PLP SLAMS FNM OVER SERVICE CUTS AS BUDGET DEBATE RAGES

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
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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
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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
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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