PRIME MINISTER ROLLS OUT STIMULUS PACKAGE IN "OBAMA-STYLE

UNCLAS GRENADA 000026

SENSITIVE
SIPDIS

DEPARTMENT FOR WHA/CAR MITCHELL

E.O. 12958: N/A
TAGS: ECON EFIN ELAB GJ
SUBJECT: PRIME MINISTER ROLLS OUT STIMULUS PACKAGE IN "OBAMA-STYLE
TOWN HALL MEETING


1. (U) Grenada Prime Minister Tillman Thomas and his ministers
held a hastily arranged "Obama-style" town hall meeting to
announce an "Obama-style" stimulus package on March 31. The
stimulus package was made possible by a US$7 million (EC$20
million) loan Parliament approved on March 25 to come from three
to five banks with branches in Grenada. The original loan
legislation was vague about how the money would be used.
Thomas' March 31 presentation detailed exactly where the
government expected to use the money. Included are plans for
continued clearing of vegetation along the country's roads,
agriculture, road work, and repairs of several ministry
buildings. The focus was on job creation, although the GOG has
come up with a complicated, and confusing, system to spread the
jobs around. As a result, while the total number to be employed
in road work is over 700, people will be rotated in and out of
the jobs every few weeks, so that at any given time the total
will be lower, and no one would work for the duration of any
project.


2. (U) The tax amnesty program begun in November 2008 and
already extended from December 31 to March 31, 2009, was
extended again to the end of April. The government has shied
away from giving actual dollar figures for collections to date.
All the GOG will say is that the amnesty is a hit with
businesses. The overall amount owed the GOG by private
individuals, businesses, and investors is about US$28 million
(EC$75 million). The expiration on December 31, 2008 of the
national reconstruction levy (NRL),and the further delay in
implementing value added tax from 2009 to 2010, combined with
the non-payment of taxes means that government revenues are most
likely down significantly.


3. (SBU) The Prime Minister and his ministers took questions
from the sparse crowd of 50 after his 20 minute presentation.
Concerns were raised about the weak enforcement of Grenada's tax
laws, the ineffectiveness and incompetence of the Grenadian
legal system and fraternity, and the downside of allowing
governments to bid on construction projects funded by the
international financial institutions (code here for the Chinese
who underbid local contractors, do not use local labor, and
import equipment and materials duty-free from China). The
government responses were not very detailed and were designed
more to reassure than to inform.


4. (SBU) Comment: Speculation was rampant about what the loan
funds would be used for after the borrowing was approved.
During parliamentary discussion, the opposition warned darkly of
the dangers of borrowing to pay for regular expenditures. The
government plans laid out March 31 appear to include spending at
least some of that money on ongoing programs, such as road
clearing. On the positive side, the government is trying to
figure out ways to put people to work during difficult economic
times. The GOG may regret not taking more time to work out the
details of the programs it wants to implement with the borrowed
money. If the work for any given individual only lasts one or
two weeks in order to spread limited funding around, the
programs could prove to be unpopular. Ultimately, the GOG must
implement VAT and figure out how to ensure people pay taxes and
rents they owe on time in order to close the budget gap and to
create sustainable, long-term employment.

MCISAAC