By G.A. Dwyer Astaphan
Having read at the Budget Address and listened to some of the debate, it has become even clearer to me that our Prime Minister will be fired.
The only two questions to be answered are:
(1) Who will fire him, the International Monetary Fund (IMF) or the people of this country? and
(2) When will he be fired?
At pages 4 and 5 of his Address, he states, with what must have been reluctant, and perhaps even forced candour, that while “we are not under any IMF Programme at this time,...if during the upcoming fiscal year we encounter any substantial shortfalls in revenue or financing, we would be prepared to engage the IMF further (my emphasis) in relation to accessing financial facilities”.
All of that is intended to prepare us for an IMF intervention, which could take place anytime in 2011. But he desperately wants to avoid it, because he knows what it would mean for him.
When the economy of an IMF member nation is in serious trouble, the IMF often has to intervene with measures intended to rescue and stabilize the situation.
But intervention is not something to be celebrated. Instead, it is an indication of failure and mismanagement of a country to the brink of bankruptcy. And that 1.5% interest rate comes with some extremely stringent conditions, because the IMF, like any other receiver/banker, puts everybody and everything under heavy manners and ensures that others, including the holders of Government bonds and other indebtedness, share the loss and the burden of cleaning up the mess.
In this regard, I invite you to Google “IMF intervention” and also to check out what Jamaica endured after the IMF intervention there in the 1970’s. Go to: http://www.youtube.com/watch?v=YolJPwfsbqg.
You will soon realize, never mind any rhetoric to the contrary, that when the IMF moves in, it becomes the de facto Government and the Prime Minister.
It is simply not going to run the risk of allowing whoever it is that created the mess to lead the rescue process out of the mess. Would you?
But what is the evidence of this mess? Economic contraction, drunkenly high Government debt, a debt-to-GDP ratio of 195%, deteriorating standards in the delivery of government services, massive layoffs, more unemployment, downsizing, closures, and so on.
And what caused the mess?
If you ask the Minister of Finance, he will tell you that it was the hurricanes of the mid-to-late 1990’s and the global recession which started a couple years ago. He will tell you that it had nothing to do with him because he has been efficient and transparent, even exemplary and visionary, in his stewardship over the public finances.
If you ask the people at the IMF, they might tell you to check their website or speak to your Government. And if you ask them why the IMF has not published all of its full and complete Article IV Country Reports on St.Kitts and Nevis for every year over the past ten years, as opposed to publishing its annual Executive Summaries, they will not tell you that maybe the Prime Minister of your country has not given them the go ahead to publish the full reports. And they might again tell you to check your Government.
But the truth is that even from the IMF Executive Summaries we can get some guidance on the causes of our economic and fiscal troubles.
And over the last ten years, the IMF has sung the same song for us: your overall debt is too high; your debt to the National Bank is too high; your debt-to-GDP ratio is too high; your public service is too big and too inefficient; curb your fiscal concessions; introduce greater transparency; privatize some assets and certain operations; reorganize and broaden your tax base; and so on.
Indeed, as far back as 2000, the IMF had made recommendations to help ensure that the debt to GDP ratio would peak at 70% by 2004. Yet it is 195% at the end of 2010!
There was no global recession in 2000. And perhaps the main reason we suffered financially to the extent that we did after hurricane damage was the arrogance and stubbornness of the Minister of Finance against ‘self-insuring’ the country’s assets.
Are we not located in the middle of a hurricane, volcano and earthquake zone? Duh!
Clearly, Denzil had other matters in mind that were, to him, more important than taking the advice of the IMF. Or (forget the IMF for a moment) more important than providing sound fiscal and other governance. So with his priorities being the way they were (and are), the best interests of the people of this country would be put on his back-burner.
He had elections to win, political patronage to dispense and other objectives to satisfy.
That is the nub of the issue! Why, for example, would he have paid a double salary last December when he fully knew the desperate state of the economy, other than to put the people in more debt so that he might win an election?
And if successful in the election, he would do what he had to do with regard to the debt. See what he has been doing? Piling the taxes on us all at once, getting back far, far more than the double salary of last December, and sending home people en masse, traumatizing people’s economically, psychologically and socially. And if he lost the election, then the new Government would be stuck with the problem.
Callous opportunism at its ugliest. And we, the people, are now to pay the price, and a dear price it is, for one man’s seemingly limitless arrogance and narcissism.
Meanwhile, the public service grew bigger, costlier and more inefficient; electricity services worsened; the Government became less able to maintain infrastructure and respond quickly to challenges; not enough money was there for national security and other vital services; and on and on and on.
And the abuses continued. Even today they continue. All at great and growing cost to the taxpayers, and to the shame of this nation.
I do not think enough people realize how serious this thing is.
Here is an insight into the seriousness of it.
The Government owes well over $1 billion to the National Bank, and in addition to holding paper for thousands of acres of Government land, the Bank is also the place where most of the Social Security Board’s (SSB) money is kept.
Altogether, the Bank holds about $700 million in public money, most of it SSB money, I presume.
In turn, the Bank has at least $75 million invested in St.Kitts & Nevis Government Bonds.
There is a very critical and delicate relationship among these three most important institutions in the country.
Let me say this: I am not one who believes that investments in Bonds and Treasury Bills issued by most Governments of the region are as safe as they could be; particularly given how very vulnerable these island states are to natural and other shocks, and given some of the fiscal irresponsibility that we see from leaders.
And here is a story. I am told that in 2003, the Bank of Nevis (BON) made a small investment in a Grenada Government Bond. But after Hurricane Ivan hit that island in September 2004, there was rapid and significant economic and fiscal difficulty. And the Grenada Government, after discussion and agreement with Bond investors, came to an agreement, which involved extending the maturity date and lowering the interest rate, and the result was that all of the investors ended up taking a 50% loss.
In the world of Finance it would be said that the Grenada Government gave the investors a 50% ‘haircut’.
This reduced the quality of the investment below the threshold stipulated in BON’s investment guidelines, and it had to sell off the investment and take a loss.
Luckily, the investment was a relatively small one. Had it been otherwise, the implications for the Bank and for the Nevis’ economy could have been catastrophic.
Now here is another story. Presently, the Government of Antigua & Barbuda, our neighbour whom we love dearly, but who we know has also suffered from years of fiscal mismanagement, is involved in heavy discussion with the IMF and local banks, given the shaky conditions in that country. (Their Port Authority is laying off 195 workers in two weeks’ time).
And some experts are concerned that there could be a 25% ‘haircut’ in Antigua & Barbuda. That would mean that anybody who invested in Antigua & Barbuda Government paper could lose 25% on investment.
Now, considering the fact that we are more indebted than our Eastern neighbour and how very close to the edge, and also in light of the clear signs that we may be weeks or months away from a formal intervention by the IMF, is not it likely that we too are due to get ‘haircut’? Maybe a 25% ‘haircut’?
What if we faced a similar outcome? Would not that spell problems? Could not it lead to a big reduction in asset value for the Bank, given its heavy exposure to Government debt?
All of which could make it difficult for the Bank to continue to meet international standards.
And which also exposes the folly of the provision in the Banking Act that accepts Government debt from the lending limits that are applied to banks, a provision that is premised on the dangerous notion that Government debt, also known as Sovereign debt, is safe debt.
But there is more. If we are forced to restructure Government debt by extending maturity dates and lowering interest rates on those instruments, the investors who choose to hold on would see a significant reduction in the cash they receive each year.
And here is the problem with that. The largest single investor in our debt is SSB. Much, or most, of the money in National Bank is SSB money and most of the debt owed to the Bank is owed by the Government. It is easy to figure out, therefore, where all of that money that has loaned to the Government by the Bank comes from. And on top of that SSB lends directly to the Government. So SSB is exposed.
Using the people’s precious pensions and benefits money at SSB to finance profligacy is the ugliest of sins!
As in the case of the Banking Act and so-called Sovereign debt, there is a folly and a danger in relation to SSB, in that the law governing it mandates it to invest no less than 95% of its assets within the Federation. What an antiquated and dangerous restraint on the people’s money!
(And as an aside, but a very important one, one can see that perhaps two of the most critical pieces of law in our Federation propping up profligacy in Government are these two provisions in the Banking Act and Social Security Act respectively. And I am sure that similar provisions apply elsewhere in the Caribbean to prop up profligacy in Government, at great cost to the people).
How tragic!
Now, in a restructuring, SSB could see its annual interest income cut significantly, with the result that, to meet its obligations to its retirees and other claimants, it might have to itself restructure by raising the retirement age, and/or by lowering pensions and other benefits, or by other methods.
What kind of leader would encourage or allow something like that to happen?
Our situation is very, very serious.
And now we are facing a wholesale onslaught of new taxes and charges that could have been introduced on a more organized and phased basis over time, and done so in tandem with the other measures that the IMF had been advocating for ten years, and also in accordance with good governance practices and policies designed to stimulate a thirst for knowledge, and a spirit of independent thinking and of enterprise amongst our people that would have been the mantra of a leader focused, not on his own political survival and success and other self-serving pursuits, but on the best interests of the people of this country.
And all of this is happening at the worst possible time, when the country has been in recession for at least two years.
You have the facts before you. Who will fire Denzil Douglas? The IMF or we, the people of this country?
May the Almighty’s love, peace, love, strength and wisdom come over us during this Holiday Season and beyond.
