Between a rock and a hard place

If nothing else, yesterday’s debate on a resolution to guarantee a $12 million loan from First Citizens Bank to assist in the refurbishment of Hilton Barbados Resort, again demonstrated the slender thread on which Government balances its commitment to stimulating the economy and promoting development.

Whether guaranteeing loans or granting major concessions to private enterprises, Government can often find itself in a Catch-22 situation where any administration could be damned if it does or damned if it doesn’t act as development facilitator. In an ideal situation, private sector enterprises should not rely on public sector financing or overly generous state concessions to sustain themselves. But in small, open, vulnerable economies such as Barbados’, Government cannot turn a blind eye or a deaf ear when these entities come calling, especially when apparent economic development in the country is the obvious trade-off.

But how can Government find the right balance? And are there criteria that fit all enterprises that reach out to Government? How is a determination made to grant concessions to Sandals but not to, let’s say, Sandy Lane or Radisson Aquatic Resort? Why guarantee a loan for Hilton Barbados and not Divi Southwinds? And how can we ensure that public money spent on projects such as Gems of Barbados are not funds being poured into the proverbial well?

Former Prime Minister Owen Arthur made a most erudite observation yesterday. Ironically, he has been complicit in the development of the culture that he has correctly suggested needs to be changed. During his contribution to the debate in the Lower House he bemoaned the fact that Barbados had developed a culture where nothing happens unless Government either provides guarantees or substantially finances projects.

Mr Arthur stated: “I wish that we could come to a point where investments like these we are discussing today can go forward and that all across the private sector there is that attitude that ‘we’re in business to take risks. The return that we get from taking risks is profit and that we have to stop indulging in what we call corporate paternalism that nothing can happen unless the Government is involved and propping up somebody.”

The elder statesman indicated, on a note of caution, that Barbados and other regional territories were riddled with debt because governments frequently had to offer guarantees for loans which were not generally repaid.  He explained that Government issued guarantees on the belief that they would be just contingent liabilities but then they evolved into real liabilities. He pointed to the debt-riddled sugar industry as one such example.

However, on the flip side of that coin was Minister of Finance Chris Sinckler. In his contribution to the debate he gave reasons – and valid ones at that – as to the efficacy of granting generous concessions to private enterprises. Making specific reference to the much-discussed handshake given to Sandals, Mr Sinckler noted: “We signed an MOU to do a Sandals in St Peter. Even before the property in St Peter had started, the Sandals Corporation . . . by virtue of the refurbishment and the extension of the property at Casuarina would have already by the time that is completed at the end of this year, have invested more than $400 million in the economy of Barbados and that is on the level of the effects of the investment alone. They are due to start, in another eight months, . . . when they do that, you are talking about an additional $400 million in investment. If it all comes to pass, that’s just under a billion dollars of investment . . . Show me why that does not equate to a sensible use of concessions.”

Mr Sinckler further stressed that spinoff effects of the deal with Sandals were increased marketing and additional airlift from Canada, the United States and sections of South America.

We do not doubt the sanity of Mr Sinckler and the technocrats within the Ministry of Finance, nor do we question the lucidity of those with whom they would have collaborated within the Ministry of Tourism. We expect that numbers would have been crunched before the deal would have been made. The question one might therefore ask is this: Could Government have turned its back on such an opportunity? Should it have yielded to the baying of political hounds with their own agenda and in circumstances where a successful Government venture does nothing to further opposing political aspirations?

Both Mr Arthur and Mr Sinckler have made valid points. Often in an effort to maintain high employment levels and to exploit all avenues of potential economic growth and the earning of foreign exchange, Government, whether Democratic Labour Party or Barbados Labour Party, has few options outside of direct state involvement and/or investment. And this is nothing peculiar to Barbados. It is the way of the world.

We do not suggest any formlessness in the way such business is conducted, but proffer the notion that inflexibility is not the way to go in a small economy such as Barbados’. Somewhere between the dissenting and consenting views, between the calm and hurly burly, between politicking and pragmatism, decisions must be reached that advance our economic development beyond the political grandstanding.

One Response to Between a rock and a hard place

  1. Hal Austin December 16, 2016 at 12:16 pm

    What is the interest rate? All underwriting should be on the balance sheet.

    Reply

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