Barbados S&P downgrade all about CLICO and government raiding NIS pension to ‘invest’ in Four Seasons

“Countries with low ratings, including Barbados, are shunned and as a result attract high borrowing rates from financial markets. This phenomenon worsens a country’s fiscal position as higher interest rates eat up more of national revenues that would otherwise be available for expenditure on social services, infrastructure, health and education etc.

The important observation by S&P is that Barbados’s problems are not solely related to the very weak global economy.”

… Peter S. Boos talks about how the rest of the world sees Barbados

In BFP’s recent article Debt Tsunami drowning Barbados: Standard and Poor’s downgrades to junk status we zeroed in on the fact that Standard & Poors’ downgrade of Barbados specifically mentioned the government’s ill-advised raiding of the NIS National Insurance Scheme to carry portions of the national debt burden. We also talked about the impact of the CLICO collapse on the national economy and debt. These decisions by the current government of Barbados seem rather unwise to us… but what do we know? We’re only the poor citizens who have to carry the burden created by our leaders.

It seems though that others recognize the folly of the decisions by the DLP government. Listen to what Peter Boos has to say, and what Standard & Poors’ thinks of the decisions of the Barbados government…

In his writings for the last year or thereabouts, Peter Boos is appalled that the Barbados government should use monies from the NIS to prop up a failed Four Seasons project.

Lest we forget, the reason that the Four Seasons project collapsed in mid-building is that private money does not see it as a winner. Private money ran from the Four Seasons – and that is a clue about the project’s viability. Of course, the politicians do not have the same accountability as the private markets: they can always BS their way to re-election while the real world lives or dies on actual performance.

Standard and Poors’ were also appalled by the rape of NIS funds and by the CLICO fiasco that added immeasurably to our national debt. We don’t even know how much the final bill will be! As we’ve said before it’s a good thing for David Thompson’s legacy that he died and therefore can’t be prosecuted for his personal role in the CLICO mess.

Not that Barbados has ever prosecuted any politician for conflicts of interest or profiteering from a government position.

The whole thing stinks, and Peter Boos explains some of the reasons for the smell in his latest at Barbados Today. You should read the article online at Barbados Today, but we have to print the whole thing because of the Bajan news media’s habit of revising history to suit political agendas.

Here we go…

A blow to our reputation

The recent S&P downgrade of Barbados is extremely damaging to Barbados and its hard earned reputation as a well managed economy.

Countries in the top tier of economic management with high investment grade Sovereign Credit Ratings (provided by S&P, Moody’s, Fitch etc) attract the greatest interest from investors, the ultimate source of wealth creation.

Countries with low ratings, including Barbados, are shunned and as a result attract high borrowing rates from financial markets. This phenomenon worsens a country’s fiscal position as higher interest rates eat up more of national revenues that would otherwise be available for expenditure on social services, infrastructure, health and education etc.

The important observation by S&P is that Barbados’s problems are not solely related to the very weak global economy.

To quote S&P: The downgrade reflects our opinion that Barbados’s economic fundamentals continue to weaken. We believe this weakening stems, in part, from rising competitive challenges and other structural factors that the government can address only in the long term. In the short to medium terms, the difficult external environment will hamper the economic and investment outlooks. The resulting lower economic growth will hurt Barbados’s fiscal and external accounts and will likely lead to further debt accumulation. Moreover, in our opinion, despite the government’s focused efforts to bring down fiscal deficits, the fiscal stance remains qualitatively weak, as rising debt, off-budget spending, and contingent liabilities (in particular, CLICO) demonstrate.

As with individuals, reputation (your brand), is everything. Barbados has now been relegated to the third division in football parlance. Fewer will want to extend credit to us and those that do will ask a higher price. We must all keep a close look out now for the sharks that swim in such murky waters with promises of pots of gold. There are some memorable recent examples.

Unless we focus on tackling the long term structural changes we must make to be globally competitive, Barbados will continue to decline, unemployment will rise, investors will look elsewhere (as some are already), we will see a flight of human and financial capital and social instability will ensue.At some point too, this lack of confidence will translate into pressure on our exchange rate.

The role of the Barbados Central Bank in all of this is important. That institution must be credible and seen to be independent of political interference.

For some time now the NIS funds have been used inappropriately by Government to fund recurring expenditures. Both the IMF and S&P have alluded to this in recent reports.

The S&P downgrade will only encourage Government to borrow even more from the NIS to pay its bills at artificial rates unobtainable in the financial markets.

This is bad policy and is unsustainable.

The NIS fund is a fiduciary fund and should be managed independently of politicians by professional investment managers appointed on behalf of the Fund’s beneficiaries i.e. the contributors to the fund and in compliance with appropriate investment guidelines.

The Social Partnership of Barbados and other key stakeholders, NGOs, the Opposition etc. should consider this a priority pillar of future confidence and stability.

– Peter N. Boos FCA

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12 Comments

Filed under Barbados, Business & Banking, Economy

12 responses to “Barbados S&P downgrade all about CLICO and government raiding NIS pension to ‘invest’ in Four Seasons

  1. Adrian Loveridge

    I cannot think of a tourism professional that would not like Barbados to have a thriving Four Seasons Hotel and the branding benefit that it would bring the destination. But, and its a big but, we have been burnt already with the GEMS (Hotels and Resorts Ltd) project. We still don’t know exactly what losses to NIS will be written off for this distaster. For years, GEMS overtly practised predatory pricing, resulting at least in part, to the closure of 30 plus private sector hotels. The public again has not been told the lease rates for two of the remaining GEMS properties, so we have no idea whether or not these payments are in anyway recouping the taxpayer ‘investment’.
    I think its perfectly reasonable for any normal person to question the proposed ‘investment’ in the Four Seasons project and will this investment
    in any way further destablise an already fragile sector that is, in many cases, hanging on by its fingertips.

  2. what will they think of next.

    As far as CLICO is concerned if I were the Prime Minister I would not touch CLICO with a ten foot pole. I would just leave it where it is and let the people who created the problem, the Barbados Labour Party, deal with whenever they are returned to power. Whenever that is.
    The same would apply to Barrack.
    I would not even be seen trying to do anything about it.
    End of story.

  3. Moneybrain

    The first thing that should have been conducted is a full FORENSIC AUDIT of CLICO. Having ascertained the facts then ALL constituents who were involved, including PMs, other lawyers, management etc should receive swift justice ie their assets should be frozen, they should be audited thoroughly and then PROSECUTED and FINED to the fullest extent of the law.

    While the Rating agencies were involved in this global financial mess that fact does not indicate that their assessment of Bim’s finances are errant. My understanding is that our Debt:GDP is in the 120% range which is very high especially considering what Assets we have to show for the expenditure involved. It should not be a surprise to anyone with even a partial lobotomy that Politicians throughout the World misuse and abuse the Govt finances. Governments are the very worst group of money allocators extant. this simple fact has been proven over thousands of years in all countries. Governments should therefore play a very limited role in such decision making. Naturally, major Capital Projects afford politicians the opportunity to accomplish their real reason for becoming Pols in the first place……ENRICHING THEMSELVES!

  4. NO!

    @what will they think of next.

    David Thompson was Clico’s lawyer when they failed to file financial statements for ten years. The DLP and David Thompson covered up obvious breaches of the law, we can only assume because they were both benefiting from ‘political contributions’ from CLICO that were in fact policy holders’ funds.

    When it all collapsed, Thompson and the DLP protected Leroy Parris and refused to appoint an independent public overseer because David Thompson himself as Clico’s lawyer did many of the shady deals.

    In what way was the BLP responsible for the fraud of David Thompson and the DLP relating to Clico and Parris?

  5. rastaman

    @what will they think of next::. Isn’t this exactly what the DLP are doing.??? NOTHING!!!!

  6. what will they think of next.

    NOTHING, is exactly what I would do about CLICO.

  7. Sunshine Sunny Shine

    What do you all know. It is quite obvious that the government of Barbados the BLP know somethting thatt you all do not know. What they know, is that the S&P downgrade is at least a mistake in their financial analysis of Barbados economic state. What they know is that S&P economic gurus cannot touch our economic fianncial giants. Therefore according to our expert politicians and economist S&P is wrong and out good ole honest to trusty political and economic directorate are right. So we will challenge S&P even if they do not back down we know something that they do not know. So my goodlyp people S&P will restore Barbados’ credit rating to stable onto brilliant

  8. countryview

    Barbados’ credit status is presently designated as TFK…Teefing Forking Konts.

  9. LOOK

    Agree to that stated WHAT WILL THEY THINK OF NEXT (07/28/2012).

    They will fix it, Arthur and the BLP. They today vow to Bajans they will fix it. They will fix CLICO. They will fix it. They will fix the economy.
    They will fix it. They will fix the national debt too. They will fix it.

    Don’t forget, the BLP via spokesperson Mia Mottley in june 2012 outlined a number of measures a new Barbados Labor Party (BLP) government would IMMEDIATELY put in place. This was a public announcement. Mottley promised Bajans cookies and candy, lots of it. If, therefore, the BLP in 2013 becomes the ruling government, ALL stated by Mottley shall [must] immediately be put into place. The BLP has a proud and enviable record of keeping promises.

  10. 189

    They cant FIX nothing with out telling the Truth first,
    None of them will tell the Truth so nothing can be fixed
    In the end We all will pay for the lies both the BLP and the DLP tell.
    The DEEDS of the Plantations is the KEY.
    None were sold and no taxes being paid so all things must go up in price to cover the shortage .

  11. Do something

    Mike Pemberton’s greed is accountable for the Four Seasons mess and the loss of million of tax payers money, leaving local suppliers out of pocket, destroying beautiful natural habitat, creating a massive negative impact on the tourisum industry and driving the country into further debt.

  12. Pingback: Hard times coming to Bim. Are you ready? | Barbados Free Press