No more guarantees!

Private sector too dependent on Government for support, complains Arthur

If former Prime Minister Owen Arthur had his way, Needham Point Holdings Limited, the company that operates the Hilton Barbados Resort, would be footing the full bill of its $22 million refurbishment.

Contributing to debate on a resolution to guarantee a $12 million loan for the resort from First Citizens Bank, Arthur told Parliament that given Barbados’ high debt ratio, it was time for Government to send a clear message that it was no longer giving financial guarantees.

However, he lamented that the island had developed a culture where nothing happened unless Government either provided guarantees or substantially financed projects.

“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,’” Arthur told members of the Lower House.

Warning that the practice was unsustainable, the respected economist stressed that Barbados and its Caribbean neighbours were riddled with debt because governments had to frequently offer guarantees, which were generally not repaid.

“Government issues guarantees on the belief that those guarantees will be just contingent liabilities but then they become real liabilities,” he said, pointing out that “on the books of the Government of Barbados is $500 million of sugar industry debt.

“Twice the Government of Barbados has taken over the sugar industry debt.  We have had to take over the debt relating to the Barbados Development Bank and it goes on and on,” he added.

The Independent Member of Parliament for St Peter further expressed concern that the problem was not peculiar to any one sector, as he cited recent calls from players in the energy sector for support.

“People who are making investments in energy development should feel that those investments should pay for themselves without the Government having to give all the time incentives or guarantees,” he said, emphasizing that companies had to see the business of investment as a worthwhile risk that would pay dividends in the long term.

Arthur’s position received some backing from Prime Minister Freundel Stuart. However, the Prime Minister said it would take some time to change the prevailing culture.

He said Government sometimes had no choice but to endure the costs because “we are concerned about providing jobs for our people and keeping economic activity alive”.

Stuart also said that in some cases governments were held to ransom by investors who engaged in a sophisticated form of blackmail, “by basically saying to them,  ‘look, if you can’t back us on this we can go elsewhere and do it’”.

The Prime Minister said there were also instances of failed projects which Government had to take over, even though it believed the private sector could have taken them and run with them.

He cited the stalled Four Seasons project as an example, saying “Government had to get involved and is still involved trying to get that project back on its feet.

“The Attorney General mentioned Heywoods/Almonds that used to belong to Government, it was put in the hands of the private sector. I personally had to sit down with the people who owned it who said to me, ‘look, we got into that but we are not interested in any hotel business, so we want to offload it. And these are the choices you have to make all the time as government in societies and economies like ours,” he said.

6 Responses to No more guarantees!

  1. Adrian Loveridge December 7, 2016 at 5:25 am

    On the same page you quote ‘Hilton’s room stock has increased from 300 to 355 rooms’ – when exactly did this happen? Again very poor and inaccurate reporting.

    Reply
  2. CamB December 7, 2016 at 7:40 am

    Not a cent will be paid back and no one will try to recover it…the usual thing with government.

    Reply
  3. Phil December 7, 2016 at 9:19 am

    Adrian, you are so correct. BT exhibits its inability to present accurate and brief reporting. Check their comments section. lots of questions. If some of those questions were asked by their incompetent re[orters, the people would be better informed by far.

    Reply
  4. SAM CLARKE December 7, 2016 at 10:23 am

    WELL STATED MR. ARTHUR. IT IS TIME THAT THE MARKET FORCE BE ALLOWED TO WORK, WITHOUT COMPANIES AND OTHERS CONSTANTLY SUCKLING AT THE BREAST OF GOVERNMENT.
    THIS IS WHY THEY ARE CALLED ENTREPRENEURS. RISK TAKERS WHO ARE SUCCESSFUL, GET PROFITS IN RETURN FOR TAKING THAT RISK. IF GOVERNMENT CONTINUES TO CONSTANTLY BREAST FEEDING THESE COMPANIES, WHEN ARE THEY EVER GOING TO BE WEANED ?
    THIS BEG THE QUESTION, SHOULD GOVERNMENT NOW GUARANTEE, EVERY MORTGAGE OF THE CITIZENS AS WELL?
    THIS MUST STOP NOW. NEEDHAM HAS TO EITHER SINK OR SWIM WITH THE COMPETITION , BECAUSE THIS IS CLEARLY ECONOMICS.
    IF A RUM SHOP OWNER CANNOT COMPETE, HE SHUT UP SHOP, SO IF NEEDHAM CAN’T HANDLE THE COMPETITION, EITHER SELL IT OR MERGE TO SUIT THE ECONOMIC ENVIRONMENT.
    NOT ONE RED CENT MUST THE GOVERNMENT GUARANTEE.

    Reply
  5. Haskell Murray December 7, 2016 at 11:45 am

    It was the Arthur government who knocked down the old Hilton and built this new one which I don’t think is 20 years old yet, therefore why the refurbishment?
    As I understand it the government owns the building and the Hilton Hotel International owns the operations and therefore all operating cost. Now this refurbishment cost is Hilton Hotel International cost and will be recorded on their books as a capital cost and amortized over a number of years and then they will get a tax deduction for the annual amount amortized. Now look at this the government is on the hook for 12 million and the Hilton get a tax writeoff for 22 million . Does this make any sense. What these international business men know is that the politicians are not trained in high finance and they take advantage of the politicians running the governments all in the name of jobs and votes.
    The government to rescind the 12 million guarantee and let Hilton International pick up the full cost .
    I am sure that there are trained accountants and tax specialist working in the government who should be giving the government the advice I just gave for free.

    Reply
  6. Ralph Talma December 7, 2016 at 11:51 am

    1. Well said Sir, you have always in the past loudly spoken the truth on many subjects, to the betterment of B’dos. I remember you of old, and it is a great pity your utterances are not given the serious thought they deserve.
    2. Do keep up the pressure.

    Reply

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