January 30, 2013 at 5:54 p.m.
Finance Minister needs to show some backbone
Unfortunately, the current minister does not appear to have that strength and Bermuda's financial position has been seriously weakened because of it.
Under this Minister's watch, Government debt mushroomed from $160 million to $683 million - that's nearly $14,000 for every Bermudian man, woman and child - the highest debt level ever.
The island's debt ceiling was raised to $1 billion - four times greater than when the Minister took on the job in 2004.
And last year, to pay the interest cost on our ballooning debt, the Minister raided a special fund created to pay off the debt - for the first time ever. Interest payments on the debt are now costing taxpayers more than $30 million a year.
In Wednesday's Bermuda Sun, the minister provided readers with insight into her role as custodian of the public purse.
In trying to explain the size of the national debt, the minister said she was "only a cog" in the wheel of Cabinet decision-making and not in a position to overrule spending plans if she failed to sway other ministers to "join with me to uphold my position".
This is an alarming statement that betrays a fundamentally weak interpretation of her constitutional responsibility to ensure sound management of the country's finances. It indicates she is unable to flex her muscle as Finance Minister.
Our financial reputation
Bermuda built its blue chip financial reputation over the years primarily on the shoulders of Finance Ministers who knew when and how to say no to their colleagues, who knew how to impose fiscal discipline.
This minister needs to show some backbone. She needs to read the riot act to her colleagues. She needs to tell them that the Island's reputation is waning under their watch. She needs to impose control on their careless spending sprees.
Despite the huge debt burden, the minister used Wednesday's article to lay out a rationale for even further increases in Government debt.
In doing so she used a misleading argument.
When the minister compared Bermuda's public debt to that of the U.S. and the U.K. she was misleading Bermudians to think this was a comparison of apples to apples. It is not. The rules for economic whales and shrimp are not the same.
In Business Week magazine this week it was reported that the U.S. Federal Reserve "has expanded its balance sheet to $2.24 trillion at the end of 2009 from $879 billion at the start of 2007."
This means that the Fed has created, out of thin air, $1.361 trillion over the two years. The U.S. government can, and has, in turn, borrowed this money and passed it on to banks, business and consumers to help support the weak economy. Neat trick!
The U.K. government has done the same thing through what it calls "Quantitative Easing."
These are the monetary tools available to major industrial nations, the giants of the economic world.
These options - creating money - are not available to tiny economies like Bermuda. We cannot create our own money and then borrow it. We must borrow other countries' money and then, through the sale of services, earn enough of those other countries' money to pay the interest and repay the principal.
As an economic shrimp, we must be more cautious about public debt because we will, one day, have to pay the piper. The Minister does not appear to get that.
And then there is private sector debt. Figures show Bermudians holding $1.4 billion through our banks. So between the private sector and government, Bermuda is swimming in $2 billion in external debt.
And let us not forget interest rates. They are currently at historic lows. As they rise, as they eventually must the cost of our debt will grow to become a debilitating burden on taxpayers.
The minister must think of our children and grandchildren who will have to shoulder this debt when faced with the careless spending habits of her Cabinet colleagues. It's up to her the hold the line.
E.T. (BOB) RICHARDS is Shadow Minister of Finance.
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