The international financial services industry and Cayman’s public sector finances at home took center stage during Premier Alden McLaughlin’s recent address to the Cayman Economic Outlook forum.
Premier Alden McLaughlin found himself last month wandering into what might be the political equivalent of the lion’s den.
McLaughlin said it was his own decision, at the invitation of the relative agencies, to appear on BBC’s “HARDtalk” and at a panel discussion in London’s left-wing think tank Chatham House, although the move raised some questions locally.
However, McLaughlin told the Cayman Economic Outlook conference that the territory’s leadership must continue to venture into similar difficult situations.
“It is time for us to tell our story and not merely hear of Cayman as a satirical by-line in Hollywood films or cannon fodder for [non-governmental organizations] whose zeal for addressing real economic concerns sometimes outweighs their analysis,” McLaughlin told a record crowd at the annual conference, held at the Ritz-Carlton, Grand Cayman on Seven Mile Beach. “We have a good story to tell and when given the opportunity, we should tell it in our own words.
“To do so means we will, on occasion, have to venture into hostile territory. But we must do so, for we will never change the negative perceptions about Cayman by talking to only those who know and love us.”
Gone are the days, the premier says, when the Cayman Islands leadership retreats into a bubble, blasting the United Kingdom and various financial regulatory agencies. To be considered credible, he says, Cayman must take its place “as a willing partner” in having a well-regulated offshore jurisdiction.
“A good working relationship with the U.K. has given the Cayman Islands a ringside seat at the formulation of policies aimed at reversing the flow of capital away from high tax jurisdictions in the G20,” Mr. McLaughlin says. “I believe it is far better to be in a position where our voice can be heard and where we may influence the outcome of policies that could have a deleterious effect on our development goals, than to be butting heads with the [U.K. Foreign and Commonwealth Office] and our governor with no result to show at the end of it.”
At the same time, the premier says Cayman is not prepared to surrender equality and fairness in the provision of global financial services or in the enforcement of corrupt practices, wherever they may exist.
In the recent address to Chatham House in London, Mr. McLaughlin said compliance with transparency initiatives – such as the public registry of beneficial ownership now being proposed by U.K. Prime Minister David Cameron – must be “the international standard.”
“Compliance and transparency cannot be one-way sewers into which small countries are thrown to swim haplessly against the tide,” McLaughlin told the economic outlook forum. “Their use as a punishment for success must stop if cooperation and common ground are to become the global rule.”
The premier said during his “HARDtalk” interview that Cayman is “ahead of the United Kingdom” on keeping records of beneficial ownership related to various Cayman Islands entities.
Whether Cayman would make such a register of beneficial ownership public was still open to question.
“As the premier of the Cayman Islands, I have no difficulty, and my government has absolutely no difficulty, in complying with what are international standards,” McLaughlin told “HARDtalk” host Stephen Sackur. “If the international standards are that there ought to be a public registry for these matters, the Cayman Islands is more than willing to comply.”
Sackur responded by questioning McLaughlin further regarding the effect of such a move. “You’re saying that you won’t be an early mover,” Sackur said. “Are you really worried that you’re about to lose the essence of what has made the Caymans successful as a financial center?”
Premier McLaughlin said he was worried about nothing of the sort: “As we have become more transparent … our business has improved. Legitimate business wants to be in jurisdictions that are well regulated and transparent.”
On the local front, the Cayman Islands government will propose a “range of measures” during this spring’s budget process aimed at cutting operating fees charged to local small businesses.
McLaughlin didn’t specify what fees might be reduced, but mentioned legislative changes regarding new frameworks for directorships, trade and business licenses, liquor licenses, local companies control licenses and exempted limited partnerships.
“We recognize that small businesses are the lifeblood of the economy and we intend to support them,” McLaughlin says. “We know these things must be done to help our economy not only survive, but grow.”
Plans for greater protection of trademarks and copyrights held in the Cayman Islands, as well as the establishment of e-government initiatives for the Immigration Department, Lands and Survey, the Planning Department and the Judiciary will be proposed in the coming budget year. Government also intends to appoint a director of e-government initiatives in the near future.
Government may be feeling confident in its ability to reduce certain fees to the private sector after seeing budget figures for the first seven months of the 2013/14 fiscal year.
According to McLaughlin, as of Jan. 31, the government’s account was “in surplus” by $80.5 million. That figure is based on revenues of $385.9 million and spending of $305.4 million in central government between July and January. The revenue figures were $11.2 million higher than expected, while spending was $9.3 million below what was anticipated, Mr. McLaughlin said.
“We appear to be on track to meet or better the projected 100 million operating surplus for this fiscal year,” the premier told the economic forum.
Central government’s outstanding debt at Jan. 31 was $559 million. Recently, Finance Minister Marco Archer has noted that plans are under way to reduce that to below $470 million by the 2016/17 financial year.
The Cayman Islands recently received a Aa3 bond rating with a “stable” future outlook.
Despite heartening short-term budget number, McLaughlin acknowledges that big and permanent changes are on the way, starting in the next budget year, for the Cayman Islands civil service.
The premier says previous government policies of hiring freezes, attrition and doing “less with more” has led to a negative impact on the services government does provide.
“Eventually, vacant posts will need to be filled,” he says. “The current situation with the fire service is an obvious example of this.”
A recent review of fire department staff found an agency reduced in numbers that was being required to cover a more densely populated area, leading to big payments for overtime and accrued vacation that must be paid by the government. The Cayman Islands Fire Service has lost more than three dozen employees through attrition, including retirement, over the past three years, according to Acting Chief Fire Officer Rosworth McLaughlin. That has left fewer personnel to cover stations in George Town, West Bay and Frank Sound, in addition to aerodrome firefighting duties at the airport.
What has occurred over the years, according to fire officials, is that personnel were stretched too thin, accruing overtime pay and additional compensatory vacation time to cover staffing at the various stations. That’s now left the government with a bill of between $500,000 and $1 million in overtime or compensatory pay in the current financial year.
Premier McLaughlin says government needs to stop making “temporary” budget reductions and reconsider the overall size of the civil service.
“The reality is that, if government is to significantly and permanently reduce its head count…government is going to have to hive off some of the services it currently provides to the private sector,” he says. “We are examining what agencies and services could possibly be privatized. There are no sacred cows.
“The only criteria is that what is done is in the best interest of the Cayman Islands and its people, and that the sale of the agency doesn’t wind up costing us more in the long run.”
The premier noted, as he has previously, that Cayman will depend heavily on private sector development for jobs in the coming years.
A number of economic development projects were noted by the premier in his address to the Cayman Economic Outlook.
Health City Cayman Islands, which opened Feb. 25 in East End and which is expected to contribute a 2 percent to 3 percent increase in economic growth.
Cayman Enterprise City/the Special Economic Zone has now registered more than 100 companies, resulting in an estimated $15 million direct impact on the local economy during the last two years.
Construction of the new Kimpton Hotel on West Bay Road is scheduled for completion by 2016. A new hotel on the old Hyatt grounds and the planned expansion of the Beach Suites hotel on Seven Mile Beach are all forecast in the medium term.
A $360 million planned development in Frank Sound known as the Ironwood Community will include a golf course, residential communities and commercial properties. An important part of that development would be the extension of the East-West Arterial road from Newlands to Frank Sound.