FINANCE MINISTER AFFIRMS BAHAMAS' INTEREST IN

C O N F I D E N T I A L NASSAU 001053

SIPDIS

SIPDIS

DEPT FOR WHA/CAR; DEPARTMENT OF COMMERCE/ITA BROOKS

E.O. 12958: DECL: 08/18/2017
TAGS: PGOV EINV ENRG ECON BF
SUBJECT: FINANCE MINISTER AFFIRMS BAHAMAS' INTEREST IN
SMALLER-SCALE INVESTMENTS

REF: A. NASSAU 0550


B. NASSAU 0414

Classified By: Charge d'Affaires, a.i. D. Brent Hardt, Reasons 1.4 (b)
and (d)

--------------
SUMMARY
--------------


1. (C) Minister of State for Finance Zhivargo Liang affirmed
the new FNM government's interest in attracting more
small-scale, boutique tourism investments as opposed to the
large-scale investments popular during the Christie
Administration. Liang emphasized that no investors would be
turned away, and that discussions were ongoing on several
large projects inherited from the PLP. In assessing the
Bahamas' financial health, Liang noted that more stringent
enforcement on import duties has compensated for modest
tourism declines to keep government revenue steady. Liang
stressed that the government was committed to consolidating
the Bahamas' regulatory regime so investors would have "one
stop shopping." Liang also noted that he expected to win the
court challenge being mounted by the PLP to his seat in
Parliament. Finally, while Liang noted that the FNM had
originally approved the application for LNG plants in The
Bahamas in 2001, the process had dragged on so long that it
had now become overly politicized and would be a tough sell
to the Bahamian public. End Summary.


2. (C) Charge' called on Minister of State for Finance
Zhivargo Liang as part of his continuing round of calls on
new government ministers. While the Prime Minister formally
holds the portfolio as Minister of Finance, Liang as Minister
of State is in charge of day-to-day financial operations.
Liang had previously been a Minister in Ingraham's former
cabinet. He won his seat in Grand Bahama by less than 60
votes, and is being challenged in court by the PLP. Having
won five of six seats in Grand Bahama, the FNM is determined
to maintain its base on the island and restore Grand Bahamas'
economic vitality.

--------------
TOURISM DEVELOPMENT: SMALL IS BEAUTIFUL
--------------


3. (C) In the wake of FNM election rhetoric critical of a
number of major tourism investment projects agreed by the
former PLP government, the Charge' asked Liang about the
status of the new government's assessment of these investment
projects. Liang affirmed the FNM government's preference for
projects with smaller environmental and labor footprints in
the Family Islands. Nevertheless, Liang confirmed that the
large Ginn project in Grand Bahama and the Baha Mar project
on New Providence would go forward. The Baha Mar project is
still being negotiated and the Prime Minister is reportedly
personally leading the negotiation. Ingraham has criticized
concessions made by the Christie government in other major
deals, so he will be under pressure to ensure a good deal for
the government at the end of the day. Liang also noted that
talks are moving forward with Harcourt, an Irish company that
is purchasing the Royal Oasis Hotel in Freeport, which has
been closed since the hurricanes of 2004 and 2005 and has
severely damaged Grand Bahama's economy.

--------------
REVENUE AND TOURISM
--------------


4. (C) The Charge' and Minister then discussed recently
declining tourism numbers in The Bahamas. The Minister noted
that tourism is down throughout the region, laying the blame
primarily on new U.S. passport requirements from the Western
Hemisphere Travel Initiative. He felt that The Bahamas,
which enjoyed a larger slice of "impulse tourism" by
Americans, was particularly hard hit by the passport
requirement. Despite the drop in tourism numbers --
visitors numbers between January and May are down 6 percent
-- revenue has remained steady. Liag attributes this to
better revenue collection of import duty revenue due the
government but previously uncollected. He noted that taxes
have not been increased in the last 15 years. Currently, he
said, the government is considering whether to attempt to
collect room taxes from people who rent out their second
homes to others, but has not reached any decision on this
potential source of revenue.

--------------
STREAMLINING REGULATION

--------------


5. (C) The discussion of revenue collection and tax
enforcement provided the Charge' with a bridge to raise the
issue of regulatory enforcement of the offshore financial
sector. The Charge' noted that the strong performance of the
Bahamian financial sector demonstrated that it is possible to
have a strong sector that is well regulated. (Note: It was
during the first Ingraham administration that the Bahamas was
placed on the FATF list for having a weakly regulated
offshore financial sector. Ingraham, in response, had
implemented strong requirements that some in the financial
sector believe damaged Bahamian competitiveness in relation
to other offshore jurisdictions. End Note) Liang stated
that the FNM government intended to streamline the regulatory
regime in The Bahamas so that clients and law enforcement
only had to deal with one regulator.

--------------
LNG DEBATE: PERCEPTION OVER REALITY
--------------


6. (C) Given Liang's responsibility for investment
projects, the Charge' took the opportunity to raise the issue
of the pending application by the U.S. energy company AES to
operate an LNG plant at Ocean Cay. The Charge' reminded
Liang that Florida would move ahead to meet its energy needs
with or without this project, and that the LNG plant seemed
like an excellent opportunity to augment Bahamian government
revenues. Liang noted that when the FNM was last in office
it had approved two LNG proposals, contingent on the
environmental impact assessments. Unfortunately, he said,
the PLP had allowed the proposals to linger so long that the
environmentalists had now been able to embed concerns among
the Bahamian public about the energy plants. The Charge'
replied that much of the opposition to the project had been
funded by a single individual for personal reasons, and that
the environmental impact studies had been completed. He
further pointed out to Liang that the U.S. had over 200 such
plants in operation and that the plant could provide millions
of dollars annually for the Bahamian treasury. Liang
believed the problem now lay in the perceptions, not the
reality.

--------------
COMMENT
--------------


7. (C) Liang is one of the younger members of the cabinet
and holds a vital position close to the Prime Minister. With
a few books on economics to his credit, he is seen as the
FNM's economic wunderkind. The new government's emphasis on
smaller projects stems from their belief that some of the
projects approved over the past two years are too large for
the communities in which they are being built and that there
is not enough Bahamian ownership and benefit from the
projects. For the time being, the government has the luxury
of dealing with projects inherited from the Christie
Administration; moving forward it will have to find concrete
ways to implement its preference for smaller, high-end
investments, while continuing to generate the construction
employment necessary to fuel the broader economy.
HARDT