Caribbean & Central America - October 2012 (ISSN 1741-4458)

The International Monetary Fund (IMF), ratings agency, Standard & Poor’s, and the US Senate Caucus on International Narcotics Control have all had worrying things to say about The Bahamas in the past month.

The Bahamas has had a new government since the 7 May victory of Prime Minister Perry Christie’s Progressive Liberal Party (PLP) over the incumbent Free National Movement (FNM) led by Hubert Ingraham by an impressive 29-9 seats in the 38-seat parliament [RC-12-06]. Immediately on assuming power, the PLP government announced that it was “shocked” by the state of the country’s finances.

The PLP accused Ingraham’s government of “mismanagement” and “abuse” of the public purse in leaving behind a US$500m deficit for fiscal year 2012/13. At the beginning of September, the IMF weighed in with a warning that The Bahamas’ debt-to-GDP ratio had risen “much higher than expected”. The ratio is 54%, but contingent liabilities relating to public corporations such as the Bahamas Electricity Corporation (BEC) pushes that ratio above 60%.

Commenting on the debt-to-GDP ratio on 7 September, the IMF’s mission chief for the country, Gene Leon, warned: “In terms of outcome, it [the deficit] is much higher than projected. Once these things start to slip, it can easily get to a point where it becomes a problem.” Before the 2008 financial crisis, the debt-to-GDP ratio was below 40%.

It is this decline that prompted James Smith, an important adviser to the Christie government, to suggest in early September that the country might consider introducing an income tax. He said: “This no tax issue is simply not the same discussion any more. Five years ago, income would have been off the table. But I suspect it will come up. The time has come to look at all options, to the extent The Bahamas has stopped promoting itself as a tax-free jurisdiction. I think we can begin to move away from that model.”

On 24 September, the markets had their say, with Standard & Poor’s issuing a warning that a downgrade was on the cards unless the PLP came up with a credible plan for reducing debt. It revised the country’s outlook from stable to negative. The rating agency said: “The government deficit, instead of peaking and starting to decline, rose even further in the fiscal year ended June 2012. Capital expenditure cost overruns…and continued sluggish growth in recurrent revenue pushed the general government deficit to an estimated more than 7% of GDP.”

Last November, S&P downgraded the country’s sovereign long-term credit from BBB+ to BBB. Slightly more positively, however, it does expect the general government deficit to fall towards 4.4% of GDP in the fiscal year ending June 2014 after a 6.7% deficit in the year to June 2013.

In response to the fears, the government is to hold a National Symposium on Tax Reform from 25-26 October, however S&P has said that any changes are likely to take years to implement.

The one good point for the new government, as we reported last month, has been an apparent improvement in the crime scene. For the period 1 January-24 July, the overall crime rate was down 9% on the same period in 2011, with the murder rates down 14%. The new government was quick to take the credit for a 24% decrease in the murder rate between it being sworn in on 8 May and the end of July. However, a report published in September by the US Senate Caucus on International Narcotics Control – Preventing a Security Crisis in the Caribbean - cautions about the drug trade in The Bahamas.

The background is a very substantial decrease in cocaine trafficking to the US via The Bahamas since the 1982 launch of Operation Bahamas, Turks and Caicos (OPBAT). In the 30 years since the launch of OPBAT, the percentage of cocaine entering the US via The Bahamas has dropped from nearly 80% to less than 5%.

However, the Senate report argues that this is not the time for complacency, noting that in September 2011, President Barack Obama identified The Bahamas as one of four Caribbean countries deemed to be “major transit countries”. The other three are the Dominican Republic, Haiti, and Jamaica.

The Bahamas was also one of eight Caribbean countries designated as “jurisdictions of primary concern for money laundering activities”. The others are Antigua & Barbuda, the British Virgin Islands, the Cayman Islands, Curaçao, the Dominican Republic, Haiti, and St Maarten.

The report also notes that it was as recently as 2010 that The Bahamas recorded its highest murder rate, with 28 homicides per 100,000 inhabitants. This was a lot less than Honduras’s 77 per 100,000 or Jamaica’s 52 per 100,000, but it was higher than many other countries in the region, including Mexico with 18 murders per 100,000 people.

The Senate report warned: “The Caucus is very concerned with the potential shift of drug trafficking patterns back to the Caribbean as a result of increased interdiction efforts in Mexico and Central America.” It said that it agreed with the comments of Assistant Secretary of State for International Narcotics and Law Enforcement Affairs William Brownfield, who said recently: “I do not see it right now, but simple logic and common sense tells you that you are probably going to see it in the next two or three years.”

The concern for the US is the controllability of The Bahamas, with its 700 islands and cays spread over 100,000 square miles. The Senate report warned: “Due to the country’s proximity to the US and the enormous area it encompasses, a number of drug trafficking organizations continue to operate in The Bahamas. The drug trade contributes to violent crime and a murder rate that is fourth highest in the region and rising.”

Deportations

The September report from the US Senate Caucus on International Narcotics Control – Preventing a Security Crisis in the Caribbean – acknowledges the difficulties caused by the deportation of thousands of Caribbean nationals from the US to their countries of origin.

 The problem is twofold. First, US Immigration and Customs Enforcement (ICE) provides only 3-5 days’ advance notice to the receiving countries. Secondly, the only reason provided is the offence for which the deportee is being sent home. ICE is prevented by US law from passing on further details about the deportee’s criminal past without permission from the relevant state of federal authority.

  The Senate report includes the following recommendation: “A full criminal history should be sent with all deportees to their receiving countries’ authorities. In particular, ICE should expand the sharing of serious criminal convictions with Caribbean nations that express a desire for such information.”