Identifier
Created
Classification
Origin
09NASSAU634
2009-10-14 15:57:00
CONFIDENTIAL
Embassy Nassau
Cable title:  

IT'S STILL NOT BETTER IN THE BAHAMAS: ECONOMIC

Tags:  ECON EFIN ETRD 
pdf how-to read a cable
VZCZCXYZ0000
OO RUEHWEB

DE RUEHBH #0634/01 2871557
ZNY CCCCC ZZH
O 141557Z OCT 09
FM AMEMBASSY NASSAU
TO RUCNCOM/EC CARICOM COLLECTIVE IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 6747
C O N F I D E N T I A L NASSAU 000634 

SIPDIS

PASS TO WHA/CAR JOSLYN MACK-WILSON

E.O. 12958: DECL: 10/13/2019
TAGS: ECON EFIN ETRD
SUBJECT: IT'S STILL NOT BETTER IN THE BAHAMAS: ECONOMIC
OUTLOOK BLEAK

REF: A. NASSAU 504

B. NASSAU 560

Classified By: Charge d'Affaires a.i. Tim Zuniga-Brown for reasons (b)
and (d)

C O N F I D E N T I A L NASSAU 000634

SIPDIS

PASS TO WHA/CAR JOSLYN MACK-WILSON

E.O. 12958: DECL: 10/13/2019
TAGS: ECON EFIN ETRD
SUBJECT: IT'S STILL NOT BETTER IN THE BAHAMAS: ECONOMIC
OUTLOOK BLEAK

REF: A. NASSAU 504

B. NASSAU 560

Classified By: Charge d'Affaires a.i. Tim Zuniga-Brown for reasons (b)
and (d)


1. (U) SUMMARY: Economic indicators for The Bahamas
remained strongly negative. Central Bank reports point to
loan defaults of almost USD 1 billion, decreased private
sector lending, a government debt-to-revenue ratio of almost
50 percent of GDP and a slumping tourist sector. In an
effort to boost confidence, The International Monetary Fund
(IMF) has given The Bahamas USD 178.7 million in Special
Drawing Rights (SDRs) to supplement its foreign exchange
reserves. The GCOB, meanwhile, has launched a series of
temporary training and jobs programs aimed at decreasing the
14.2 percent unemployment rate. Despite this, the GCOB faces
increasing criticism from business leaders. END SUMMARY

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"Subdued" Economy Faces Loan Defaults, Slow Recovery
-------------- --------------


2. (U) In a series of reports issued over the past three
months, the Central Bank of The Bahamas notes that "prospects
for the Bahamian economy will remain subdued for the balance
of 2009 and into the first half of 2010, constrained by the
very soft pace of recovery in they key U.S. market and
continuing weakness in the consumer segment." The report
claims that the country's three key sectors - construction,
tourism, and Foreign Direct Investment (FDI) are predicted to
"remain moribund" during this time period.


3. (C) The economic downturn continues because of a drop in
consumer demand for credit and as high default rate among
businesses and households. Central Bank and media reports
indicate that loan defaults exceeded USD 963 million and
delinquent loans comprise 16 percent of outstanding private
loans. Despite the difficult credit climate, Bahamas
Financial Services Board CEO Wendy Warren told EconOff that
Bahamian banks are sufficiently capitalized to withstand the
default rates. Central Bank officials also told EconOff that
the average consumer debt in The Bahamas is low - nearly
$5,000. Most growth in delinquencies was in mortgages.
Annual private sector lending decreased by 36.8 percent

causing a slow down in the creation new small-to-medium
(SME) businesses. Meanwhile, loan financing from foreign
lenders, which accounted for the majority of FDI in The
Bahamas, is down 67 percent from June 2008 and now accounts
for only 25 percent of total FDI inflows for 1st half of

2009. Other FDI inflows such as property purchases fell by 40
percent from 2008.

--------------
An "IOU" from the IMF
--------------


4. (C) The International Monetary Fund (IMF) gave The Bahamas
USD 178.7 million in Special Drawing Rights (SDRs) to enhance
The Bahamas' foreign currency reserves. This will ameliorate
the effects of the global financial crisis on developing
nations. SDRs, interest-bearing reserves, can be sold to
another IMF country in exchange for foreign currency. A
country's computation of foreign currency reserves can
include SDR figures. Central Bank senior economist Alwyn
Jordan told EconOff that the SDRs are essentially a
promissory note from the IMF to provide a certain amount of
foreign currency reserves to a developing economy upon
request. Although the SRDs essentially "make (The Bahamas')
economic indicators look better, they don't have an immediate
impact upon the economy." They are designed to boost
domestic and international consumer confidence through the
appearance of stronger external reserves.

--------------
Meanwhile, the Government Keeps On Borrowing(
--------------


5. (U) Prime Minister Ingraham announced that the Government
borrowed USD 150 million since July 2009 and secured
parliamentary approval to borrow approximately USD 310
million. The loans are being used to finance existing debt
and to pay for capital-intensive infrastructure projects,
including the New Providence Road Improvement Program, the
Nassau Harbor dredging and the international airport
redevelopment. The overall deficit expended by USD 139.2
million to USD 219 million in 2009. However, revenue
collections are down by 6.1 percent due to a steep
contraction in tax receipts. The current debt-to-revenue
ratio is 42 percent of GDP, and Ingraham told the media that

he expects that ratio to climb over 50 percent in the next
year.

--------------
And the Hotel Rooms Remain Empty(
--------------


6. (U) The global recession has hit the land-based stopover
tourist industry especially hard in 2009. Despite exposure
from the Miss Universe Pageant (a venture that cost The
Bahamas USD 5.8 million),overall tourist arrivals are down
13 percent. Atlantis President George Markantonis said room
occupancy levels have been as low as 30 percent, staff is on
one or two-day weeks; and management has enforced mandatory
unpaid vacation. As of July 2009, the average Revenue Per
Available Room (RevPAR),a key indicator of industry
performance, was down 18.9 percent in The Bahamas. Family
Island hotel operators have reported 10-to-20 percent
occupancy. On the other hand, sea-based arrivals (cruises)
have seen a dramatic 19.9 percent increase, due to a
perception among American travelers that Cruises offer more
value for the dollar. The Bahamas Hotel Association
President Frank Comito told EconOff that while the average
cruise passenger spends less money in the country than a
stopover tourist, cruises serve as way for tourists to sample
land-based vacations. The GCOB is anticipating increased
cruise traffic over the next two years and will break ground
for a new cruise port in Freeport in 2010 while dredging the
Nassau Harbor to accommodate mega cruise ships.

--------------
While the Unemployment Lines Grow Longer
--------------


7. (C) The decline in stopovers has led to additional
layoffs in the hotel sector, with a multiplier effect
throughout The Bahamas. As of May 2009, 14.2 percent of the
population went unemployed, particularly in Grand Bahama,
where nearly a quarter of the population did not hold a job.
Mark Turnquest, head of The Bahamas Small Business
Association, told EconOff that unemployment is likely between
21 and 24 percent in The Bahamas. Turnquest speculated that
the rising crime rates were directly correlated with the
current spate of layoffs in the hotel and financial services
industry. To date, approximately 12,000 Bahamians have
received or are receiving unemployment benefits.


8. (C) To address this unemployment, the GCOB created the
National Training Program to provide 10-15 weeks training at
local colleges on computing, accounting, carpentry, welding
and plumbing to the unemployed. The goal is to better
prepare Bahamians once the recession has eased. The program
has enrolled 800 Bahamians in Grand Bahama and New Providence
Islands so far. PM Ingraham also launched a temporary jobs
program for as many as 2,000 Bahamians for specific projects,
including digitalizing government records and serving as
teachers' aides. Finally, Finance Minister Zhivargo Laing
has actively promoted the government's "self-starters
initiative" that provides $5,000 in start-up capital to small
business entrepreneurs. However, Turnquest said that
applicants to this program have been told that no actual
funds are available. Turnquest notes that the institutional
support for small businesses in The Bahamas remains extremely
limited and there is a subsequent high failure rate for most
Bahamian start-ups.


9. (C) Private sector leaders have complained to EconOff that
Ingraham has not done enough to bolster confidence in GCOB's
management of the economic crisis nor among potential
investors in The Bahamas. Academics and public sector
officials, on the other hand, blame the current state of
affairs on a lack of diversification in the country's
U.S-dependent economy.


10. (C) COMMENT: The government's current response to the
economic crisis is to launch a series of expensive
infrastructure projects such as the Arawak Cay port
relocation (Ref A),Baha Mar mega resort (Ref B) and New
Providence Road Improvement project to generate jobs and put
The Bahamas in a strong position when the recession eases.
Ingraham has stated publically that the Bahamian economy will
only turn around when and after the U.S. economy rebounds and
hopes that these projects will keep Bahamians employed in the
meantime. These projects, however, will continue to supply
The Bahamas with a steady flow of semi-professional and
menial labor but it remains to be seen if they will enhance
or develop the country's human capital and prevent further
"brain drain" of the nation's best and brightest.
ZUNIGA-BROWN