Premier Explains New Deal
Statement by the Premier and Minister of Finance, Tourism and Development, the Hon. McKeeva Bush, OBE, JP, on the US$185 million long-term financing procured by Government
My fellow Caymanians and residents,
In 2009, you elected us to ensure that your money was spent prudently. You didn't elect us to foolishly spend exorbitant amounts in interest payments. Every dollar we save can go toward crucial services to better provide for you and your family.
As you are probably aware by now, the Cayman Islands Government has selected a firm to arrange the funding for our long-term financing. That firm is Cohen and Company, a reputable and experienced public company trading on the New York Stock exchange.
I'm speaking to you to address certain issues that appeared in the local media surrounding the selection process and when I'm finished I'm confident that you will agree that Cohen and Company was selected by my ministry because their proposal saves the country millions of dollars compared to the bidders recommended by the Central Tenders Committee.
My ministry published what is known as a Request for a Proposal or RFP as it is commonly called, back in July of this year inviting tenders for government's financing. This RFP was reissued in August for two reasons.
First, because it did not invite bidders to present us with proposals that would consolidate our existing debt, as was agreed with the Foreign and Commonwealth Office. Furthermore, if you've ever consolidated your own personal loans, you know that the payment is less burdensome than paying two individual loan payments.
Secondly, I also wanted bidders to present us with proposals for financing some statutory authorities. Cayman Airways is one such Government Company that was in need of funding.
I wanted the Government to use its collective bargaining power to obtain the best terms possible. I initiated this change in approach because the concept of negotiating for a better deal does NOT exist within the traditional approach of the Central Tenders Committee.
The RFP was reissued and when the new bids came in on the September 9th deadline, lo and behold, they offered better terms than the original bids. It was evident that our strategy was working. There is no doubt that the traditional approach to tendering would NOT have gotten these results.
Even so, it became clear to me that the terms were not as competitive as they should be, given the very low interest rates available generally. The bids also did not include financing for Cayman Airways.
Among those bidders submitting tenders were Cohen and Company. The Central Tenders Committee proceeded to recommend a joint bid by two locally operated banks.
While in New York attending the United Nations, I asked Cohen and Company if they could consider funding for Cayman Airways and also provide a more competitive interest rate. I told them to contact the Treasury.
I received copies of an amended proposal from Cohen and Company in mid-October. This proposal provided an innovative solution that enables Government to limit its interest rate. So this proposal allows government to benefit from the current low interest rates while guaranteeing that the interest rate will never go above the agreed fixed rate.
Ladies and gentlemen, this saves the Cayman Islands Government tens of millions of dollars. It is not possible to give an exact figure until the long term financing facility is finalized.
Over the course of the remainder of our current fiscal year it is estimated that the Cayman Islands Government will save many more millions of dollars with this company than it would have with the Central Tenders Committee recommended tender.
Let's look at interest payments by some countries:
Greece in 2011: estimated at 6.6 Billion Euros;
The United Kingdom: Interest payment in 2010 - 11 estimated at 43.3 Billion pounds;
The United States: Interest payment for 2010 estimated at over 413 Billion dollars;
Bermuda: Interest payment for 2010-11, estimated at 38.4 million Bermuda dollars.
For the 2010 - 2011 financial year, these islands will pay an estimated 31 million CI dollars in interest cost and other financing costs.
As Minister of Finance my duty and that of my government is to make sure that we are managing government's finances in such a way that we are not creating tremendous hardship on our own people and not recklessly mortgaging the future of generations to come.
It is my considered view that CNS and Rooster FM have maliciously criticized the Government. The Opposition have been jumping to conclusions as well… however, their mismanagement of Government funds is one of the reasons why we have to borrow so much now.
And why is it that the Opposition can't figure out that there is good enough reason in these bad financial times that our government should try to save money?
High interest rates and huge borrowings bring a huge lay out of money that the Government does not have. We only have to look at what is happening with the economies of other countries today, to see why we should be careful to say the least.
Another important reason for the selection of Cohen and Company to provide the funding was their ability to assist Cayman Airways with certain refinancing needs surrounding debt related to the historical Shareholder deficiency, which will allow the National Airline to continue to function more effectively as a strategic driver of tourism growth and economic development.
I did not take overriding the selection of the Central Tenders Committee lightly. However, I felt that as Finance Minister and Premier, I was duty bound to get the best terms possible on this funding. Our economy and the Government's finances are still struggling to recover. I had to decide whether to choose substance or to choose process. With the state of the economy as it is and the Government still needing ever dollar that it can save… I chose substance over process. I sincerely believe that the best interests of the Cayman Islands, in this instance, are served by overriding the selection of the Central Tenders Committee which will save this country millions of dollars.
Nevertheless, I did not do this without taking advice as to my authority to do so. As the Minister of Finance it is my overriding duty to see that the country gets value for money at all material times.
I therefore feel confident that I have acted in the best interests of these Islands in selecting Cohen and Company. That decision… I'm sure, will save the Cayman Islands many millions of dollars in interest costs.
What this experience has taught me is that the tendering process needs to be revamped. With the support of my ministerial colleagues, I have already asked for the Auditor General's assistance in making recommendations for changes to the tendering process that will result in a more efficient, modern and sensible process.
Since the selection of Cohen and Company was announced questions, insinuations and allegations by detractors of the Government have arisen. Some media organizations have gone as far as to publish them.
I can assure you that this entire transaction has been above board. No member of the United Democratic Party has any financial interest in Cohen and Company whatsoever.
With the tens of millions of dollars saved in interest payments by not accepting the Central Tenders recommendation we can help to provide funding for services such as schools, hospitals and benefits to the elderly and handicapped in these Islands.
I reaffirm my commitment to you that whatever I do in my office as Premier or as a Minister, I do it in the best interests of the people of the Cayman Islands.
Thank you for listening and God Bless the Cayman Islands.