 per cent decline in foreign investment - all adding up to well over 14 per cent unemployment.

Perry Christie says the prime minister is "singing a sad story, but without any ideas and without accepting any responsibility for the state we are in. The poor will suffer more with increased taxation and the resultant depressed effect there will be on spending."

Christie says the government's policies are unfairly painful to that legendary "small man" of Bahamian politics. Of course, out of power it's much easier to talk from both sides of your mouth - a skill known as "negative ambiguity." But the PLP's lack of coherence on the budget can be easily demonstrated by looking at recent comments from their top economic advisors.

Christie's respected former finance minister, James Smith, is on record as saying that a deficit of 3 per cent of GDP is unsustainable (it is now at 5.7 per cent). And he has acknowledged that rising debt sends entirely the wrong signal to banks and investors.

Only a few months ago Smith said the government had to reverse its "perilous" course and arrest the fiscal decline. After the budget was presented, he said it sent all the right signals, noting that a downgrade in the country's credit rating would raise borrowing costs from their present high of 15 per cent.

Smith even went so far as to call for a 10 per cent cut in public sector spending across the board, adding that "If you don't do it now, it will have to happen some time." And top PLP financier Frankie Wilson has also called for a 10 per cent cut in government spending. We will have to take their words as the clearest indication of what a PLP administration would be doing right now.

Last year Wilson noted that economic advisors had made the same 10 per cent cut recommendation to the PLP government in 1991, during the recession caused by the first Gulf War. And that recommendation was as relevant now as it was then, he said, arguing that more government spending would be "dangerous."

But in opposition the PLP sound more and more like the Republicans in America, reducing themselves to the party of no. They may well lambaste Hubert Ingraham for both expanding the deficit and then trying to rein it in; but their inability to suggest realistic alternatives or to acknowledge their own role in creating the problem makes them rather less impressive - cynical really.

And they have obviously heeded the advice of the notorious propagandists in their midst by accusing their opponents of the very sins for which they themselves are so well known - poor governance, partisan spitefulness and lack of accountability.

As many others have pointed out, both parties share responsibility for our current economic circumstances. While in power, both parties wasted millions, handed jobs to the boys, played politics with the public corporations and unions, and turned a deaf ear to good advice from the private sector. And both parties will now have to contribute to the solutions if we want to maintain our way of life.

That brings us to the main difficulty we have with the budget.

Belt-tightening is one thing, and this budget makes a start on that. But what about some creative ideas to build a better future?

There are two broad proposals for growing the economy mentioned in this budget: An aggressive investment promotion tour of key world cities, and a $10 million small business development framework to encourage private sector job creation.

It is unclear what the latter initiative will amount to, but the government says the goal is to reduce red tape, eliminate duplication of services, and give more support to entrepreneurs.

Others have made more radical suggestions.

Tribune Business Editor Neil Hartnell called for a "nuts and bolts study of the entire public sector, probing into every nook and cranny to uncover inefficiency, overstaffing, waste and fraud. The savings that could be realised might be substantial, and surprise a lot of people."

Former finance minister James Smith wants to cut the prime rate, to help businesses and households meet loan payments. The average residential interest rate is now 8.4 per cent, while the commercial rate is 8.8 per cent. And the budget acknowledged that high unemployment and a challenging business environment were "constraining" the ability of borrowers to service their debts.

However, changes in lending rates almost never occur here.

John Rodgers, an entrepreneurial eye doctor with a reputation as an economics commentator, has also called for the government to use monetary tools to help the economy. In a soon-to-be-published book (Is it Better in the Bahamas...For Bahamians? by Media Enterprises) he calls for the abolition of exchange controls and the replacement of Bahamian currency with the US dollar, to end the long-standing banking cartel and allow greater access to capital by cash-starved entrepreneurs.

Rodgers also says we should embrace the vast potential of medical tourism. "If we could receive the $2 billion annually that Cuba receives from medical tourism, not only would our national debt be reduced, but Bahamians would have true ownership of this segment of the economy, which would be virtually recession-proof. All that would be required would be a collaborative effort between the medical community and the ministers of health and tourism."

There has been renewed interest in proposals to revamp our 19th century tax regime. Several studies in recent years have called for the introduction of a value-added (VAT) tax to replace import duties, which are too heavily linked to international trade and fail to capture revenue from the services sector (especially well-heeled doctors and lawyers). However, no government has had the will or energy to embark on the long consultation and planning process that would be needed to achieve this.

And speaking of energy, that sector is ripe for far-reaching reform so as to lower costs, improve efficiency and promote energy security. Although fuel imports fell last year to about $668 million as oil prices and domestic demand moderated, gasoline and diesel prices have been rising again this year. And when oil prices spike again - as most experts say they will - we will regret not having used the intervening period to make necessary changes to our lifestyle and economy.

The record of the last three years on this issue is not particularly hopeful. Although the FNM initially embarked on some major policy initiatives -- including a national energy policy, an invitation for production of renewable energy by the private sector, an aggressive energy efficiency programme and a regulatory review, these efforts seem to be floundering today.

BEC recently cancelled its two-year renewable energy tendering process with literally nothing to show for it. IDB-financed studies are still underway to determine changes to the legal and regulatory system, and to promote energy efficiency and conservation. Meanwhile, the government is making enormous investments in conventional generating plant on several islands that will be in use for the next 20 years.

According to Glen Laville, project manager at the Ministry of Environment for the IDB-sponsored initiatives, "Sector reform is a process. We are presently completing the necessary studies to ensure the outcome is positive. This takes time. The fact is there's a helluva lot happening and a lot will eventually come out of this, but we are just not there yet."

The government seems to be betting the future of energy reform on a possible investment by the Canadian power company, Emera, in BEC. Emera has lately been conducting a review of BEC's operations to develop a turnaround plan for the corporation, and is also a major shareholder in the Grand Bahama Power Company.

"We picked Emera as a strategic partner to look at what the IDB consultants were doing from a practical, operational view," BEC Chairman Michael Moss told me recently. "In addition to wind turbines, we are looking at circulating fluidised bed furnaces to burn a variety of fuels, and also considering wave energy, but conservation is the only real green energy at the moment and we will be pushing that angle strongly. We are some distance away from any utility-scale RE projects."

The slowdown - if not collapse - of the government's energy initiatives is most unfortunate in my view. I fully agree with the view of New York Times columnist and author Tom Friedman, "In this kind of world, leadership at every level of government and business matters more than ever. We have no margin of error anymore, no time for politics as usual or suboptimal legislation.

And as regards the PLP's expectation to benefit electorally from the economic downturn, I offer another quote from Friedman: "In this economic climate, people know they need to be smarter, more frugal and make tougher choices in their private lives. They know they can't fake it or fool themselves anymore, so they have much less tolerance for politicians who want to do that in our public life."

What do you think?

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