Every two years the International Monetary Fund reviews the Bahamian economy and the policies of the Bahamian Government. It releases its analysis in the form of a Consultation. However, the only information included in the public release is that which both parties agree to release; whereas all of the IMF’s views are made available to other international organizations. The language is diplomatic and non-confrontational and one must compare reports for important clues.

What the IMF did say.

These comments relate to the Employment Act alone.

� The “Background” section of the 1999 Consultation made no comment on pending labour legislation; the 2001 report describes the five labour bills.

� The 1999 “Staff Appraisal” noted that hotel operating costs were among the highest in the region and there was a need to remain competitive” and to increase “flexibility in labor arrangements.” The 2001 Appraisal has two paragraphs that make several points –

1. The Government expected that the Bills “would lead to some increase in labor costs, but thought that the impact would be small”. The IMF could not verify this.

2. It recommended that the work week reduction should be introduced gradually in the construction and retail industries.

3. It stressed the need to maintain flexibility with regards to part-time and temporary workers and reduce rigidities in collective agreements in the tourism sector.

� The “Executive Board Assessment” in 1999 contains a single phrase noting the importance of “measures to tackle rigidities in labor arrangements.” The 2001 Assessment notes the need to maintain the competitiveness of tourism and the need to evaluate the “impact of labor costs of the proposed reduction in the workweek.” It repeated its concerns about flexibility with regard to part-time and temporary employment and the rigidities in collective agreements.

The diplomatic language of the IMF cannot mask the clear warning signs. Fortunately, the Bahamas Employers Confederation 18-months ago developed the analytical tool to identify the cost impact. Selective sampling then and a new survey document the significant cost impact. This data will be presented at a conference this coming Friday, September 7th at 9:00 AM at the British Colonial Hotel. This should be of great concern to every Bahamian.

What the IMF did not say.

The published Consultation, however, does not indicate that the IMF put the pending legislation into a policy perspective.

The IMF chose not to recognize that 1.) the Bills are a significant increase in government control and 2.) government regulated, centrally planned labour markets have been thoroughly tried and tested in Western Europe and have failed.

Countries with such regimes have had substantially higher rates of unemployment than countries with freer labour markets. This has been well documented and reported in the Bahamian press by the Institute. (Refer to the Appendix on www.iefbahamas.org .) This type of legislation creates a “vicious cycle” of higher direct labour costs, more spending on government bureaucracies, a costly diversion of managerial resources, higher prices, less employment, an institutional resistance to change and finally an alarming capital flight. These are the unintended consequences of such legislation.

In the case of Germany, Chancellor Gerhard Schroder just intervened in the Volkswagen labour dispute in an attempt to change existing labour rules in order to create 5,000 jobs. Ultimately, such centralized regulation and planning helped create the economic pressures that ended on this Government’s doorstep with the OECD demand that the Bahamas should end its unfair tax competition. The labour bills will substantially raise labour costs and start the “vicious cycle” here.

The futility of the Government’s effort is evidenced in the difficulty in framing the legislation that is “compatible” to all. The effort started more than three and one half years ago as a single bill that then blossomed into five bills that were to be presented as an integrated package. Now only three of those bills are to be presented…not as a package but serially.

The first, The Employment Act, is a de facto single labour contract applicable to all Bahamian workers both union and non-union. The economy is small but very diverse; and at present, an estimated 18,000 workers of a total labor force of 167,000 or 10.8% are under union contracts. Without getting into the incredible details the three and one half year exercise demonstrates that a “one size fits all” contract will do exactly what the IMF warns against and what has failed in Western Europe.

It is folly to take such legislative action especially at a time when the country is in a recession.

It is folly to take such momentous legislative action without an economic impact statement of any kind. Fortunately, a good substitute is the BECon seminar on Friday.

The Institute believes the Bills should be withdrawn from consideration and the Government should go to work on legislation that is in tune with the demands of a small nation in the highly competitive world of the 21st century. This will be the subject of another Letter to the Editor.