THE STANDARD AND POOR'S CONTROVERSY

UNCLAS NASSAU 000062 SIPDIS STATE FOR WHA/CAR, SANTO DOMINGO FOR USFCS, USDOC FOR ITA MICHELLE BROOKS E.O. 12958: N/A TAGS: EINV EFIN ETRD ELAB PGOV BF SUBJECT: THE STANDARD AND POOR'S CONTROVERSY ¶1. SUMMARY: Standard and Poor's Sovereign Report released on December 29, 2008 has generated heated debate between the governing Free National Movement (FNM) and opposition Progressive Liberal Party (PLP) officials. The report states that the FNM's decision to delay several PLP signed contracts by six months to two years directly contributed to the current economic downturn. Prime Minister Ingraham and Minister of Finance Zhivargo Laing have both accused S&P of placing unfair blame on the FNM, saying they inherited a sluggish economy and cannot be held responsible for the current economic downturn. S&P continues to stand by their research and maintains the accuracy of information in their reports. END SUMMARY. -------------- HE SAID, SHE SAID -------------- ¶2. The S&P Sovereign Report released on December 29, 2008 has generated heated debate in The Bahamas. The report states that the FNM's decision to delay several PLP signed contracts bt six months to two years contributed to the current downturn in the Bahamian economy. Minister of Finance Zhivargo Laing immediately asked S&P to corroborate its assertion, stressing that the FNM party inherited a sluggish economy and cannot be blamed for external factors out of their control. Laing further said that the former PLP administration spent $800 million in its five years in office without any evidence of capital investment. ¶3. S&P analyst Olga Kalinina explained that S&P's conclusions were drawn from a series of meetings where the uniform complaint was that the FNM party's decision to defer several PLP initiated contracts caused a significant loss in growth momentum. She clarified, however, that it is not uncommon for new governments to reassess contracts signed by previous administrations, especially if those contracts are signed in the period leading up to general elections. Kalinina agreed that the global recession made the Bahamian economy vulnerable, but pointed out that significant growth momentum was initially lost due to the FNM. Laing publicly noted that S&P's response was insufficient and did not corroborate the suggestion that FNM was to blame for the economic downturn. -------------- WE TOLD YOU SO -------------- ¶4. The Minister's comments received criticism from members of the PLP opposition, especially local businessman and lawyer Paul Moss who said that S&P is a respected, non-partisan rating agency. Moss told local media the S&P report lends unbiased support to the PLP's position that the FNM is partly responsible for The Bahamas' economic condition because it prevented growth by suspending a number of capital projects. PLP officials have now called upon the GCOB to publish the results of the review in accordance with its promise of transparency within the "Trust Agenda." -------------- WE SHALL NOT BE MOVED -------------- ¶5. PM Ingraham addressed S&P's statements at the Bahamas Business Outlook seminar on January 15. He asserted that the organization had been misinformed and was drawing conclusions based on partisan reports. He echoed Minister Laing's defense that review of the contracts was necessary but argued that it was not a "protracted" period and said S&P should have obtained GCOB response before publishing such a claim. He expressed his concern that some of the contracts were politically motivated, having been signed within six months of the general election, and added that within two weeks of coming to office the FNM deemed some contracts unnecessary (such as a $4 million school in Acklins Island where there are only 40 students). The PM noted that GCOB recently signed an agreement to build the straw market for far less than the $23 million earmarked by the former PLP administration. ¶6. Following the PM's statement, Kalinina reiterated that S&P met with both GCOB officials and private sector stakeholders when researching their report. She maintains S&P's position on the report and denies any charges of bias. ¶7. COMMENT: S&P's conclusion that the FNM administration impeded economic growth has some credence. However, Laing's argument that the economy was already waning and the review process was needed also holds weight. While it is clear that some of the proposed PLP projects were excessively expensive, it is also true that FNM administration had the ability to proceed with viable projects in a more timely manner. ZUNIGA-BROWN