The Tribune

By AVA TURNQUEST

Tribune Staff Reporter

aturnquest@tribunemedia.net

FORMER state minister for Finance Zhivargo Laing yesterday labelled the government's proposed mortgage relief plan as "political pandering" after the proposal was blasted by an international credit rating agency.

While admitting that he had not yet read Moody's report, Mr Laing said the PLP's proposal was "impractical" and could not be executed in a meaningful way.

He said: "The reality is it relies on the level of forgiveness of interest arrears and the like that I don't think any sensible business is going to be able to do. You'd like to be able to relieve persons holding mortgages who have the difficulty of those arrears but it is a very difficult business proposition for the bank and if the government is going to bail them out then that is going to be a cost to the country."

The plan seeks to strike an agreement with banks and institutional lenders to write off unpaid interest and fees for homeowners facing foreclosure in return for government guaranteed interest payments for five years, 2017. The proposal also includes working with banks and lenders to implement a 120-day moratorium on foreclosures and extend the loan repayment period under defaulting mortgages.

The leading Wall Street firm said the plan undermined efforts to rein in the $4.356 billion national debt, and warned that the scheme will likely cost Bahamian taxpayers $250 million to implement.

In an investors note on the general election outcome's implications, it was also warned that the PLP's mortgage plans created "moral hazard" that could increase Bahamian mortgage delinquencies, and would cost the Government a sum equivalent to 3.1 per cent of GDP spread over five years.

Pointing to the fact that the PLP now posed to make the same fiscal decisions it was previously critical of, Mr Laing maintained that the only way the government could access funds was through taxation or borrowing.

"The PLP was complaining in the first instance that we have too much debt and too much borrowing and you then have to turn around and borrow for that purpose then that creates an enormous challenge for them."

He added: "It also creates a challenge to the extent that all of the other persons who have been faithful in paying their debt obligations have to ask the question 'why should I continue to do so?'"

Moody's described the proposed mortgage relief plan as "a credit negative", implying that its implementation could lead to it further cutting (downgrading) this nation's sovereign credit rating, something that could scare away foreign investors and increase the Bahamas' borrowing/debt servicing costs in the international capital markets.

Referring to the country's rating downgrade by Moody's under the FNM administration, Mr Laing explained that the global financial and economic crisis necessitated increased borrowing and that the downgrade also reflected changes to the rating system.

The Moody's data also showed how many Bahamians were mortgaged to the hilt on consumer loans. With total bank lending standing at $7.1 billion or 87 per cent of Bahamian GDP, consumer credit totalled $5.2 billion or 63.6 per cent of GDP.

Responding to the government's admission that some initiatives will have to be scaled back due to fiscal limitations, Mr Laing said that it was up to the public and media to hold the current administration accountable.

He said: "My response would be 'here we go again', that's what they did the last time around. That's the recklessness of an opposition hell bent on winning, you go out there, you promise the country the moon and probably knew that it was impossible in the first instance to deliver, and now you find yourself backtracking."