Thursday, March 28, 2024

BEHIND THE HEADLINES: Privatisation may not be enough

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CONSIDER SOME eye-catching headlines. “British government sells interest in high speed Eurostar rail service for US$1.1 billion”. How about: “Arthur: Sell Govt Assets.”

From London, Ottawa, Brasilia and Beijing to Canberra and Bridgetown, the story is the same: governments are either being pushed to part with valuable resources or are actually planning to do so to pay their bills.

That hard fact of life probably came home to Barbadians the other day when Owen Arthur, a former Prime Minister and Minister of Finance, used the parliamentary debate on the 2015-2016 Estimates of Revenue and Expenditure to urge the present Government to sell some of its assets to raise revenue.

It’s a bit of advice the Government should consider, knowing that it is going to trigger an emotional reaction from a vocal section of the population, people who are convinced that privatisation is akin to selling the family silver to buy groceries.

Across Canada, provincial governments are grappling with many of the same nightmares – declining revenues, growing deficits and rising debt – that are confronting Minister of Finance and Economic Affairs Chris Sinckler. They are considering asset sales, not to buy a new fleet of Mercedes, but to reduce the deficit.

For instance, the Premier of Alberta, Jim Printice, has warned taxpayers that as a result of the dramatic fall in oil revenues, Albertans may have to accept some bitter medicine: reduced government spending, possible increased taxes or the disposal of assets accumulated in the Alberta Heritage Fund.

Then there is the case of Ontario’s provincial government headed by Kathleen Wynne.

Published reports indicate it may sell its stake in General Motors or Hydro-One, the electricity transmission operation.

But Canada isn’t alone. Emerging economies like China and Brazil are privatising some of their assets, the Economist weekly publication reported.

“China for instance has been selling minority stakes in banking, engineering and broadcasting. Brazil is selling airports to help finance a US$20 billion investment programme.”

That’s not all. Japan may sell a stake in Japan Post, a giant postal-to-financial services conglomerate whose privatisation may bring in US$40 billion; Australia wants to sell stakes in postal and aviation operations; and France may dispose of its ownership in industrial companies to raise money to invest in health and telecommunications.

Privatisation of assets

Indeed, William Megginson of the Michael Price College of Business at the University of the Oklahoma says 2012 was one of the best years for privatisation of state assets around the world.

In his speech in parliament, Arthur described Barbados as being “asset rich and cash strapped”. That description fits many rich and emerging nations. But the former Prime Minister would be the first to admit that selling assets are one-off deals.

He also knows that unless undertaken in conjunction with an attack on the country’s structural deficit, Barbadians would simply be running fast to remain in the same spot.

Clearly, Barbados has to address the fundamental cause of its structural deficit, which is the unhealthy built-in momentum for deficit expansion that wouldn’t be cured by a fireside sale of assets at a time of a declining economy.

That’s because privatisation of an asset at a time of declining economy and falling confidence in economic management in Barbados wouldn’t bring a higher than expected return to the Government, much unlike the case in Britain where George Osborne, the British Chancellor of the Exchequer, was able to say the Eurostar sale was “a fantastic deal” for tax payers.

What then are the benefits of asset sales? Andrew Coyne of Canada’s leading business and financial publication, the National Post, said the sale of assets was simply a way of “financing a deficit”, not a method of “reducing” it. Privatisation is an alternative to issuing government bonds that push up national debt.

“It’s just that instead of selling bonds, you’ve sold shares,” he wrote recently.

Caribbean Broadcasting Corporation, Grantley Adams International Airport or the Bridgetown harbour are prime examples of what may be put on the auction block.

“The idea that the government should plunge into debt over the next several years, with all of the associated risks – interest rates have got to go up sometime – even as it is holding on to billions of dollars in marketable assets, seems obtuse,” insisted Coyne.

The political trouble for Barbados and any of its neighbours is that they must do more than privatise. They must make the unpopular and painful decision to cut spending so that the outlays come close to matching revenues. That’s something the Government in Bridgetown seems unwilling to do, at least so far.

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