BASSETERRE, St. Kitts – THE year 2009 proved to be a turbulent and uncertain period of economic tightness and while success stories have been made, the challenges created an opportunity for stakeholders at all levels to address the changing state of a vulnerable economy.
The 2009 fiscal term inherited its share of difficulties from late 2008, when larger countries officially conceded that their economies were in recession. The period, described to be the worst financial crisis since the 1930’s, brought with it the failure of key businesses, significant decline in consumer confidence and burdensome financial commitments borne on governments.
In St. Kitts and Nevis, this international crisis translated into a decline in tourist arrivals, a slowdown in economic activity and threats of increased unemployment.
Despite these threats, January seemed a time of optimism for companies, not only because the effects of the crisis were not as obvious at that time but also because companies entered the New Year with healthy profit levels, and in some cases record profits.
Marriott International launched the third phase of its newest branch of the Marriott Vacation Club International, adding 22 high-end villas to the property in St. Kitts. The Customs and Excise Department recorded an unprecedented EC$159.4M in tax collection entering 2009. And companies including TDC, S. L. Horsford’s and LIME had much confidence entering 2009 from a profitable year.
In early January, the nation witnessed a historic occasion when British Airways, one of the world’s leading international air carriers, made its inaugural touch down at the RLB International Airport after flying out of London’s Gatwick Airport. Additional weekly flights from British Airways and then from Delta Airlines would soon fall in line later in the year.
In mid-January, the St. Christopher and Nevis Social Security Board upgraded all minimum payments by 33% in response to the effects of inflation. Later that month, the economic squeeze had been made more evident when the Federal Parliament advanced a resolution to approve EC $510 million for short-term borrowing and EC $55 million for guarantees to the Nevis Island Administration and Public Corporations, including the St. Kitts Tourism Authority and the Port Authority.
It was immediately after this announcement that news broke of liquidity challenges at the Trinidad-based Colonial Life (CL) Financial, which led to the government of Trinidad and Tobago passing a bailout plan to take control of CLICO Investment Bank, CLICO insurance (Trinidad) and the British American Insurance Company, subsidiaries of the failing regional company.
While some regional insurers assured their clients that the financial difficulty was limited to Trinidad and Tobago and had no effect on their respective operations, it was only a matter of weeks that it was announced the Federation’s depositors and investors in the local branch stood to lose several hundreds of millions from their policies.
The fall of CL Financial was only the preview of how the financial sector was about to be turned upside down. Within days, hundreds of depositors at the Bank of Antigua frantically moved to withdraw funds after headlines surfaced that the Board of Directors Chairman, Robert Allen Stanford, was being investigated by the US Securities and Exchange Commission in mid-February for fraud of roughly US $8 billion.
This triggered an immediate response from the Eastern Caribbean Central Bank (ECCB) and in less than three days the central bank announced that it assumed control of the Bank of Antigua to “stabilize the situation”. Kittitian Edmund Lawrence was then appointed Governor of the newly established company, Eastern Caribbean Amalgamated Financial Company Limited (ECAFC), an amalgamation of indigenous banks of the Eastern Caribbean Currency Union (ECCU) together with participation from the Government of Antigua-Barbuda.
The new company served to oversee the creation of the Eastern Caribbean Amalgamated Bank (ECAB) and will run the Bank of Antigua until the legal arrangements are put in place for the final sale to that new entity.
Following the April 2 G20 Summit in London, global leaders agreed to introduce sanctions on “secretive” tax havens around the world, resulting in the Organization for Economic Cooperation and Development (OECD) publishing a list of 30 countries that had committed to its tax standard, but did not substantially implement it. St. Kitts-Nevis was named among those on the dreaded ‘grey list’. Government officials were not pleased with the classification, but by the end of 2009 the nation needed to sign only four more Tax Information Exchange Agreements (TIEA’s) to meet the minimum requirements set by the OECD and to make it to the white list.
The ensuing four months were filled with surprises, some greater economic threats than others. It was obvious after the failure of CL Financial and the struggles of the Bank of Antigua that the spinoffs would shatter consumer confidence and negatively affect the Federation’s financial sector and labour markets.
It was from this depth that the storm of economic instability rained down on the nation and one by one businesses began to lose hope.
In late March, 66 lost their jobs at the International Market Access (St. Kitts) Ltd. Two weeks later, 100 employees of the Royal St. Kitts Marriott Beach Resort & Casino Ltd. were abruptly terminated, causing great concern in the wider Federation. To add insult to injury, some businesses had not yet recovered from the effects of Hurricane Omar, which passed in October 2008. Roughly 600 persons were left without jobs after Four Seasons Resort in Nevis was damaged, and the closure of the five-star resort has cost the Nevis Island Administration about EC $20 million in direct revenues to date.
Winair discontinued its service by the end of March, Red Sails in May and the Saddlers branch of the SKA National Bank was closed since April 8 due to continual robbery threats there.
It was at this time that international institutions including World Bank and the International Monetary Fund began to roll out stimulus packages for vulnerable economies, increasing Special Drawing Rights and giving support to less developed countries to avoid reversing the economic progress previously made. This began with an injection of US $1 trillion in early April.
The St. Kitts-Nevis Ministry of Finance, at the same time, launched a six month tax amnesty that covered a total of 18 imposts and settled 446 tax arrears. Through the amnesty period, which ended September 30, Inland Revenue collected over EC $2 440 000 up to November 6, 2009 from the arrangements made, with a further $564 000 to have been collected by yearend.
In late April, Marriott International invested about US $125 million to again expand its property, claiming 10 acres of the former Angelus property. This business decision brought some contention as investors in the old Angelus resort were not yet compensated.
The challenges to small businesses in the Federation were reduced due to a series of stimulus packages launched by the government. Standalone restaurants were allowed to receive duty free importation of food, wine, kitchenware and appliances and furniture.
By the end of July, after much consultation with stakeholders, regulators in the ECCU made swift interventions in the operations of the toiling British American Insurance Company (BAICO), another subsidiary of CL Financial, and applied to the High Court in the several jurisdictions to appoint judicial managers from the accounting firm KPMG.
The ECCB Monetary Council recognized that in order to minimise negative spinoffs while at the same time preparing the region for an impending upturn, it had to pursue an eight-point stabilization plan. The programme outlined suitably adapted financial programmes, fiscal reform programmes and debt management programmes for each country. And so, the months of June, July and August proved to be critical lynchpins in reconciling regional responses in a timely manner.
In late August, more relief came to the local population as the Taiwan International Cooperation for Development Foundation (ICDF) gave a loan of US$ 400 000 to the Foundation for National Development (FND) to assist in the growth of microenterprises, especially in the areas of agriculture and information communications technologies. This was the perfect backdrop to enter October with, as Financial Information Month encouraged the public to ‘save today to enjoy tomorrow’.
November opened with the first signs of good news for policyholders and investors in BAICO when it was announced that a new company is expected to assume of the life of the failed insurer to avoid the substantial losses associated with liquidation. The report from the judicial manager revealed that the monies of policyholders were invested in risky business ventures without their knowledge. On December 12, the High Court granted permission for the business to take control of the failed BAICO branches.
December too brought more signs of recovery and gave regional companies and governments more hope for their respective economies. The nation entered the month with good financial backing from the first three quarters with a Recurrent Account surplus of EC $18.85 million, Overall Balance of EC $50.26 million and a Primary Balance of EC $134.88 million, all in excess of what was initially projected.
This fiscal space afforded the government the opportunity to announce a number of new policy initiatives, including double salary for civil servants, duty free concessions on the importation of paint and an increased measure of foodstuff for December. It also included a waiver on the fuel surcharge as a relief to the nation.
Business on a whole ended the year on a high note, with much hope to enter 2010 positively as heads of state from across the Organization of the Eastern Caribbean States (OECS) signed the Treaty of Basseterre and established the OECS Economic Union. The move was a historic one and although the real results will not be seen until late 2010, it is expected to deepen the integration process in areas including, but not limited to, telecommunications, agriculture and transportation and civil aviation.
2009 certainly tested the strength of the financial sector and the flexibility and maturity of policymakers and governments in response to the crisis. Many lessons have been learnt and 2010 is hoped to be the period for the Federation to welcome a predicted economic upturn.
