Buy back BNB!
THE Freundel Stuart Administration, casting about for the equivalent of an “October surprise” ahead of the next general election, which may be a watershed in local political history, could score a major coup with an announcement that it was repatriating the Barbados National Bank (BNB), now trading as Republic Bank (Barbados) Limited.
But it would be another volte-face on the BNB by the Democratic Labour Party (DLP), and given the junk status of this country’s credit ratings, it could cost this already cash-strapped Government about 120 million very expensive Barbados dollars.
An “October surprise” is an expression that made its way into the lexicon of American politics, after the 1972 presidential election, to describe a news event that has the potential to influence the outcome of an election, particularly one for the presidency.
According to Wikipedia, the reference to the month of October is because the Tuesday after the first Monday in November is the date for national elections in the United States, and therefore events that take place in late October have greater potential to influence the decisions of prospective voters.
In the presidential election between Republican incumbent Richard Nixon and Democrat George McGovern, when the United States was trying to end the controversial Vietnam War, 12 days before the election day of November 7, on October 26, 1972, chief United States negotiator Henry Kissinger announced at a White House Press conference: “We believe that peace is at hand.”
Easy re-election victory
Though Nixon had pledged to end the war during his previous presidential campaign and failed, he was nevertheless considered to be assured of an easy re-election victory over McGovern, but Kissinger’s “peace at hand” declaration may have increased Nixon’s standing with the electorate.
Since that election, the term “October surprise” has been used pre-emptively during campaign season by partisans on one side to discredit late-campaign news by the other.
In the 2008 general election, the then DLP leader David Thompson had struck an emotive patriotic nerve with a pledge to buy back the BNB from the Trinidadian-owned Republic Bank, which had purchased controlling shares from the Owen Arthur administration five years earlier in a widely criticized move that was seen as being akin to selling the family silver.
However, within a few months of the DLP’s winning the January 2008 election, Thompson as Prime Minister and Minister of Finance announced in his first Budget (July) that the Cabinet had agreed to sell the remaining BNB shares.
He indicated that the shareholding was so small that it was no longer useful in determining the strategic direction of the BNB and that “the rate of the cash dividend that Government receives on an annual basis on these shares is less than the rate of interest that Government pays on its borrowings”.
Thompson said the monies realized would be used to help fund the upgrading and expansion of the Queen Elizabeth Hospital. The new Minister of Finance Chris Sinckler recently confirmed that the determination to sell the BNB shares remained Government policy, despite a breakdown in talks with Republic Bank when the Trinidadians said they were no longer interested. However, those talks have apparently restarted, and Sinckler indicated they were continuing.
“They [Republic Bank] made an offer, we didn’t think in the context that it was a good offer and therefore we told them no, but the shares are on the table for sale. That is nothing to do with me; that is the policy of the Government,” he told one section of the Press.
Anyone who wants to read into that comment that Sinckler may not be in favour of the Government’s “for sale” policy, is free to do so.
Since it could therefore be said to be a leftover Thompson policy, there is nothing written in stone to mandate that new Prime Minister Freundel Stuart cannot change Government’s direction on the issue.
And some may even suggest that such a sharp turn has become even more urgent and necessary given the announcement this past week that another Trinidadian bank, this time the state-owned First Citizens Group, had completed the purchase of the Butterfield Bank (Barbados) Limited, giving the oil-rich twin-island republic a second stake in commercial banking which continues to dominate Barbados’ financial services sector.
Even though Government’s finances are acknowledged to be in a parlous state, there are creative ways of raising funds that could be applied to the repatriation of the BNB without doing further violence to the state’s bottom line.
In a cogently argued working paper on the issue – Should The Barbados Government Seek To Repurchase The Barbados National Bank? A Case Study Analysis – two economists of the Central Bank of Barbados, Peter Grosvenor and Rommell Hippolyte, have suggested that the estimated cost of the repurchase, $120 million, “can be raised from a Treasury Bill issue which can be repaid from annual dividends over a 16-year-period, with no impact on the Government’s current fiscal situation”.
“At the present time,” they wrote, “the Barbados Government’s debt position along with the reluctance of our Trinidadian counterparts may preclude the repurchase, but in the prevailing economic climate, characterized by uncertainty and lack of confidence in the [United States of America] and Europe, and the lacklustre economies of the Caribbean, the only thing that is certain is that change will come.
“Going forward, the opportunity for this transaction may become very real. Should this occur, based on our findings, it is recommended that the Government of Barbados repurchase the BNB and ensure that it is permitted to perform its mandate without political or governmental interference.”
In response to the suggestion that there was a significant chance of publicly owned banks leading to corruption as government administrations may pursue their own political agendas, the economists pointed to the same Trinidad where the government now holds a controlling share in Republic Bank, and noted “there appears to be no evidence of governmental involvement in the day-to-day operations of [Republic]”.
Macro and micro models
“These can be viewed as macro and micro models,” they added, “that government capitalization does not have to mean government involvement, and that the greater good of the public can be served where the professional bankers are allowed to function independently.
“The early history of the BNB basically supports the literature as the bank struggled under the ownership of the Government of Barbados as the instrument for implementing various support mechanisms and policies.
“Since its restructuring the bank has performed well and there is evidence that its privatization has led to even better performance with the aid of robust economic growth. The firm has shown itself to be efficient and profitable, as confirmed from the analysis of key financial ratios.
“This analysis has revealed that the sound performance of the bank clearly started before it was privatized and can continue even if reacquired, provided that the recommendations of the [International Monetary Fund] are followed and that there is no government involvement beyond board oversight.”
With Stuart’s DLP languishing in the cellar position, according to recent public opinion polls, such a bold move ahead of the next general election to regain a vital part of Barbados’ patrimony could provide the party with an “October surprise” that may put them over their rivals on the next polling day – whenever that comes.
• Albert Brandford is an independent political correspondent. Email [email protected]