VZCZCXYZ0000
OO RUEHWEB

DE RUEHBH #0634/01 2871557
ZNY CCCCC ZZH
O 141557Z OCT 09
FM AMEMBASSY NASSAU
TO RUCNCOM/EC CARICOM COLLECTIVE IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 6747

C O N F I D E N T I A L NASSAU 000634 
 
SIPDIS 
 
PASS TO WHA/CAR JOSLYN MACK-WILSON 
 
E.O. 12958: DECL: 10/13/2019 
TAGS: ECON EFIN ETRD
SUBJECT: IT'S STILL NOT BETTER IN THE BAHAMAS: ECONOMIC 
OUTLOOK BLEAK 
 
REF: A. NASSAU 504 
     ¶B. NASSAU 560 
 
Classified By: Charge d'Affaires a.i. Tim Zuniga-Brown for reasons (b) 
and (d) 
 
 ¶1.  (U) SUMMARY:  Economic indicators for The Bahamas 
remained strongly negative.  Central Bank reports point to 
loan defaults of almost USD 1 billion, decreased private 
sector lending, a government debt-to-revenue ratio of almost 
50 percent of GDP and a slumping tourist sector.  In an 
effort to boost confidence, The International Monetary Fund 
(IMF) has given The Bahamas USD 178.7 million in Special 
Drawing Rights (SDRs) to supplement its foreign exchange 
reserves.  The GCOB, meanwhile, has launched a series of 
temporary training and jobs programs aimed at decreasing the 
14.2 percent unemployment rate.  Despite this, the GCOB faces 
increasing criticism from business leaders.  END SUMMARY 
 
--------------------------------------------- ------- 
"Subdued" Economy Faces Loan Defaults, Slow Recovery 
--------------------------------------------- ------- 
 
¶2.  (U) In a series of reports issued over the past three 
months, the Central Bank of The Bahamas notes that "prospects 
for the Bahamian economy will remain subdued for the balance 
of 2009 and into the first half of 2010, constrained by the 
very soft pace of recovery in they key U.S. market and 
continuing weakness in the consumer segment."  The report 
claims that the country's three key sectors - construction, 
tourism, and Foreign Direct Investment (FDI) are predicted to 
"remain moribund" during this time period. 
 
¶3. (C) The economic downturn continues because of a drop in 
consumer demand for credit and as high default rate among 
businesses and households.  Central Bank and media reports 
indicate that loan defaults exceeded USD 963 million and 
delinquent loans comprise 16 percent of outstanding private 
loans.  Despite the difficult credit climate, Bahamas 
Financial Services Board CEO Wendy Warren told EconOff  that 
Bahamian banks are sufficiently capitalized to withstand the 
default rates.  Central Bank officials also told EconOff that 
the average consumer debt in The Bahamas is low - nearly 
$5,000.  Most growth in delinquencies was in mortgages. 
Annual private sector lending decreased by 36.8 percent 
causing a slow down in the creation  new small-to-medium 
(SME) businesses.  Meanwhile, loan financing from foreign 
lenders, which accounted for the majority of FDI in The 
Bahamas, is down 67 percent from June 2008 and now accounts 
for only 25 percent of total FDI inflows for 1st half of 
¶2009. Other FDI inflows such as property purchases fell by 40 
percent from 2008. 
 
--------------------- 
An "IOU" from the IMF 
--------------------- 
 
¶4. (C) The International Monetary Fund (IMF) gave The Bahamas 
USD 178.7 million in Special Drawing Rights (SDRs) to enhance 
The Bahamas' foreign currency reserves. This will ameliorate 
the effects of the global financial crisis on developing 
nations.  SDRs, interest-bearing reserves, can be sold to 
another IMF country in exchange for foreign currency.  A 
country's computation of foreign currency reserves can 
include SDR figures. Central Bank senior economist Alwyn 
Jordan told EconOff that the SDRs are essentially a 
promissory note from the IMF to provide a certain amount of 
foreign currency reserves to a developing economy upon 
request.  Although the SRDs essentially "make (The Bahamas') 
economic indicators look better, they don't have an immediate 
impact upon the economy."  They are designed to boost 
domestic and international consumer confidence through the 
appearance of stronger external reserves. 
 
--------------------------------------------- 
Meanwhile, the Government Keeps On Borrowing( 
--------------------------------------------- 
 
¶5.  (U) Prime Minister Ingraham announced that the Government 
borrowed USD 150 million since July 2009 and secured 
parliamentary approval to borrow approximately USD 310 
million.   The loans are being used to finance existing debt 
and to pay for capital-intensive infrastructure projects, 
including the New Providence Road Improvement Program, the 
Nassau Harbor dredging and the international airport 
redevelopment.  The overall deficit expended by USD 139.2 
million to USD 219 million in 2009.  However, revenue 
collections are down by 6.1 percent due to a steep 
contraction in tax receipts.  The current debt-to-revenue 
ratio is 42 percent of GDP, and Ingraham told the media that 
 
he expects that ratio to climb over 50 percent in the next 
year. 
 
--------------------------------- 
And the Hotel Rooms Remain Empty( 
--------------------------------- 
 
¶6.  (U) The global recession has hit the land-based stopover 
tourist industry especially hard in 2009.  Despite exposure 
from the Miss Universe Pageant (a venture that cost The 
Bahamas USD 5.8 million), overall tourist arrivals are down 
13 percent. Atlantis President George Markantonis said room 
occupancy levels have been as low as 30 percent, staff is on 
one or two-day weeks; and management has enforced mandatory 
unpaid vacation.  As of July 2009, the average Revenue Per 
Available Room (RevPAR), a key indicator of industry 
performance, was down 18.9 percent in The Bahamas.  Family 
Island hotel operators have reported 10-to-20 percent 
occupancy.  On the other hand, sea-based arrivals (cruises) 
have seen a dramatic 19.9 percent increase, due to a 
perception among American travelers that Cruises offer more 
value for the dollar.  The Bahamas Hotel Association 
President Frank Comito told EconOff that while the average 
cruise passenger spends less money in the country than a 
stopover tourist, cruises serve as way for tourists to sample 
land-based vacations.  The GCOB is anticipating increased 
cruise traffic over the next two years and will break ground 
for a new cruise port in Freeport in 2010 while dredging the 
Nassau Harbor to accommodate mega cruise ships. 
 
---------------------------------------- 
While the Unemployment Lines Grow Longer 
---------------------------------------- 
 
¶7.   (C) The decline in stopovers has led to additional 
layoffs in the hotel sector, with a multiplier effect 
throughout The Bahamas.  As of May 2009, 14.2 percent of the 
population went unemployed, particularly in Grand Bahama, 
where nearly a quarter of the population did not hold a job. 
Mark Turnquest, head of The Bahamas Small Business 
Association, told EconOff that unemployment is likely between 
21 and 24 percent in The Bahamas.  Turnquest speculated that 
the rising crime rates were directly correlated with the 
current spate of layoffs in the hotel and financial services 
industry.  To date, approximately 12,000 Bahamians have 
received or are receiving unemployment benefits. 
 
¶8. (C) To address this unemployment, the GCOB created the 
National Training Program to provide  10-15 weeks training at 
local colleges on computing, accounting, carpentry, welding 
and plumbing to the unemployed.  The goal is to better 
prepare Bahamians once the recession has eased.  The program 
has enrolled 800 Bahamians in Grand Bahama and New Providence 
Islands so far. PM Ingraham also launched a temporary jobs 
program for as many as 2,000 Bahamians for specific projects, 
including digitalizing government records and serving as 
teachers' aides.  Finally, Finance Minister Zhivargo Laing 
has actively promoted the government's "self-starters 
initiative" that provides $5,000 in start-up capital to small 
business entrepreneurs.  However, Turnquest said that 
applicants to this program have been told that no actual 
funds are available.  Turnquest notes that the institutional 
support for small businesses in The Bahamas remains extremely 
limited and there is a subsequent high failure rate for most 
Bahamian start-ups. 
 
¶9. (C) Private sector leaders have complained to EconOff that 
Ingraham has not done enough to bolster confidence in GCOB's 
management of the economic crisis nor among potential 
investors in The Bahamas. Academics and public sector 
officials, on the other hand, blame the current state of 
affairs on a lack of diversification in the country's 
U.S-dependent economy. 
 
¶10. (C) COMMENT: The government's current response to the 
economic crisis is to launch a series of expensive 
infrastructure projects such as the Arawak Cay port 
relocation (Ref A), Baha Mar mega resort (Ref B) and New 
Providence Road Improvement project to generate jobs and put 
The Bahamas in a strong position when the recession eases. 
Ingraham has stated publically that the Bahamian economy will 
only turn around when and after the U.S. economy rebounds and 
hopes that these projects will keep Bahamians employed in the 
meantime.  These projects, however, will continue to supply 
The Bahamas with a steady flow of semi-professional and 
menial labor but it remains to be seen if they will enhance 
or develop the country's human capital and prevent further 
"brain drain" of the nation's best and brightest. 
ZUNIGA-BROWN