The 2001/2002 Budget Communication presented by the Hon. Sir William Allen was certainly filled with "good news." The year 2000 was indeed a prosperous one… the fifth year in a row of growth in Real Gross National Product per capita… that's after adjusting for higher prices and population growth. This is in sharp contrast to the previous twelve years when the economy stagnated… when there was no real growth per capita.
And there was other good news to report… record low unemployment, a balanced budget, import duty reductions and the first step in dismantling exchange controls. This is critically important in world capital markets and should be recognized as part of the PM's legacy. In retrospect, criticism of the growth record appears ill founded. Valid criticism concentrates on the omissions, overstatements and "unfinished" business.
Unfounded criticism.
Some critics have gone so far as to accuse the FNM of creating "a trickle-down economy"… an economy that has provided crumbs off the table of "plenty" for the Bahamian people and no growth for the "domestic" economy. This is thinly disguised "national socialism."
The relatively high standard of living in the Bahamas is due to this country's successful participation in the global markets for tourism and financial services. Being competitive has required foreign investment and foreign human capital. Let-s face it… that is what triggered the prosperity.
Fiscal balance.
One should be gratified with the economic growth, but that comfort is limited. For instance, the communication states "that for all practical purposes, overall balance is being attained in 2000/01." But…this fiscal milestone is being reached without showing any subsidies for the public corporations.
Such subsidies can take three forms:
- Cash transfers from the Treasury
- Borrowing from banks supported by Treasury guarantees, letters of comfort or other undertakings
- Increased payables to the Treasury for unpaid taxes and fees.
Between 1993 and 1999 Treasury cash transfers totaled $30 million per year. In fiscal 2000 and 2001 it is zero. Yet in 2000 Bahamasair's non-cash public funding may have totaled $45 million; and the Airport Authority borrowed $8 million secured by a Government letter of comfort.Was the balanced budget of 2000 an accounting slight of hand? Probably… a good example of "omission" or "overstatement".
Financial regulation.
The Communication addresses the present financial crisis in general terms… the Bahamas is "being required to implement profound changes to its administrative and regulatory structures" and "the Government acted expeditiously to implement the measures necessary to effectively address the issues raised".
The bottom line is the Government has implanted a draconian regulatory regime on a once vibrant industry. The full and complete impact probably will not be seen until yearend. But… an indicator is the expected 32 percent drop in tax revenues from offshore banking shown in the Budget. One informed and usually optimistic observer stated "the new -know your customer- rules will have unforeseen and unfortunate consequences of the highest order."
The Budget's statement is an example of omission, understatement and unfinished business. It reminds one of the movie "Apollo 13". The air purifying system fails and the capsule commander… in the most relaxed voice possible… opens his call to ground control with "Houston… we have a problem."
Unfinished business.
The problems at hand are daunting and the solutions painful. The journalist Thomas Friedman writes –
"In the era of globalization it is the quality of the state that matters.
- You need a smaller state, because you want the free market to allocate capital, not the slow, bloated government, but
- You need a better state, a smarter state and a faster state, with bureaucrats that can regulate a free market, without either choking it or letting it get out of control."
Hopefully, the "manifestos" of both parties in the next election will include such needs as their goals.
