Government loans above $10 million

The new Act introduces a clause (Section 7.2.) that bars the Government from borrowing over $10 million without the approval of legislators in the House of Representatives and the Senate.

Under the reform working paper that GOB published in January, there were two limits on the quantum (size) of GOB loans, intended to help contain the rapid growth of public sector debt: (1) ?Any loans or borrowings by Government of or above ten million dollars shall only be validly entered into pursuant to a resolution of the House of Representatives and the Senate authorizing the Government to do so, and (2) ??the total amount of money which may be borrowed at any one time shall not exceed ten percent of GDP or ten percent of the total Government debt, whichever is the greater.?

The Act has kept the first provision, but abandoned the second. This notwithstanding, the details of any loan under $10 million must now be published in the Government Gazette within three months of the transaction. Under the new law, GOB is also barred from borrowing more than $10 million (aggregate) in any financial year without the approval of the National Assembly.

Had both provisions been kept, the $431.2 million debt approved in a single sitting of the House of Representatives on Monday, February 21, would not have been possible.

We note that the $431 million borrowings were with two separate institutions: The first was a US$78.9 million refinancing package with the International Bank of Miami/Capital Markets Financial Services. The second were two bonds facilitated through Bear Stearns/Artemis Global Finance for US$136 million?of which Belize was to receive net proceeds of US$93 million. According to a report published by the international ratings agency, Standard and Poor?s, last Thursday, the money from the Bear Stearns loans was supposed to be used to immediately pay off the Miami loan, even though legislators had been told that the term of the Miami loan was for 7 years.

(Note that the bulk of the Miami loan?US$50 million of it?was secured to purchase Sir Michael Ashcroft?s 52% shareholding in BTL in February 2004, of which GOB later resold him 15% shareholding on March 22, 2005.)

Interestingly, if GOB had adopted the provision to keep transactions below 10% of GDP, it would not have been able to go for the Bear Stearns loans in one sitting-since their aggregate value would have exceeded the limit.

Note that at his last budget speech, P.M. Musa quoted GDP at BZ$2.247 billion. The prospectus for the last loan GOB made through Bear Stearns in February quoted public debt at BZ$2 billion. This means that legislators would not have been able to borrow more than 10% of GDP, or BZ$225 million, in one sitting. The Bear Stearns bonds?passed in a single sitting?totaled BZ$273.2 million. Together, the transactions passed on February 21, 2005, were almost twice the proposed limit.

Open tender for contracts above $5 million

The Public Finance Reform working paper of January 2005 stipulated that, ?The open tendering procedure may be used for any procurement or sale contract, but is mandatory for any contract of or above five million dollars.

?Contracts of or above five million dollars must be laid before both the House of Representatives and the Senate within one month of execution to be examined for compliance with the Act.?

This was included in the Finance and Audit (Reform) Act of 2005, Section 19(5), which states, ?Any procurement or sale contract of or above five million dollars shall be subject to the open tendering procedure.?

Section 19.6 says that such contract ??shall be laid by the Minister on the table of both Houses of the National Assembly within one month of its execution. Each House of the National Assembly shall examine the contract and other documents submitted to the House??

As we speak, the workers of the Belize Telecommunications Limited (BTL) are negotiating with the Government for the purchase of 37% interest in the company, but they are asking to see the contract that GOB signed with Sir Michael Ashcroft?s E-Com (the successor of Ashcroft?s ?Pillow Talk? in the negotiations) before committing to any purchase.

Had the Finance and Audit (Reform) Act been made law before the E-Com contract on March 22, 2005, the contract would not be a secret today, since GOB would have been obliged to lay it before the National Assembly by April 22, 2005.

Sale of assets above $2 million

?The Government shall, before disposing of any public assets with an aggregate value of or above two million dollars, obtain the approval of the National Assembly, to be signified by a resolution made in that behalf and published in the Gazette?? [Section 22.1. Finance and Audit (Reform) Act, 2005] and ??the sale or lease of any national land in excess of five hundred acres, or any caye of whatever size, by Government shall first be authorized by a resolution of the National Assembly? [Section 22.2].

The E-Com contract, which we referenced in the earlier section of this article, constitutes a sale of assets?in this case, shares amounting to 15% interest in BTL sold for US$14.5 million.

If the Finance and Audit (Reform) Act had become law prior to the sale to E-Com on March 22, 2005, National Assembly approval would have been required, open tendering would have been mandatory and the contract would have been laid before the House.

Unions said reform before taxes, GOB did the opposite

Today, it is the trade unions, under the umbrella of the National Trade Union Congress of Belize (NTUCB) that are imploring GOB to re-nationalize BTL. In fact, even before GOB sold off the Carlisle shares in BTL, the Social Security Board shares in BTL, and other public sector holdings in the company, the unions objected to the sale. GOB went ahead and sold the shares anyway.

The trade unions had also been campaigning since last November that GOB should not institute any new tax measures without financial reforms. Instead, GOB pushed through tax amendments that amounted to over $50 million more in new taxes in the House on January 14, 2005, and only concluded the reform bill on March 18, 2005?more than two months later.

It took another month before the reforms were actually passed into law, under the pen of P.M. Musa, who signed a statutory instrument #43 of 2005 on April 15, declaring that the Reform Act should not take effect before April 18, 2005. By this time, the ink had already dried on the E-Com contract.

Along with the E-Com deal, GOB announced that it would no longer pursue the collection of $12 million in business taxes from Ashcroft-related companies. (Other sources, including the NTUCB, say the arrears are actually $17.9 million.) GOB claimed that it has ?written off? the tax as part of a settlement with Ashcroft, who was suing GOB in London, claiming he had first rights to buy back the BTL shares when GOB was unable to close the sale with American investor Jeffrey Prosser.

Ruling Party maintains control over legislature

The bottom line question is: Even with the reforms in place, would it have been possible for those who disapprove of the E-Com deal to have blocked the resale of BTL shares to Ashcroft?

The ruling party maintains control in the legislature?and especially the House of Representatives?and so it has the final say over public money matters.

The ruling People?s United Party (PUP) controls 21 of 29 seats in the National Assembly and half of the seats in the Senate. (Six Senators are appointed on the advice of P.M. Musa, three on the advice of the Leader of the Opposition, and one each on the advice of the Belize Council of Churches and the Evangelical Association of Churches, the Belize Chamber of Commerce and Industry and the Belize Better Business Bureau, and the National Trade Union Congress and the Civil Society Steering Committee. The president of the Senate has a casting vote and his votes have?at least in respect of the recent tax hikes?been in support of GOB.)

Senator Godwin Hulse, who represents the private sector, had repeatedly said that the Senate has no power to stop money bills (See Belize Constitution – Section 78: Restriction on powers of Senate as to money bills.)

While the E-Com contract may have still been approved despite the Reform Act, at least there would have been transparency in the process, since the agreement would have had to be presented to legislators, inevitably rendering it a public document.

Today, the E-Com deal remains secret.