R 181440Z AUG 09
FM AMEMBASSY NASSAU
TO SECSTATE WASHDC 6590
INFO USDOC WASHDC
EC CARICOM COLLECTIVE

UNCLAS NASSAU 000487 
 
 
STATE FOR WHA/CAR AND EB 
SANTO DOMINGO FOR USFCS 
 
E.O. 12958:  N/A 
TAGS: BEXP ETRD ECON BF
SUBJECT:  PLP SLAMS FNM OVER SERVICE CUTS AS BUDGET DEBATE RAGES 
 
REF:  NASSAU 388 
 
¶1.  (U) SUMMARY:  The 2009 GCOB budget was issued on June 8 and 
addressed the severe lack of government resources.  The Prime 
Minister announced major budget cuts in nearly all ministries, 
cancelled programs and put a stop to all conference-related travel. 
In response, the PLP opposition party slammed the government for 
cuts to essential public services, especially in tourism, education 
and health services.  They further criticized the government's 
budget for failing to generate alternative streams of revenue to 
combat rising public debt. The International Monetary Fund advised 
the GCOB to broaden its revenue base but the PM made no promises of 
applying this advice in the near future.   END SUMMARY. 
 
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IMF REPORT ADDRESSES RISING DEBT 
-------------------------------- 
 
¶2.  (U) The IMF suggested that the Government of The Bahamas (GCOB) 
strengthen administration of existing property trade taxes, review 
foreign direct investment incentives and shift the tax base to 
domestic consumption(for example, a VAT system).  In response to the 
IMF report, the PM noted that restructuring the Custom's Department 
and the government's property tax relief initiative were methods to 
bolster collections.  However, he indicated no intention to apply 
the tax advice, stating that the government must focus on 
"implementing rigorous methods of collecting revenue from existing 
streams before it considers expanding the treasury sources."  The PM 
provided no response to the recommendation on foreign direct 
investment. 
 
¶3.  (U) To increase revenue for the 2009/2010 budget, the PM said 
the GCOB will take a $30 million dividend from The Bahamas 
Telecommunications Corporation (BTC) before its sale. It will also 
transfer $7 million in profit from the Central Bank of the Bahamas. 
These injections will be used to offset increased government capital 
expenditure.  Additionally, the proceeds of the sale of BTC will be 
instrumental in financing the fiscal deficit. 
 
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SERVICES DEALT HEFTY BLOW 
------------------------ 
 
¶4.  (U) The Department of Public Health was dealt another blow in 
addition to the budget cuts when the PM reported a delay in 
implementing the prescription drug plan.  The plan, originally 
scheduled to begin July 1, was intended to increase access for 
pensioners and minors to medication for chronic illnesses.  The PM 
revealed that the plan will be delayed until October.  Financing for 
the National Youth Service was also cut, a punitive and corrective 
program located on the island of Andros for wayward teenage boys. 
The PM noted that the program may be relocated to Nassau in an 
effort to mitigate costs. In the meantime the GCOB plans to revise 
and expand the program to make it more rehabilitative and 
sustainable. 
 
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CRITICISM FROM THE OPPOSITION 
----------------------------- 
 
¶5.  (U) Opposition Member of Parliament Alfred Sears called for the 
PM to step down as Minister of Finance, citing former PM Sir Lynden 
Pindling's decision to relinquish that ministry's responsibility 
during the 1990 economic crisis.  Sears said the PM has failed as a 
minister on many issues including shielding the country's financial 
services from external threats, protecting CLICO policy and annuity 
holders, safeguarding crown land from corruption and improving 
revenue collection.  He further stated that the budget offered no 
strategic vision to create new streams of government revenue. 
Opposition leader Perry Christie added that the government 
mishandled the recent nurses' strike and that cuts in key public 
services and ministerial areas are to the country's detriment.  In 
response Minister of State for Finance Zhivargo Laing said that 
despite the reductions, all government agencies were operating with 
more money than the PLP government allotted them in its last budget 
(2006/2007). 
 
¶6.  (U) The opposition called for transparency in the expenditure of 
borrowed public funds and reporting of the exact debt-to-GDP ratio. 
The opposition has speculated that the figures may be higher than 
forecasted.  MP Glenys Hanna-Martin chided the current 
administration for the move of the main port in Nassau from its 
current downtown location to Arawak Cay (about six miles west). She 
also cited the involvement of Deputy Prime Minister (DPM) Brent 
Symonette, who has personal business interests invested through the 
company Bahamas Hot Mix.  According to the PM and DPM, the 
government has always done business with the company even under the 
previous PLP administration. They responded that the DPM's 
involvement did not present a conflict of interest. 
 
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COMMENT 
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¶7.  (U) Despite the outcry, the budget was passed in the House and 
the Senate within the month, meeting the June 30th deadline.  The 
debate brought to light the most pressing economic issues but lacked 
sustainable long term solutions, as recommended by the IMF, to 
address the deficit.  The GCOB has consistently talked about the 
need to diversify the economy of the island nation, but it is clear 
that GCOB leaders are still dependent in the short term on tourism 
for their survival. 
 
 
ELMO