The Bahamas' ever-expanding national debt: "the biggest threat" to the Bahamian economy's recovery and medium to-long-term prospects...

'Biggest threat' from $4.1bn national debt
By NEIL HARTNELL
Tribune Business Editor



The ever-expanding national debt, which hit $4.139 billion at end-September 2010 after growing by 12.5 per cent or $460.5 million over the previous 12 months, represents "the biggest threat" to the Bahamian economy's recovery and medium to-long-term prospects, a former finance minister warned yesterday.

James Smith, minister of state for finance in the former Christie government between 2002-2007, said that while the Bahamas' national finances were "nowhere near crisis" point yet, the "worrisome" aspect was the "aggressive" and "accelerated rate" at which the national debt and its ratio to gross domestic product (GDP) was increasing.

Arguing that the Bahamas urgently needed to regain its fiscal headroom to cope with further unexpected future shocks to its economy, Mr Smith said the main concern was the trajectory at which the national debt and debt-to-GDP ratio were rising, especially since the revenues to service them were still falling.

Commenting on the most recent national debt figures, published by the Central Bank in its 2010 third quarter economic review, Mr Smith said: "The increase is getting a little aggressive. Any time you have this continuing trend, and it's an upward trend, that's the concern, because it comes at a time when there is no increase in revenue, so the debt service element is growing at full steam.

"With less revenue coming in, and the cost of financing the debt going up, a greater part of Government expenditure has to be dedicated to debt servicing." As a result, the sums available for the Government to spend on essential services, such as health, education and national security, would be less.

Concern:

"There ought to be some concern about the rate of increase in the debt, because it's very difficult once you step over that slope to come back," the former finance minister added. "I don't think we're anywhere near crisis; it's the trend that's the worrisome part."

The Bahamas' national debt grew by 12.5 per cent or $460.5 million over the 12 months to September 30, 2010, and by 4.4 per cent or $173.3 million during that third quarter, aided by a $100 million domestic government bond issue.

While many small island economies had managed to withstand the global recession with higher debt-to-GDP ratios than the Bahamas, a number had been forced to head for the International Monetary Fund (IMF) to restructure their debt. And they, like the Bahamas, did not have a hard currency to back their debt, being forced to borrow in foreign currency.

The Central Bank report also highlighted another concern, namely that public sector foreign currency debt stood at $1.324 billion as at September 30, 2010, with 59.3 per cent directly attributed to the central government. And, according to Tribune Business calculations, foreign currency accounts for 32 per cent - almost one-third - of the total national debt.

"That's also worrisome," Mr Smith responded, when informed by Tribune Business about the level of foreign currency debt. "What is happening is that we're seeing a build-up in foreign currency reserves, which is good, but that has been produced by the Government's foreign currency borrowing and the IMF subvention [special drawing rights]."

The real issue for the Bahamas could come "somewhere down the road" when the Government's foreign currency bond issue matured, requiring a multi-million dollar principal repayment, likely to be in the region of $200-$300 million, to be made to the investors.

While the Government's existing foreign currency bonds all had medium and long-term maturities, if the foreign reserves were not boosted by inflows from tourism and foreign direct investment, the principal repayments would represent a substantial drawdown on these reserves - currently standing at $875 million.

Ultimately, this could result in "more and more foreign currency being used for debt reduction, as opposed to bolstering the economy" through import spending and such like, Mr Smith said, adding: "We have to be careful about the foreign currency portion of the debt.

"Right now it looks good on the monetary side because the reserves have increased, but that's not come from tourism or foreign direct investment - it's come from the proceeds of debt.

Rates:

"Again, down the road, in maybe another two or three years' time, when you look at this in a global context where interest rates have been held down by quantitative easing, the rate on our foreign currency borrowing could rise because it's tied to LIBOR.

"This debt servicing component of the Budget could rise even further still."

Describing the national debt and its growth rate as "the biggest threat" to the Bahamas' medium and long-term economic growth and stability, Mr Smith told Tribune Business: "We are rapidly using up the headroom in the event we do have problems down the road, and for us it's external events that put us out."

Pointing to the 'short, sharp shock' to the Bahamian economy caused by the travel hiatus following the September 11 terror attacks, which plunged this nation into a temporary recession, Mr Smith added that with the likes of Europe and US also carrying major debt burdens, the Bahamas would have to compete for "the same pool" of financing, something that could see it crowded out or forced to pay higher interest rates on its debt.

"We're not out of the woods yet. We need to continue to get the headroom in the event of a short-term crisis," Mr Smith said. He urged the Government to conduct a careful, proper analysis of the fiscal picture to ensure the Bahamas enjoyed a soft landing.

And the former finance minister warned that while the Government "may have it under control internally", the growing national debt and falling revenues would be interpreted as a bad sign by the international community. Indeed, the rising level of government debt saw interest payments during the first quarter of the 2010-2011 Budget year to $44 million, a growth of $12.2 million or 5.29 per cent.

The direct debt charge on the Government grew by 5.3 per cent or $181.4 million over the 2010 third quarter, and by 10.6 per cent or $342.6 million in the 12 months to September 30, 2010. Bahamian dollar obligations accounted for 78.1 per cent of this direct charge.

December 31, 2010

tribune242

Bahamas Blog International

...the Christie government made a secret deal to sell 49 per cent of BTC on credit to an unknown foreign entity called Bluewater Ventures

The secret deal to steal BTC
By LARRY SMITH


JUST before the 2007 general election, the Christie government made a secret deal to sell 49 per cent of BTC on credit to an unknown foreign entity called Bluewater Ventures. The electorate wasn't aware a deal had been struck and didn't know the terms, although official talks had been ongoing for two years.

Bluewater described itself as "a private equity firm specializing in turnarounds and investments in the media and telecommunications sectors." It was set up in 2003 by John Gregg, an American who worked for a couple of European cable companies. Based in the Channel Islands, an offshore financial centre, its actual shareholders have never been identified.

Soon after the election, ex-finance minister James Smith urged the new FNM government to close the Bluewater deal, arguing that there would never be a better one. According to a confidential Bluewater document relating to the sale, BTC's own business plan for 2007-2009 valued the company at $333 million, meaning that a 49 per cent stake should have been worth about $163 million.

But as has since been revealed, the net cash to government from the secret PLP deal would have been only $150 million. Bluewater would have paid another $40 million (interest-free) years after the sale, but this money would have come from BTC's own revenues. The deferred payments were a significant and hidden discount on the price to this unknown foreign entity.

It is common knowledge that BTC's value as a mobile monopoly has been heavily eroded by poor management and new technologies. For example, it took just a few years for voice over internet services like Vonage to turn BTCs long-distance calling into a losing business.

Other providers now control most of the local VoIP market - despite the face-saving introduction in 2006 of BTC's competing Vibe service. And experts have long predicted that WiFi phones connected to a computer with Internet access will disrupt BTC's still-lucrative mobile business over time.

According to the confidential 2007 Bluewater document, other factors that affect BTC's value include exorbitant rates that would be impossible to maintain in a competitive market; the high risk of hurricanes crippling the network; and capital spending that is far greater than earnings.

"A true valuation analysis of BTC must assume that rates, and hence (earnings) will have to be lowered in the near term," the document said. "And just two years ago BTC saw its cash flow for the year virtually wiped out and submitted insurance claims close to $50 million. It is our understanding that insurers refused to honour many of these claims.

"BTC's capital expenditures have historically been higher than comparable companies. In fact the BTC business plan for 2007-2009 puts capex at a rate significantly higher than (earnings). From an investor's perspective, the need for such high spending to maintain the network is a red flag."

Several years ago, former BTC president Leon Williams boasted that the corporation had spent $353 million on capital development over a five-year period, and Bluewater reported that BTC's business plan called for another half-billion-dollar spend over the ensuing three years, compared to $429 million in projected earnings.

In spelling out the rationale for the proposed acquisition, the 2007 Bluewater document painted a dismal picture of BTC, calling the corporation's business plan inconsistent, contradictory, lacking in detail and offering nothing for its three main stakeholders - consumers, the government and employees.

Bluewater pointed out that BTC doesn't even consider improving its lousy service or cutting its outrageously high prices, and fails to justify in any way the introduction of costly new products and services. In fact, BTC's plans assumed no dividends at all for the government - just a never-emptying cookie jar for management, union leaders and staff.

Why would Bluewater pay for a minority stake in such a poorly-run state operation? Well, principally because the PLP deal would have extended BTC's profitable cellular monopoly for up to six years - while letting it offer equally profitable extra services like video. In other words, BTC would have continued as a government-owned monopoly for a very long time. And the Bluewater sale was a smoke-screen trying to hide that fact.

The deal was that a 49 per cent stake in BTC would be priced at $260 million, but Bluewater would pay only $220 million up front while keeping all of BTC's cash in the bank (about $70 million at the time). At the end of the five-year cellular monopoly, Bluewater would have paid a further $35 million, and a final $5 million in the sixth year after the sale. This was what Prime Minister Hubert Ingraham referred to shortly after taking office as "selling BTC on credit."

Even a horse's ass can see there is absolutely no comparison between a secretive instalment plan concocted with an unknown buyer with no financial or operating history, and the $210 million (plus taxes) up front purchase price agreed with Cable & Wireless - a long-established telecoms firm with revenues of over $1 billion and a long-standing operating record in several countries. So the astonishing propaganda emanating from PLP leaders on this issue should be taken with a large bicarbonate of soda. Their strategy is simply to repeat enough rubbish frequently enough so that the rubbish starts to seem believable. That, unfortunately, is the standard of political discourse in this country.

There is no other difference between the PLP and the FNM record on this issue. Both parties while in government have said they wanted to sell BTC to a foreign entity as a matter of policy to help pay down the national debt, and to modernise the Bahamian telecoms sector. The only difference has been the architecture of the deal.

You be the judge.

What do you think?

Send comments to: larry@tribunemedia.net

Or visit www.bahamapundit.com

December 22, 2010

Bahamas Blog International

James Smith - former minister of state for finance says: Any news about the US economy slowing down is really not good news for The Bahamas

More economic woes for The Bahamas predicted
By ALISON LOWE
Tribune Staff Reporter
alowe@tribunemedia.net:


A FORMER minister of state for finance and local business people yesterday expressed concern about the possibility of a “double dip” recession in the United States further prolonging the economic woes of The Bahamas.

Their comments came on the heels of the latest report on Gross Domestic Product, the output of goods and services that indicates the performance of an economy, in The Bahamas’ main tourist market, the United States.

The report showed that the US economic recovery is losing steam, with GDP growth slowing quite markedly in the second quarter of the year, to 2.4 per cent, in comparison to the average 4.4 per cent rate recorded over the past six months, and the greater 3.7 per cent pace recorded for the first quarter of the year.

The slowdown was attributed to what former minister of state for finance James Smith called a key factor for The Bahamas - a fall in the rate of growth in spending by US consumers, from 1.9 per cent in the first quarter to 1.6 per cent in the March to June period.

Even as people in the US continue to suffer from higher unemployment, lower household wealth linked to a decline in the value of stocks and housing, tighter credit lending conditions and the need to reduce debt and bolster savings, many US commentators expressed surprise at the consumer spending figures.

While some international economists said they did not believe the new economic figures suggested the likelihood of a further outright contraction in the US economy - a “double dip recession” - some see this on the horizon. Others suggest that if not a further recession, there remains the potential for an even greater slowdown in the economic growth rate in the United States as the year continues, with all of the implications that will have for The Bahamas in terms of a stagnation or even a further drop off in the visitor arrivals that feed the local economy.

Mr Smith said: “Any news about the US economy slowing down is really not good news for us because it prolongs our recovery but the really important numbers in there relate to consumer spending and consumer confidence. Those really affect The Bahamas and so if they are down that is really not good news for us.

“We need not to hope not just for a recovery in the US but in terms of how the US consumer perceives himself against the economy,” said Mr Smith, also chairman of investment and financial services company, CFAL.

He said that even if the growth rate does not drop any further, the decline that has been registered in the US in this quarter will be felt in The Bahamas.

“I think it does have very serious implications for us,” said Mr Smith. “It would be a delayed affect because one begins to make travel plans three, six months in advance, so someone who intends to come here this winter may cancel that or forego it even if you have fourth quarter (economic) growth.”

Meanwhile, Mr Smith noted that The Bahamian economy is facing its own issues going forward as local businesses deal with the widely-publicised increases in a number of taxes within the 2010/2011 budget.

“The budget was crafted against certain realities like growing debt and unemployment and an attempt to reduce the deficit. That would be in right direction except in my view it was too much ... I think a lower dose over longer period of time might have been the better option,” said Mr Smith of the budgetary measures introduced by the Government in July and their potential impact on Bahamian economic activity.

Chamber of Commerce President Khaalis Rolle told The Tribune that he views the latest figures coming out of the US as a “real concern” for The Bahamas.

“I keep saying you need almost simultaneously both consumer confidence and investor confidence to come back to get this economy back on track. Investor confidence fuels jobs, consumer confidence is fuelled by the prospect of employment and there hasn’t been any major indicator to suggest they were coming back strongly,” said Mr Rolle.

Given that the majority of The Bahamas visitors from the US are “middle class Americans” who usually save or borrow to go on vacation, Mr Rolle said he sees the potential for “our (tourism) numbers to begin to be impacted again” based on the latest economic indicators coming out of the US - yet another reason, he added, to diversify the Bahamian economy away from its dependence on the US tourist market.

Meanwhile, speaking of a potential double dip recession, Mr Rolle said: “The second time round usually isn’t as bad because people won’t react with level of panic they did when crisis first hit.

“We saw at the beginning of the crisis how all of major resorts started to lay off people so if there is a double dip recession it may not be as hard as initial hit can guarantee you there will be some impact.”

A Government economic source, speaking off the record, said that in his opinion the figures do not likely herald another recession but just another indicator that the US economic recovery, and hence The Bahamas, is going to be slow and protracted in comparison to others historically.

He added that it may be too early to say if the economic figures presage a further recession, as they only represent economic activity in one quarter of the year.

“On the path to recovery there are many ups and downs. The key thing to realise is the reality is what you had is a financial collapse. In 2001 the recession lasted six or nine months, so you’re looking at least a year or two longer than that,” he suggested.

Asked whether in his view the 2010/2011 Budget was crafted with the potential for a double dip recession in the US in mind, the source said: “I think the budget reflects fact that the recovery period is uncertain, it’s a move towards fiscal consolidation.”

August 03, 2010

tribune242

Bahamas Blog

The Blue Telecom group Makes New Bid For The Bahamas Telecommunications Company - BTC

Blue Making New Bid For BTC

 

 

 

 

By Candia Dames

candiadames@hotmail.com

Nassau, Bahamas

29th November 2004

 

 

One year after it was kicked out of the race to purchase a minority stake in The Bahamas Telecommunications Company (BTC), the Blue Telecom group has made adjustments to its bid to try to meet the government's expectations and the reality of the existing value of BTC.

Blue's President Lindbergh Smith, in an interview with the Bahama Journal on Sunday, said his company still has the right ingredients to become the long-awaited strategic partner in the state-owned telephone company.

The Bahama Journal contacted him after Minister of State for Finance James Smith indicated that while there is no 'formal privatisation process' in place, the government is still open to favourable bids.

Mr. Smith, the Blue executive, also said the need to privatise BTC is even more urgent at this time.

"I think it's a necessity now based on the competitive forces that exist in the market place in The Bahamas", he said.  "It's evitable that the government has to get out of the telecom business in order for the company to be on good footing to compete against entities like SRG (System Resource Group) and Cable Bahamas."

SRG recently announced that it is starting its business and residential services and intends to compete head on with BTC.

SRG President Paul Hutton-Ashkenny said his company's entrance into the telecom industry is an indication that the government sees the liberalization of the telecommunications sector as a critical pre-condition for achieving economic development in the country.

Industry sources say that it is most urgent that the government recognize the extreme dilemma that the entire telecom industry and the financial and business community would suffer if the government does not move quickly to relinquish its control of BTC and put it into the hands of an entity that has the financial capabilities, management and technical know-how to allow the company to be able to compete in the local market against SRG, Cable Bahamas and other competitors that are soon to come.

They say that based on the contract proposal issued to The Bahamas Communications and Public Officers Union last week, it is clear that the board and executive management team of BTC recognize that the company has to be repositioned for competition.

The proposal calls for the benefits now enjoyed by BTC employees to be slashed up to 60 percent.

"We are sure that the shareholders of Cable Bahamas and SRG are laughing all the way to the bank because of the government's reluctance and procrastination in the privatisation process of BTC", said one industry insider.

Minister Smith, meanwhile, said the move toward privatisation is an ongoing exercise.

"It's just that it's not going to be done in the way it was done originally", he said.  "If a prospective buyer came along with the right attitude and the right price, I'm sure the government would be obliged to entertain the bid.  So the process may have come basically to a halt, but not the intent."

He said that BTC has to "continue to do things to develop and expand its managerial capabilities, develop its staff, while at the same time look for efficient ways of government having to divest its interests."

Mr. Smith (Blue President) believes that now is the time for the government to move ahead with the privatisation process.

"For the board and management of BTC to assume that they are in a position financially and futuristically to compete in a smaller entity like SRG or Cable Bahamas is very fool hardy", he said.

In his budget communication to parliament in May, Prime Minister Perry Christie made it clear that the recent termination of the privatisation process does not mean that the government has abandoned the privatisation of BTC.

"On the contrary, the privatisation of BTC remains an important item of my government's economic agenda", he said.  "Accordingly, the privatisation will be re-launched as soon as circumstances reasonably allow and on a basis, moreover, that will take adequate account of the lessons that were learned in the earlier process."

The Bahamas Telecommunications Company - BTC would be "eaten alive" if it is not privatised

Without Privatization, BTC Would Be "Eaten Alive", Minister Says

 

By Candia Dames

candiadames@hotmail.com

Nassau, Bahamas

May/24/04

 

 

 

The Bahamas Telecommunications Company would be "eaten alive" if it is not privatised, Minister of State for Finance James Smith said Sunday, while on the Love 97 Programme "Jones and Company."

 

"That's why the whole idea was to prepare it for privatisation", he said.

 

Minister Smith pointed out that the reason why BTC has continued to earn profits over the years is because it is a monopoly.

 

"They are fooling themselves if they think you could remove the monopoly and leave it open to competition", said the Minister, who was referring to critics who say BTC can become more efficient and survive without privatisation.

 

He added that BTC has the technical skills, "but they seem to lack the client concern that motivates big companies...these guys have been a monopoly for so long, they say 'You wait for me'."

 

Minister Smith reiterated that privatisation of BTC "is still on the table."

 

The original process that was started about five years ago has to be brought to a successful, legal ending, he noted.

 

"By that I mean we had put in place certain rules and regulations for privatisation and we went through with that and the very last thing now is to have a public announcement and to amend the public policy statement which we put in accordance with the Act", Minister Smith said.

 

He added, "This exercise has come to a close, but we will continue to talk to people until we can get what we want which would be a good price, a commitment to capital development, a commitment to training Bahamians and a commitment to upgrading the technology to first world standards."

 

While on the same programme several weeks ago, Lindbergh Smith, president of Blue Telecommunications, indicated that his company was willing to pay as much as $300 million for 49 percent of the shares in BTC.

 

Blue was the last bidder to be kicked out of the race to purchase minority ownership in the company late last year.

 

Asked if the government would be willing to accept that offer, Minister Smith said he didn't want to comment specifically on any one group.

 

"I don't want to comment on what I believe might be sort of confidential things, but there could be offers for BTC&", he said. "But you have to look very closely at how it is going to be funded. BTC is still a very well off corporation...you can probably buy BTC using its own resources."

 

Minister Smith added, "There have been some very creative financing things that were not quite [acceptable]."

The Free National Movement - FNM Wants Bahamas Telecommunications Company - Batelco Sold

FNM Wants Batelco Sold

Candia Dames

candiadames@hotmail.com

Nassau, Bahamas

23/04/2004

 

 

 

Saying that it is concerned about the state of affairs at the Bahamas Telecommunications Company, the Free National Movement lashed out at the government Thursday for failing to privatize BTC by now.

 

Meanwhile, State Minister for Finance James Smith told the Bahama Journal that several companies have expressed an interest in acquiring the 49 percent shares of the company, even though no bids are being accepted at this time.

 

The FNM said in a statement that under an FNM government, the company would have been "sensibly privatized" already.

 

"The privatization exercise, under the indecisive and stubborn PLP, has not only slowed to a crawl, but continues to cause the stakeholders - the Bahamian people - headaches and frustration," the FNM said.

 

The initial attempt to privatize BTC started more than five years ago under the FNM government, but ended abruptly several months ago, when the final bidder in the race, Blue Telecommunications, was rejected.

 

The Government of The Bahamas reportedly spent around $160 million preparing the company for privatization.

 

"By this time, had the PLP government continued the privatization process they found in place, the matter would have been resolved and Bahamians and businesses would today have access to a modern system."

 

Speaking to the Bahama Journal earlier in the week, Minister Smith said privatization is "not off the table."

 

"The rules for privatization which led to the short listing of the bidders and then the rejection of all bids, I think that part of the chapter must be officially closed," he said.

 

"We now have to look at a new model which could be talking to any companies that are still interested.  Several companies are saying that they are interested in purchasing BTC or becoming a partner in that process, but I think to be able to do so legally and effectively, we have to bring a formal end to the initial privatization process and I think we will be doing that and then we will continue to look around."

 

Blue is one of the companies pushing the government to sell, indicating that it is prepared to offer $350 million for minority ownership in the telephone company.

 

Asked if the government is taking this particular offer seriously, Minister Smith said, "We take all offers seriously and all serious offers seriously.

 

"The point is Blue was a part of the initial process and we have to bring that process to an end and then we are free to talk with Blue and any other company."

 

In the interim, he said, there is a need to continue to upgrade BTC in terms of its management structure and governance.

 

"There are a number of things that I think will be happening shortly with BTC," Minister Smith projected.

 

But the FNM insists that BTC is in a mess.

 

"Not only are BTC subscribers tired of poor basic services while the company claims it has enhanced modern technology, but local Bahamian business persons are increasingly angry over the fact that nobody in BTC - by extension in the government - seems to care about their welfare," the FNM statement said.

 

"These are Bahamians who, once BTC launched the quick cell programme in late 2001 and opened doors of business opportunity for the sale of cell phones, accessories, phone cards, etc, made arrangements to capitalize on those opportunities," it continued.

 

The FNM blasted BTC for setting up Cyber World shops in Nassau and Freeport "in direct competition with small Bahamian business persons, pushing mercilessly into the retail market, and effectively squeezing these people out."

 

The party also pointed to BTC's extensive advertising of the stores.

 

"That cannot be right," the statement said. "That cannot be fair. That cannot be just. That cannot be what the PLP on the campaign trail in 2002 promised would be help and hope for Bahamians."

 

The FNM said that the bottom line is that while BTC, steered by the PLP government, is going up and down the country promoting the introduction of GSM telephone service in The Bahamas, the fact is that the service is still currently unavailable for popular use."

The Central Bank of The Bahamas has placed lending restrictions on Commercial Banks to protect the country's foreign reserves from being depleted

Bahamas Commercial Banks Losing Money

By Candia Dames

Nassau, The Bahamas

candiadames@hotmail.com

24/03/2004

 

 

Lending restrictions imposed two and a half years ago by the Central Bank are suppressing government revenue and hurting profits of commercial banks, according to a Cabinet Minister and a group of bankers.

 

But the Central Bank appears unlikely to raise those limits anytime soon.

 

State Minister for Finance James Smith recently blamed disappointing government revenue collections on the restrictions.

 

He told the Bahama Journal that, "If there is no credit growth, then clearly there is no appreciable growth in imports and consequently we have less in terms of customs duties."

 

In September 2001, the Central Bank placed the lending restrictions on banks to protect the foreign reserves from being depleted.  For the entire system as a whole, the restrictions limit the total lending to $3.7 billion.

 

Essentially, banks are restricted from lending more than what they are collecting in loan payments.

 

Central Bank Governor Julian Francis is set to meet with his Monetary Policy Committee Wednesday and wished not to comment on the continued effects of the limits.  The Committee, which meets once a month, is expected to review the present policy.

 

Governor Francis told the Bahama Journal in an earlier interview that, "If the banks became overly aggressive and were imprudent in their lending activity, then the Central Bank limit would come into play.

 

"And those limits are in place to protect the external reserves during a time of relatively slow economic activity when our economy is not generating the level of foreign currency which it would normally generate if the economic activity were stronger."

 

Mr. Francis also explained that if there is more to borrow, it costs less to borrow so more people tend to get loans, which is why the Central Bank restrictions are so important.

 

He has said that the Bank continues to review this policy and would only make adjustments if they were in the best interest of the overall economy.

 

The Governor reportedly told a meeting of commercial bankers two weeks ago that he is not now prepared to raise or eliminate the ceiling.

 

The restrictions continue to create a high level of liquidity in the system and commercial bankers continue to press the Governor to relax his position.

 

According to John Rolle, deputy manager of research at the Central Bank, the surplus stands at around $200 million.

 

One banker told the Journal Tuesday that, "Everybody (commercial banks) has a whole lot of money."

 

He said, "What it's going to do is drive deposit rates down.  If you're selling shoes and you have a store full of shoes and the Central Bank or some other body stops you from selling the shoes, the question is, are you going to order anymore shoes?  The answer is no.  Why should the banks continue to take deposits if they have no avenue to lend the money out?  The government has already said it is hurting them and it is hurting the consumer."

 

Foreign reserves, meanwhile, remain at a healthy $550 million.

 

But Mr. Rolle said while the reverses have been increasing in recent months, "the growth in reserves that we've seen is a bit deceptive."

 

"Some of that growth continues to occur because we are very restrictive on the credit side," he said.  "At the same time, the growth is reflecting the fact that there is a gradual firming in the momentum of tourism and we certainly hope that it will accelerate now that we enter the most important part of the tourist season."

 

Mr. Rolle said to remove the restrictions would be to presuppose that there are strong inflows coming into the economy that would support increased demand for imports.

 

"Increased demand for imports is going to be one of the results of removing the ceiling," he explained.

 

Mr. Rolle added, "When we talk about seeing improvements in the economy, we also know that when the improvements start to occur, it will also be evident in the government's position.  The majority of the imports in this country are not financed by credit.  They are financed by the general level of economic activity.  So as the general level of economic activity picks up so will imports and the government will see a return from that avenue."

New Offer For Bahamas Telecommunications Company - BTC

New Offer For BTC

Candia Dames

candiadames@hotmail.com

Nassau, Bahamas

06/02/2004

The final bidder pushed out of the race to purchase a minority ownership in the Bahamas Telecommunications Company is preparing a new offer to make to the government, the Journal has learnt.

 

But the Tenders Commission is not now open to any new proposals, as it has started another phase of privatisation, which would take on another form from the effort initiated more than five years ago.

 

Still, Blue Telecommunications plans to approach the government with a more fine-tuned and "more convincing" plan.

Company officials are hopeful that the government would at least be willing to entertain them.

  

The group's President Lindbergh Smith on Thursday was not prepared to speak to such reports.  But he did hint that his company is still interested in having a stake in BTC.  "The Minister of State for Finance alluded to the fact that BTC still has to be privatised," Mr. Smith told the Journal. "As a Bahamian, I am encouraged by the fact that the government is still committed to privatisation."

 

Financial Secretary Ruth Millar, who chairs the Tenders Commission, has told the Journal that the government has given the Commission a new mandate to review other options for privatisation of the telephone company.  But Mrs. Millar declined to say much else.

 

One source close to the Commission said Thursday that it is "utter nonsense" for Blue to still be working toward a plan for BTC.

 

"Their plan was rejected because it was not in the best interest of BTC or The Bahamas," he said.  "The Commission has been instructed to end that entire phase."

 

In rejecting Blue, the Commission revealed that there were serious concerns regarding the company's financial structure.

 

Blue reportedly planned to help pay for its stake in BTC by using the phone company's assets to borrow.

 

But a Blue official has since denied this saying that was, "totally untrue.  That was not so.  It was totally speculation that was pushed by some of the members of the Commission who do not favour privatising BTC."

 

According to the official, it was Blue's original plan to borrow on the assets of the company.

 

"The government was not comfortable with that and wanted a clearer transaction," he explained.

 

He said that in its revised plan, Blue was prepared to do an all-cash transaction.  While Blue is reportedly preparing its comeback, BahamaTel Consortium, which was headed by Tom Bain, has given up on BTC altogether.

 

Shortly after the government rejected the BahamaTel offer due to what Mrs. Millar called a deficient business plan, Mr. Bain told the Journal that his group had come to the end of the line.

 

State Minister for Finance James Smith has said that the government is "shifting gears" as it relates to the privatisation of BTC.

 

In the meantime, he said BTC has to "continue to do things to develop and expand its managerial capabilities, develop its staff, while at the same time look for efficient ways of government having to divest its interests."

 

The plan of the former government was to privatise the then Batelco and give it time to prepare for competition before opening the market.

 

But with that process failed, the new government is looking more toward liberalization of the telecommunications sector with its Telecommunications Sector Policy reportedly being revamped.

 

The idea now is reportedly to prepare BTC for the onslaught of competition that is surely to come in the near future.

 

Speaking at the Bahamas Business Outlook seminar on January 20, Minister Smith said the privatisation process "ought not to be abandoned since a privatised BTC would not only provide additional funds to government for debt reduction in 2004, but should also provide increased capacity for expanding technology including high speed data transmission capabilities which are essential to the e-commerce development effort." 

The Bahamas Government to Rescue Bahamas International Securities Exchange (BISX)

Gov't To Rescue BISX Again

By Candia Dames

candiadames@hotmail.com

03/02/2004

The Cabinet plans to rescue the Bahamas International Securities Exchange (BISX) if its shareholders agree to match the $450,000 the government intends to provide it through the Central Bank, the Journal has learnt.

 

This financial shot in the arm would come nearly two years after BISX asked for $2 million in public funds.

 

A committee that was appointed to look into the affairs of BISX recently recommended that the Government of The Bahamas through the Central Bank "commit to continue its financial support of BISX for an additional amount of $450,000 over the next three years."

 

It also recommended "it be proposed to the existing and prospective shareholders of BISX that an additional minimum amount of $450,000 to match the government's support be subscribed for by way of a rights offering."

 

Minister of State for Finance James Smith said Monday that Committee Chairman Julian Francis "was told to go back and speak with the private owners [of BISX] and see if they are in accord with the recommendations [of his committee]."

 

A Bahama Journal source close to the matter said Monday that "the switch has already been flicked and things are beginning to happen for BISX."

 

Recognizing the great need for an institution like BISX to the country's developing economy, the committee, recommended late last year that the exchange receive help.  This would not be the first time that BISX would be receiving financial assistance from a government-related agency.

 

In 2002, the Central Bank gave BISX $150,000.

 

Start-up costs and losses experienced during the first two years of operations resulted in BISX approaching the government in mid 2001 to provide substantial financial assistance to support the continued functioning of the exchange.

 

When the government announces the decision to help BISX, it will surely be met by some criticism from members of the private sector, some of whom argue that the government should not be in the business of bailing out private companies.  Even an official in the Ministry of Finance seems to share this view.

 

In observations presented to the Minister shortly after the latest report on BISX was released, she wrote, "The recommendation for a further $450,000 of government financial support is divergent to the mandate of BISX being capable of operating without government subvention.  It is hoped that with the restructuring of BISX along with the implementation of the other aforementioned recommendations that BISX would become a more efficient, fully operational exchange that requires no government subvention."

 

The BISX report indicated that the existing shareholders in BISX are unwilling to inject any new capital in the exchange.  But it said that existing shareholders and new shareholders might be willing to support the exchange if certain changes were implemented.

 

An earlier Journal story on the committee's findings revealed that lavish spending on items such as furnishings compounded the exchange's financial problems.

 

The report also pointed to a number of reasons why BISX faced financial troubles, including the exchange's cost structure, significant cost overruns on management consultancy fees and the lack of anticipated public policy support.