The Executive Council of the Cayman Island Government responds

Commentary

The ExecutiveCouncil of the
Cayman Island Government responds

Hon.Kurt Tibbetts, Hon. McKeeva Bush, Hon. Linford Pierson, Hon. RoyBodden, Hon. Edna Moyle

Followingthe publication of a press release in Cayman Net News issued byformer Ministers of the Government of the Cayman Islands, thepresent Government has issued the following response:
"The present Government took Office in late-November 2000with a pledge to promote greater transparency and accountabilityin government affairs. Very early in our term we were faced withsevere difficulties in the area of public finance.

"Thepresent Government took Office in late-November 2000 with
a pledge to promote greater transparency and accountability in
government affairs..."

In light of the deteriorating cash situation at that time, wetook the view that the public should be informed of the country'strue financial position. This we did our best to fulfill throughthe press and through full Finance Committee and Legislative Assemblybriefings.
The new Government, however, anticipated that there would be thoseindividuals in the community who would hold the view that opendiscussion of this sensitive issue would do more harm than good.
As you will recall, four ex-Ministers from the past governmentresponded to the new openness by attempting to blur the factsby issuing a series of muddled statements. Notwithstanding theseattempts, we strove to keep the Members of the Legislative Assemblyand the general public informed as the situation un-folded. Despiteour efforts to control expenditure during the final weeks of 2000,the fiscal year ended on the down the deck was already stackedagainst us.
These four ex-ministers, Ms. Juliana O'Connor-Connolly, Mr. TomJefferson, Mr. John McLean, and Mr. Truman Bodden, continue toissue misinformation and have most recently issued a press statementon the 2001 Budget Speech and Draft 2001 Budget that is currentlybefore the Legislative Assembly.
Unfortunately, their press statement contains a number of inaccuraciesand misinterpretations and, in many instances, attacks 'persons'as opposed to addressing the 'issues'. The old saying, 'shootthe messenger and perhaps the people will forget about the message'is the main tactic being used by the four former ministers.
There are a great number of wild accusations and sweeping generalisationsmade in their press statement, some worthy of mention and othersnot.
"This is just another attempt to distract the country andits Government from the job at hand, a job that the country needsdone now and not later," said Hon. Kurt Tibbetts, Leaderof Government Business.
"This is also an attempt to distract the country from therevelations of the Millet Report on Education, which had beenwithheld from the public since early last year. Now that thisReport has been released we now know why it had not seen the lightof day previously," said Hon. Roy Bodden, Minister of Education,Human Resources and Culture.
Their Statement: "WE WILL NOT ADD MORE TAXES TO THE OLDAREAS " Hon. Kurt Tibbetts 28th November Compass. The $27.4 million taxes by his new Government makes this now anuntruth."
* Fact 1: During the 2000 Election, the public was told and isnow being told again by these 4 ex-ministers that the past governmenthad created "recurrent surpluses". Once we were electedto Executive Council, we had the opportunity to get the factsand it became apparent that the government was critically lowon funds and needed not only its existing revenues to keep itgoing but also new ones as well.
Their Statement: "New $27.4 million tax increase hit childrenand the average Caymanian - will definitely push Cayman into economicrecession and hurt Caymanians."
* Fact 2: Their statement is not accurate. Revenue Measuresfor 2001 total $19.9 million and not $27.4 million as allegedby them. The $27.4 million refers to total expected collectionin 2002 when the revenue package takes full effect. The additionalrevenue to be collected in 2002 relates mainly to fees from thefinancial services industry.
Further, their Statement 2 cannot be supported with any logicalreasoning. Without the decision to increase fees as explainedin Fact 1 above, the public service would have to consider otheroptions which might include: termination of some employees; discontinuationof a number of programmes such as the provision of exgratia benefitsto seamen and Caymanian ex-civil servants not in receipt of apension; and discontinuation of assistance to a large number ofclients of the Social Service Department.
Their Statement: "New Government put duty on food last Government took duty off food."
* Fact 3: When the past government removed the import duty fromsome foodstuff, they did not adjust the projected revenue downwardto reflect the duty that would be lost. This meant that from theonset the 2000 Budget was bound with a $10 million to $12 millionshortfall. This, quite evidently, contributed to the deficit of$10.7 million sustained on the 2000 year.
Their Statement: "New Government spending increased by $41million."
* Fact 4: The main reasons underlying the increase of $41 millionare:-
To offset the accumulated deficit of $10.7 million brought forwardfrom 2000 (the actual amount was $16.5 million before the transferof $5.8 million out of the General Reserves to help offset theaccumulated deficit).
To honour the commitment by the past government to pay the 1999civil service cost of living adjustment of $6 million left bythem. The past government had every opportunity to pay this amountearlier in 2000 but did not announce that it would be paid untiljust before the 2000 elections.
To pay outstanding bills of $5.6 million left by the past government(there was at least an additional $3 million which had not beenentered by the departments into the Treasury's accounts payablesystem).
To honour the commitment made by the past government just beforethe 2000 general elections to pay approximately $5.1 million annuallyin exgratia payments to seamen and for which the past governmentdid not put the funds in place.
To honour Statutory Expenditure which increased by $13.1 millionover 2000, which is for debt repayments, pension contributionsfor past service pension liability and for persons whose contributionswere not provided for in the years 1999 and 2000, and other contractualexpenditure.
These 5 items alone total $40.5 million. Not to mention the fullyear effect of the 4.8 per cent cost of living adjustment (approximately$8 million) that was payable commencing on January 1, 2000. Thiscommitment was not honoured by the past government, but it isnow being honoured by the present Government.
Their Statement: "New Government is borrowing $55 millionin one year (more than 8 years borrowing by the last Government) by nearly doubling total debt to $149 million."
* Fact 5: The past government drew down loans totalling $135.5million during their 8 years in office. That government alsoleft the central government debt near $93 million at year-end2000, up from a ten-year low of $15.8 million when they took upoffice in 1992. The public will understand that some of this$135.5 million in new loans would also have been repaid duringthe period 1993-2000.
Their Statement: "1992 debt was CI$57.1 million ($40.4 millionplus $16.7 million CAL loan) 2000 total debt is $93.7 million or only $36.6 million for 8 years or an average of $4.6million per year".
Fact 6: As set out in Fact 5 above, the past government drew downloans totalling $135.5 million during their 8 years in office. That government also left the central government debt near $93million at year-end 2000, up from a ten-year low of $15.8 millionwhen they took up office in 1992. The public will understandthat some of this $135.5 million in new loans would also havebeen repaid during the period 1993-2000.
Their Statement: "New Government unrealistically increasedrevenue by $39 million over year 2000 - Financial Secretary predicts3% growth, which equals $8.16 million budget increase over actual2000".
* Fact 7: In response to this statement, the Financial Secretary,Hon. George McCarthy said, "In the 2001 Budget Address,the growth I referred to was economic growth and not revenue growth. The growth of gross domestic product or GDP is a standard indicatorof economic growth in a country. This is the point I made inthe 2001 Budget Speech".
The Hon. George McCarthy goes on to point out that accusationsthat the Deputy Financial Secretary, the Leader of GovernmentBusiness and perhaps some of the other government ministers unrealisticallyincreased the revenue projections in the 2001 Budget "isinaccurate".
"While the Leader of Government Business and the other ministershave a forum to respond to this allegation and will in their ownway deal with it, the Deputy Financial Secretary, being a publicservant and not a regular sitting Member of the Legislative Assembly,does not have this opportunity. It is, therefore, important thatI defend the facts and categorically dispute these allegationsas they also relate to him and his professional credibility,"Mr. McCarthy said.
Their Statement: "Unprecedented $30.92 new borrowing forrecurrent spending new Government not living within meansand break White Paper and UK Government borrowing guidelines".
* Fact 8: As set out in the Financial Secretary's 2001 BudgetSpeech, the proposed borrowing for recurrent spending is $26.2million. The debt service ratio for immediate years 2001 and 2002is not expected to rise above 8.5 per cent, based on the informationthat is currently available. The decision to borrow was a mostdifficult decision for the present Government to make, but wasnecessary given the following 4 options:
Option 1
Draw-down the remainder of General Reserves of $10.1 million andcut back public services by a further $16.1m and put as many as300 to 400 civil servants out of work immediately;
Option 2
Continue using overdraft financing of up to $15m and leave billsoutstanding for extended periods of time.
Option 3
Seek to raise an additional $26.2 million in taxes, that is, inaddition to the $19.9 million already proposed in the 2001 Budget;or,
Option 4
Seek to borrow over the medium-term to pay the overdraft, andthe outstanding bills and commitments left behind by the pastGovernment.
Option 4 was considered to be the best option and this is whyit has been proposed. The Government recognises that this is onlyan interim step and the 2001 Budget Speech sets out 16 strategieswhich the Government intends to implement over the remainder of2001, and beyond, as a first step to correcting the financialdifficulties that it currently faces.
This proposed borrowing of $26.2 million relates in the main tothe 2000 accumulated deficit of $10.7 million, the $6 millionin back pay due to employees since January 1, 2000; but whichwas not honoured by the past government, and the outstanding billsof $5.6 million that were posted in the Treasury's accounts payablesystem, but could not be paid because there was no cash. These3 items alone total $22.3 million.
They have also alleged that the "Budget is not fully transparent eg. silent on cost to repay new $55 million loan (whichwill make total loans exceed 10% of recurrent revenue adangerous situation)". The fact is that the 2001 Budgetdocument does include expected interest costs of the proposedfinancing based on information that was available to the Governmentat the time of budget preparation. Furthermore, the debt serviceratio for immediate years 2001 and 2002 is not expected to riseabove 8.5 per cent.
The past government appears confused as evidenced in their followingstatement: "The Budget states that it only took in year2000, 7.6% of recurrent revenue (well under the 10% internationallyaccepted minimum rate) to service the present medium term (about7 years debt will be just about paid off)."
The simple fact is that there is no internationally accepted minimumrate for debt service. Furthermore, if such a rate existed, itwould be a maximum rate and not a minimum rate. Certainly, ifthere was a minimum rate then the past government fails to meetthe very minimum rate which they have suggested, in the year 2000.
Their Statement: "Hon. Kurt Tibbetts reference to overseasmedical loans is not relevant to Government's cash and DeputyFinancial Secretary acknowledged this".
* Fact 9: At year-end 2000, overseas medical advances (not loans)total $17.1 million. These advances are not reflected (and thereforenot properly accounted for) in the accumulated deficit of $10.7million left at year-end 2000. In response to this and otherabnormalities, the Auditor General has 'qualified' the annualaccounts of the Government for several years now.
Their Statement: "Cannot add overdraft to alleged Decemberdeficit of $10 million because overdraft is within the deficit".
* Fact 10: In response, Hon. George McCarthy said: "Thishas been attributed to page 10 of the budget, which I suspectis a reference to the 2001 Budget Speech. On page 10 of thatSpeech, I added the un-audited accumulated deficit for 2000 of$10.7m, the outstanding bills of $5.6 million that were enteredin the Treasury's accounts payable system at year-end 2000, andthe $6m in back salaries unpaid at year-end 2000. These threefigures total $22.3. Many suggestion that the Treasury overdraftat year-end 2000 of $14m was also added into the $22.3m, is thereforenot factual."
Their Statement: "Official accounts for September 2000 show$6.7 million surplus and 30 November new Government's accountsshow loss of only $0.4 million ($400,000) with Capital DevelopmentFund of $3.65 million equalling a surplus of $3.25 million".
* Fact 11: This statement made by the four ex-ministers is basedon an incomplete and un-audited financial statement of governmentas proof that the past government did not leave a deficit. Anyindividual can receive money, stop paying his bills on time andavoid honouring his commitments and then say that he has money. This is akin to the recent situation. This financial statementwas incomplete because the Accountant General was instructed toproduce an extract of the full statement normally prepared bythe Treasury and was not aware that this extract would then bepublished as an official document, as has been done.
Their Statement: "Budget not fully transparent e g.silent on cost to repay new $55 million loan (which will maketotal loans exceed 10% of recurrent revenue a dangeroussituation)".
* Fact 12: The 2001 Budget document does include expected interestcosts of the proposed financing based on information that wasavailable to the Government at the time of budget preparation. The debt service ratio for immediate years 2001 and 2002 is notexpected to rise above 8.5%.
Their Statement: "Eight years recurrent surplus 1993 to2000 is $141.7 million. 1993 recurrent surplus $11.2 million,$13.9 million surplus 1994, $16.3 million surplus 1995, $23.8million surplus 1996, $20.1 million surplus 1997, $24.6 millionsurplus 1998, $24 million surplus 1999, $7.8 million surplus 30Sept. 2000". The Government then goes on to argue thatthese "recurrent surpluses" total a "whopping $141.7million and therefore a contribution to capital of $141.7 millionto pay for hospital, district, health clinics, schools, roadsand other capital works..."
* Fact 13: The Hon. Kurt Tibbetts makes the point that: "thepresent Government does not in any way wish to be seen to be puttingdown the capital development projects carried out by the pastgovernment, especially the tireless and much needed work donein the area of health care and drug rehabilitation by the pastMinister of Health, now the Third Elected Member for Bodden Town. However, it should be noted that the contribution to capitalexpenditure for the years 1993 through 2000 was $125.1 millionand not $141.7 million as alleged by the past government. Itshould also be noted that capital expenditure referred to hereincludes both capital acquisitions and capital development.
Their Statement: "We left no deficit. The deficit is bythe new Government".
Fact 14:
The past government left an accumulated deficit of $16.5 million(before the transfer of $5.8 million from general reserves). In addition, they also left $6 million in unpaid civil servicesalaries. They left $5.6 million in unpaid creditor bills (atleast a further $3 million has been unearthed since) and haveissued an incomplete and un-audited financial statement to supporttheir allegations. In addition, they also left $17.1 million inoverseas medical expenditure which was not properly accountedfor and, therefore, is not included in the accumulated deficit.
The press release from the former ministers also included thefollowing accusation: "The Honourable Kurt Tibbetts' Governmentborrowing of $30.92 million for recurrent expenditure when similarlydone in other Islands is one of the causes for several countriesall over the Caribbean to ultimately go bankrupt".
In response, Hon. Kurt Tibbetts said: "Unfortunately, irresponsiblestatements like these have the potential to do harm to the countryby distorting the facts and ignoring our plans to put public financesin order."
Hon. Roy Bodden said: "True to the usual style of the pastgovernment, our Caribbean neighbours are being picked on again. Perhaps these four ex-ministers should take the time to fullyconsider the historical developments in some of our neighbouringcountries rather than trying to grossly oversimplify them".
Despite these distractions, which are likely to continue as theaffairs of the country become more and more transparent, the Governmentremains committed to putting the finances of this country on soundfooting. We give every assurance that this government will continueto inform you, the public, about the affairs of the country, includingits finances, as we have done since we took office. We need tonow move forward and upwards as one country.