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Saturday, March 28, 2015

The IMF came to town, and then they left!

The International Monetary Fund (IMF) team visited The Bahamas from March 9–20 to conduct discussions for the 2015 Article IV consultations. Their press release stated several key factors about the current state of The Bahamian economy. Perfunctory duties.

Organizations like the IMF have a duty to compile data and information on the economies of all countries, particularly the financial positions of economies. Their main role is part advisory and part public relations with respect to reporting on activities of one country to their partnering countries. With that being said, it is not unusual for staff reports and consultation reports to be as diplomatic as possible, because negative reports not only affect the country being examined, but the countries that do business with the country under examination.

What is important to state after reading this latest consultation article is that it appeared to be very modest in it's approach, which may seem as if it is couched in diplomatic code, but it said nothing new or provided no special insight into key methods or tools used to bolster any claim made in their assessment.

We would have thought that after all of this time, some more fruit would have been born out by these consultative meetings and assessments. For the mere fact that there are experienced persons sent to conduct them, I'm certain that more information and in detail could have been shared if only on an experienced based factor.

Of course, no one wants to make things up that are not there. So we can only take the reports in the broad strokes they are presented in. Also, coupled with the fact that they can only make assessments on the information provided, we can only suggest that this is what it is and what is said to be getting done is in fact getting done.

Take for example an excerpt of the first notable, if not the obligatory and most repetitive note of these assessments is with regard to structural unemployment and support for SME's:
“The Bahamas faces several challenges in boosting its growth potential. First, it needs to attract sufficient tourist demand to fill the large impending increase in capacity. Second, evidence of significant structural unemployment suggests the existence of impediments to job creation and proper functioning of the labor market. Third, small- and medium-sized enterprises (SMEs) face significant impediments to the growth. Fourth, as noted by the 2015 World Bank Doing Business Indicators, general constraints to investment persist"
Of course, it sounds very sexy, alluring and provocative to suggest these things. But what is strikingly missing, and we hope is born out through another more in depth assessment note, is with regard to the policies being implemented to address these issues and how far is the government with regard to the reforms to address the issues.

The point of the matter is these open ended, blanket and glittering generalities on topics that they are on the one hand supposed to have in depth technical expertise on assessing, but furthermore are supposed to know the mechanics of the way an economy is supposed to work, both large and small is just not cutting it at this stage of the game.

To provide a solution to the SME and unemployment issues The Bahamas faces, the IMF suggested that:
“...the mission urges the authorities to finalize and implement the National Development Plan (NDP), with assistance from the IDB. The NDP would assess the country’s macroeconomic performance, institutions and governance, and propose strategies to accelerate economic, institutional, and social development over the medium term and long run. "
In entertainment terms we would classify this as canned applause. This reverse inductive reasoning from a pre-prepared premise that this would be the solution to the problem of SME underdevelopment and unemployment is a little too thin, for two main reasons.

The first reason is that a plan, within itself, does not solve a problem. What the National Development Plan would address is the initial phase of providing information on the macro-economic potential of The Bahamas, providing that this is in fact the tone and direction that the plan is following.

Thus far we have not heard much about the data and information being collected, collated and analysed that would solve any issue, let alone the structural deficiencies with SME development and unemployment that the IMF assessment report states would be as a result of the finalization of the plan.

Furthermore, the plan needs to be implemented. The execution template, format and personnel need to be in place. So, even before we have the plan completed, we have to have a notion that the plan will, in fact, solve the deficiencies as represented; the plan will have executable initiatives for the deficiencies; and be in fact implemented in an orderly and sustainable manner.

Another seemingly modest approach with regard to detailing the economy of The Bahamas presented in the IMF assessment is in their attempt to make note of the fiscal consolidation efforts underway:
"Commendably, the authorities continue to be on track in implementing their strong fiscal consolidation program to rebuild fiscal buffers eroded in the aftermath of the global crisis and reverse recent significant increases in public debt. The fiscal deficit in FY 2013/14 (July to June) is estimated to have narrowed to 3.3 percent of GDP (from 5.4 percent). The mission commends the authorities for the introduction of a broad-based VAT on January 1, 2015."

What's important to note that while the macro-statistics speak to one particular scenario, equally as important is the methods to which these goals are achieved and if they line up with recent information as presented.

For example, the estimates on the fiscal deficit as estimated are inconsistent with the trajectory of the deficit presented in the mid-term budget and the current economic factors on the ground.

The deficit, as stated in the mid term budget presented in February, 2015 actually increased over the period from the last mid-term budget. The GFS deficit for the mid-term budget presented in February, 2014 was $238 million. The current GFS deficit for the fiscal mid-budget year, 2015 is $273 million. An increase of $35 million.

The reason why highlighting the current estimate provided via the mid-term budget as opposed to using a methodology of using the revised final budget estimates of 2013/2014 and the projected final estimates of 2014/2015, is that one major issue is at play: The opening of the BahaMar Resort.

The BahaMar Resort, when fully opened, will comprise of approximately 30 to 40% of room capacity in our hotel inventory. Without BahaMar being opened, it means that tourism receipts will be weak. With tourism accounting for 60% of gross domestic product, it means that anywhere from 20 to 25% of government revenue will have to be adjusted to account for the budget shortfall as a result.

The BahaMar Resort was scheduled to open on March, 27th, 2015. But that has been delayed to May 1st, 2015 with the expectation that it may not be a full opening for the month of May.

Of course, the IMF mission would have been concluded before the announcement that the opening of BahaMar was delayed. But for them neglecting the possibility that it may be delayed and that the delay may cause significant shortfall is something we should note, very clearly.

Just as important as making provisions for economic activity on the ground to bolster the macro-statistics, the actual method of the fiscal consolidation is also important.

On the one hand, the IMF praises the government with regard to stacking up fiscal buffers. In other terms, stacking up the money in the event of a fiscal collapse brought on as a result of the economic meltdown of 2008. Which means, in short terms, the government has increased their savings efforts for a rainy day.

However, this was not reconciled with the glaring fact that the deficit increased from last year, as previously indicated. So, on the one hand, the IMF says that the deficit decreased and is set to further decrease (not) on the one hand through their projected estimates, but on the other we have made strides in our fiscal consolidation efforts by Suring up fiscal buffers. Something just does not compute.

In addition, how this was done, where the money/savings are stashed and the used methods and if methods used were optimal simply just advances the chains down the field, so to speak. I think most of the Bahamian public are way beyond accepting information based on say-so without measurable verification.

The report goes on to reiterate the same lines from previous conventional wisdoms; i.e., end state owned enterprises, and be mindful of foreign reserve buffers, etc. We can forgo further analysis based on that.

In short, I'm not saying that I like this latest IMF assessment or that I don't like it, but they need to flesh out a few more realistic details with regard to the entire Bahamian economic picture. Doing so helps us all.

Sunday, March 22, 2015

Are lower oil prices causing chaos? A Latin-American and Caribbean perspective.

As most of us already know, oil prices have fallen from their triple digit highs to now just about $50 a barrel. Of course, this is great news for most of us. But for other people that depend on high oil prices for profit, not so good news.

It's not just that oil prices slowly fell over the course of 2 or 3 years, but they fell so sharply and suddenly within the last year, oil producing countries were hit with a blind-sided shot that they were not prepared for.

As you can imagine, governments were in a scramble. Not just a scramble to make up the short fall, but as oil prices fell, budgets were slashed and that would spell panic for many oil exporting countries.

Nothing spelled panic as it did with the recent protests in Brazil over the last week.

Scores of persons in Brazil gathered in major cities in protest of the government. Over 1.5 million people gathered in the national stadium in protest and the numbers are expected to grow.

The protestors have asked for President Dilma Rousseff to resign immediately amidst a corruption scandal coming out of the state run oil company, Petrobras. This isn't the first major protest Brazil had experienced, and most recently was the protests prior to the World Cup 2014- cries of wasteful spending, lack of spending on the poor and wide spread theft were the most serious allegations about the process.

This Petrobras scandal, however, has rocked the country, leaving people wondering about the state of the country's finances and the fragility of the political peace as the scandal from Petrobras has hit a nerve amidst lower oil prices.

Of course, this author knew that social instability in oil producing and oil export dependent countries would happen as a result of lower oil prices. For the mere fact for what we mentioned earlier that budgets were slashed and spending programmes cut or just simply cut out.

When countries budgeted for a certain price for oil, in the case of Brazil, over $100 dollars a barrel for oil, and then oil prices plummeted to under $50 dollars, you can imagine the public accounting nightmare and the financial collapse that would ensue- money would not be spent on social projects, capital infrastructure projects, people start to watch the pennies a little more closely and then issues such as wastage- which would have been moderately acceptable at $100 per barrel- simply would not be tolerated and excesses, regardless of how long it's been going on, will be scrutinized and blames will be bandied about.

Thus is the case in Brazil, every penny is now being watched very, very closely and people have little to no tolerance for wastage.

Venezuela is going through similar challenges as well. In fact, there were thwarted attempts to oust the current Venezuelan president, Nicolás Maduro Moros. Thwarted attempts for the time being. Venezuela in particular had a break-even point of $115 dollars per barrel.

Since the plummet of oil prices and calls for his resignation for his inability to handle the oil crisis, president Maduro has accused several key people of plotting to overthrow his government, including a former general in the army and several key opposition supporters.

President Maduro has, for the moment, staved off the coups and has tried to do things to inject pure hard cash into the Venezuelan economy, most importantly of which is securing a $5 billion loan from China, to heap on top of the already $50 billion loaned to Venezuela from China since, 2007.

Of course, borrowing money and being more in debt to China comes with it's own problems. The most of which is the neighbour to the North, the USA. While they too have been in debt to China to the tune of trillions of dollars, it doesn't mean that they want Chinese involvement in Latin America and the Caribbean to the point where those nations are no longer counted on as American allies in America's own backyard.

What's also more important to note is that during the Cold War, a period of time and instability where most developing nations have not fully recuperated from its ravages, particularly if the public tide leaned heavily to the left of centre of the political landscape, president Maduro is not fully out of the clear yet. Particularly where, to be totally honest with you, all eventualities should have been covered, and especially scenarios planned for in the event of a collapse in the oil market. As a side note, it is as if we have not learned from the financial and economic crisis of 2008 in that any and every thing can and will happen. Any and every thing!

Take on the other hand what Trinidad has done as a result of falling oil prices. Trinidad has set out to cut its $10.2 billion budget for this year. Trinidad is reportedly the sixth largest exporter for oil in the world.

What also happened after oil prices started to fall, and probably not correlated but worth mentioning in any event, is that president of Trinidad and Tobago, Kamla Persad Bissessar, dealt very harshly and resolutely with a scandal that rocked the core of her government.

Within the space of a month, president Bissessar sacked 6 of her cabinet ministers amidst a witness tampering scandal. Ministers as high up as the Attorney General and her Minister of National security were all given pink slips. It was so bad that I often joke that president Bissessar fired herself, as she gave up her own ministerial post as Minister of the Ministry of the People and Social Development.

Of course elections in Trinidad are in 2015, this year. Of course. President Bissessar did the right thing, and that was try to make the best out of a very bad situation. What comes out of this is how the people read into it, which if you are a good political strategist you can play it both ways.

Whatever comes as a result, with less money to play around with, with a scandal that has rocked Trinidad, for president Bissessar dealing with it resolutely, which may mean fracturing her own party, in addition to the optics of her stepping down as a cabinet minister herself, particularly the ministry of the people, election time in Trinidad is shaping up to be a very, very curious one indeed.

This oil price issue has hit hard, and the ripples are still being felt. No doubt this is not the end of it. But, lucky for us, we are on this side of the world. The Western Hemisphere. If this were Africa and the Middle East, things would not be so cool, to put it mildly.

Tuesday, March 17, 2015

Coup d'état possible in Brazil?

Well, as of yesterday, scores of persons in Brazil gathered in major cities in protest of the government. Over 1.5 million people gathered in the national stadium in protest and the numbers are expected to grow.

The protestors have asked for President Dilma Rousseff to resign immediately amidst a corruption scandal coming out of the state run oil company, Petrobras. This isn't the first major protest Brazil had experiences, and most recently was the protests prior to the World Cup 2014- cries of wasteful spending, lack of spending on the poor and wide spread theft were the most serious allegations about the process.

This Petrobras scandal, however, has rocked the country, leaving people wondering about the state of the country's finances and the fragility of the political peace as the scandal from Petrobras has hit a nerve amidst lower oil prices.

Of course, this author sorta know that social instability in oil producing and oil export dependent countries would happen.

When countries budgeted for a certain price for oil, in the case of Brazil, over $100 dollars a barrel for oil, and then oil prices plummeted to under $50 dollars, you can imagine the public accounting nightmare and the financial collapse that would ensue- money would not be spent on social projects, capital infrastructure projects, people start to watch the pennies a little more closely and then issues such as wastage- which would have been moderately acceptable at $100 per barrel- simply would not be tolerated and excesses, regardless of how long it's been going on, will be scrutinized and blames will be bandied about.

Venezuela is going through similar challenges as well. In fact, there were thwarted attempts to oust the current Venezuelan president, Nicolás Maduro Moros. Venezuela in particular had a break-even point of $115 dollars per barrel.

With all that being said, the social instability will continue. Watch out for Middle Eastern countries and other countries that produce oil.

Sunday, March 15, 2015

No silence on gang violence.

Guns, drugs and murder, these things in The Bahamas used to be unheard of. But this is real life, filled with the anger and discontent of the blighted and adds to the economic and social strife. How have we gotten here? If someone told you the real truth would you want to hear? Probably not. So, real solutions to fixing this problem is put out of thought, and the people in the fight will continually fight this fight for all things naught.

But, how we got here is what you need to hear. Don't fear what you truly need to hear, because it's that knowledge which gives you the courage amidst the violence and threats of violence in the air.

Fact of the matter is, and to figure it out doesn't take a whizz, that The Bahamas doesn't make guns, the big ones and not even the small ones. We produce not one gram of cocaine, so the thought of us being a major trafficker leaves me perplexed to the point where you may think I'm insane.

It just doesn't seem right, that such a voracious narcotics appetite, from the folks up North and to the North-West, will do anything for that lady in white even though our law enforcement does their best to make any and every drug arrest.

The drug culture of the 80's was nothing to play with, communities rocked to the core with persons high off of their drug of choice you could not live one day with.

As with illicit activities, thus came the need to protect the strongholds in the inner cities. Inner cities became drug wastelands with barons roaming with pistols in their waistband, along with corrupt officials on the take, the lords of the street were looking to make their next victim freezer meat while one family sings hymns at their loved one's wake, the "Don-Dadda's" had just one offer to make: Take this, or die from this.

These offers no one dared to refuse, if one did they may have been found with the refuse. In broad-daylight they made you disappear out of sight, or while you snoozed they came for you in the late night. No stage fright, just show up at your front door to put another down for the final snore, good night.

What all of this has done has allowed many folks believe we really won't win this one. These people aren't on our run, and walking the streets like you used to just isn't fun. It's dangerous, really. Do you feel me? I'm not being silly, childish, scary or flippant, really.

Now as the drugs are said to be coming under control, or so some wants us to think, the gang boys are still on patrol, and with one false move you can be snuffed out in a blink.

They say that average folks need not worry, because as the bullets fly by in their flurry, it's the other gang boys that those gang boys want and not you, so do your do, live your life, go out and enjoy the town with your family members, husband or wife.

However, it's safe, until someone gets the wrong house, and obliterates everything in sight including the wall mouse. It's ok, they say, until the bullets start to rain on a mother in her bed, bullets that have no discretion, whether it hits her arms, chest, legs or head.

No, it's not ok! It's just not ok...Ok? Because now we have a gang culture, with young men and women under the impression that this new family is their lifeblood, this new culture, but really these new family members are nothing but vultures. For anyone that tells you "hang with us", and leave school, must really think you are a bloody fool. While you, the new fool, leave school to protect their interests, rest assured one day they will see you as their witness. Get it? You can bet on it.

So instead of producing that new scholar, we have lost ones looking to protect someone else's dollar, with their A.K. as their a.k.a, forget the abc's, please, they want to make their competition d.o.a.. Yes, they will kill this city. That's right, we will feel the pity.

As the bodies pile, and the morgue puts another one on file, while we cower, the folks in power, really do understand but they have no solution for this mess on hand. If there was an easy solution, we would be using it by now and we would not feel the disillusion. If we had any short or long term solution, we would be shouting it too and fro, we would see the results and the entire world would know, from Beijing to Houston.

The problem just can't be solved simply, you see, and with this other concurrent dynamic, I want you to really understand me: Those same crack 80's, the 80's that we were reported to only traffic drugs to the USA (yay! we only trafficked drugs to the USA), we created crack men and ladies of our own and those ladies produced crack babies. Those same crack babies also had babies.

These crack babies grew up on their own, with no mother or father at home, they had to fend for themselves until they became grown, and had to live life alone where love and attention was never truly known.

They know it, and they hate it, and their actions show it, and we fail to appreciate it, but we need to debate it.

While the crack babies' baby may not use crack, maybe, they are born addicted, hungry and afflicted. They are socially, mentally and physically maladjusted, not in their right mind, from the onset of birth, for what it's truly worth, one would have to wonder if they should truly be trusted? Of course you should feel disgusted. Of course, trust my source.

It may seem harsh, but when we see the amount of drug use involved in today's violent crime, what seems very harsh is the best description of the time.  A time that may be repeating itself, but on a smaller scale, a time that's telling itself, and a time where the evidence in our social constructs and safety nets have quite clearly shown us a fail.

Who's truly to blame: Is it you, me, you over there, you right here, him or her? It seems like a blur. To some, but not me my learned one.

We should not be blaming anyone anyway, because when the accusations start to fly, the seriousness of the theatre that's these streets and the lives of our youth you see as you drive by, becomes the stage of one very sad play, all day, every day.

The big kids these days clearly aren't playing, and they don't care for anything the hypocrite in a suit appears to be saying. It's a real fight to get our young people back on track, and in the right frame of mind, we have to get it right or else this country will be put flat on it's back, we are very seriously running out of time.

This crime, drugs and gang problem already has us on our knees, with The Bahamas being now labelled as a conflict zone, and the US Embassy warning visitors that The Bahamas is a perpetual warzone, the fact is that what's done is done and there is nothing about it that can now be washed out in the spin zone, and in the vernacular: "It don't care who please!"

Sunday, March 8, 2015

Exchange controls and the Bahamian dollar- Revisited.

Since writing on the usefulness of exchange controls and through that, the virtue of keeping exchange controls and keeping the Bahamian dollar pegged to the US dollar, I had a chance to have a few private conversations, and open conversations on live radio, form persons that found that submission both fruitful on one side, and just all out dreadful on the other. Par for the course, but at least folks are talking about it in a more serious tone and not just willing to accept any position either way just because someone said so. 

But what can we build on to advance the conversation on this complex matter of exchange controls and keeping the Bahamian dollar pegged to the US dollar?

There was an article in one of the local dailies here in The Bahamas, quoting former Central Bank Governor and former Minister of State for Finance, James Smith, stating that there is no compelling reason to do away with exchange controls.

His reasons were basically rooted in the tone of argument of it isn't broken, then why try to fix it? And also on the false argument of "stability", neglecting and rejecting out of hand any possible idea of rationale on the matter, particularly to the regard that the very same stability hinges on a flexible monetary policy that speaks to greater economic growth and economic expansion.

I would give examples on both ends: For one, the very last time the Central Bank had a rate cut back in the early 00's, the banks became awash with money and were more lenient with handing out consumer loans for not just businesses, but for education and mortgages. Many persons were recipients of those market driven loans.

On the other end, and for an example of how an inflexible monetary regime, particularly with regard to stringent exchange controls that are tied too tightly to foreign reserve strength, was with regard to an issue with Cable Bahamas Ltd.. Just to jog your memory a little, Cable Bahamas Ltd. was seeking to transfer a large sum of money out of The Bahamas for an investment in Florida. An investment they eventually became very successful at.

However, their initial investment process was hampered due to the lack of timely Central Bank approval for such a large sum of money because of the drain it would have presented on foreign reserves: Essentially sucking a lot of money out of the reserve system, because the money would have had to have been changed to US dollars and hence the delay.

As you can imagine with the latter case, time is money. With the former, nothing should come in the way of Bahamians achieving their dreams and pursuits with a banking system that is bolstered by a flexible monetary regime that is progressive in nature.

I still maintain the notion that the usefulness of the stringent exchange controls and this wild obsession with keeping the Bahamian dollar pegged to the US dollar- while two totally separate issues, but issues that overlap to a large extent- is something that should not be held as absolutely sacrosanct and beyond scrutiny or acceptance.

Of course, one of the other arguments offered for not discussing the issue of monetary policy amendments was that there are more "pressing" matters that the government should attend to, most notably the large fiscal fire that is raging as a result of bad policy making over successive administrations. But I'm quite certain that we have enough people on hand that can chew gum and walk the same time.

What's also striking now that this part of the ongoing economic debate has sprung up, albeit from within the phantasmagorical political theatre, is that Mr. Smith's colleague, former Central Bank Governor and also a former Minister of State for Finance under the Free National Movement government, Sir. William Allen, has gone on record as being "receptive" to the idea of easing away from exchange controls and shifting away, even if slightly, from the US peg. We agree with Sir. Allen.

We are under the assumption that Sir. Allen's position still stands, until otherwise stated by him with some exposition to his rationale, both for when he had those ideas and to what it is now as the case may be.

One particular fear raised is the issue with regard to removing, or easing, exchange controls would lead to a depreciation of The Bahamian dollar and that it would lead to higher living expenses for wage earners.

Some of this is partly true, but only to a certain extent. For starters, this would only happen if wages remain stagnant due to lack of money supply and the simultaneous banning of US dollars in circulation in the economy. As we all know, Bahamian dollars are spent equally with US dollars. Removing the exchange controls and unpegging would not mean, or should not mean unless otherwise directed through policy, that US dollars would be banned form circulation in The Bahamas.

The second issue is that a depreciation of the Bahamian dollar does not exclusively have to do with regard to removing exchange controls, or an easing up off of exchange controls to allow greater liberalisation. For example, as we went to great detail to explain in the previous submission on exchange controls and the Bahamian dollar, if based on the balance of payments, the Bahamian dollar is already undervalued per dollar for dollar against the US dollar because we don't add services into the balance of payments methodology.

If we were to use the revised methodology, which adds services like tourism and financial services, the demand of the Bahamian dollar internally would appreciate if rated against the US dollar country for country. Theoretically that is.

Some would want to bring in the argument purchasing power parity as a way to explain this away, for what reason I am not quite clear?

Purchasing power parity simply only explains the relative prices of the same goods produced by both countries. Of course, one can see the pitfalls with regard to this, especially when it's very difficult to equate two countries, let alone all countries, on the merit of a similar good produced by said countries, even though journals like The Economist has tried with regard to their Big Mac Index.

For example, apples are produced and processed in the USA, but not in The Bahamas while dillies (naseberries, for my Jamaican friends) are produced and processed in The Bahamas.

Another issue with regard to using purchasing power parity as an excuse for keeping exchange controls is that it does not speak to the relative quality of said good and inputs it takes to produce a good even if it is made in two separate countries.

Not to belabour the point, but using purchasing power parity with regard to monetary policy becomes problematic and unhelpful when the overall goal should be raising the overall quality of life should be the primary focus.

My submission is that while understanding the financial mess created, I am of the opinion that not having broader discussions on how monetary policy can help this situation, from all out unpegging to crawling peg rates, would be just as disastrous as not doing anything at all. Especially when faced with the economic crisis of 2008 and how sluggish economies have been that have not tried more active monetary policies as a response to the crisis.