WHEN MY MOTHER AND FATHER had a difference of opinion, he would become silent and so would she – for a while. However, every now and then she would roam the house singing in a soft voice “tin me, ’tis you, yuh confuse,/‘tin me, ‘tis you, yuh confuse,/I wake up this morning and say my Lord’s prayer,/‘tin me, ‘tis you, yuh confuse”.
The ditty came to the Wild Coot’s mind as he reflected on the economic and social problems with which the Ministry of Finance and the Central Bank are grappling. Long-term bonds maturing in 2036 at 7.75 per cent, short-term bonds for the banks at four per cent. They think that the only way to suck salt is by laying off a whole heap of people. This in their opinion would be political suicide, and so the confusion persists. The 7.5 per cent ensures that our savings ($1.9 billion) given to the Central Bank are now unsecured as there is no insurance and the banks have no cover.
The sale of some statutory corporations cannot be considered now because politicians would not be able to influence the workforce.
I said some time ago that it was a cardinal mistake to close the Barbados Development Bank. Here is why. One-third of its focus was in small businesses and one-third in the hotel industry. This meant that it was heavily involved with funding for the construction of hotels, their repairs and their furnishing on soft terms. Thus, when a hotel borrowed from the bank, it borrowed in Barbados dollars, and when it paid back the bank, it paid in Barbados dollars. These Barbados dollars derived from the foreign currency of the tourists and so the reserves of the country flourished in the Central Bank and commercial banks.
Now when a hotel receives funds for the construction, repairs or furnishing from abroad, it has to repay in foreign currency. From where does it get the foreign currency? The tourists. Agents abroad who do the bookings receive foreign currency and that currency is used to repay the loan. A hotelier would be quite stupid to repatriate that currency and then ask permission of the Central Bank to make the payment abroad. The foreign reserves get little, only what is required to pay staff, utilities and purchase vegetables (maybe). If the hotel plays by the rules, it would open a foreign currency account at the commercial bank but does this happen?
The Wild Coot believes that maintaining the funds abroad is happening now big time. This is why, even if there has been an improvement in tourism, we would need to question the repatriation of this bounty. Let us drive around Barbados and see the effect of my suggestion. It has become more pervasive than when the Barbados Development Bank was the source of the funding. An indication of the extent to which the bank was involved in the hotel industry is the toxic accounts that the bank was left holding. These were the basis of the questionable GEMS project. But a development bank has to be aware of these risks.
“Wild Coot,” cautioned an old friend, “on and on you are going about the concessions given to my friend. No country in which he has invested has regretted the investment. As a matter of fact, they are prospering because of the investment. So shut your trap about the concessions.”
‘Tin me, ‘tis you, yuh confuse!’
While we rejoice at the inflow of foreign investments, we need to be aware of the responsibility for the outflow of dividends coupled with the repayment factor. This is a delicate balance that must be policed since its application will not always be to our benefit. Cases abound right here where the inflow of investment has pauperised the average Barbadian. The telephone/Internet/television industry is a case in point. Vigilance of those industries stretches the resources of our supervision and we are not sure that we are in possession of the best deals. ‘Tin you, ‘tis we, we confuse’!
But Wild Coot, if we introduce an audit of the hotels’ foreign receipts, what are we going to find? There is still the undertaking to service a foreign creditor. There is no obligation to pay taxes. There is no incentive for the hotels to be loyal citizens.
On another note. This FATCA is bare foolishness. Prime Minister Freundel Stuart was right when he said that it can’t happen here. Let the ambassador of the mighty US carry a message to Barack Obama. If America says that it is a Christian country, then read Leviticus 19: 9-10.
• Harry Russell is a banker. email: firstname.lastname@example.org