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.
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HE SAID, SHE SAID
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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.
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WE TOLD YOU SO
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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."
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WE SHALL NOT BE MOVED
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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