Iron pyrite is a shiny mineral composed of iron disulfide. It looks somewhat like real gold, so it came to be called fool’s gold. In finance, any flashy but ultimately worthless investment is generally referred to as fool’s gold. Associated with fool’s gold is the greater fool theory, wherein a speculator may acknowledge that a particular investment has no inherent value, but buys it anyway on the premise of anticipated price gains, because there are greater fools willing to pay a higher price.
These concepts have applicability well beyond the world of finance. Our elderly folk understood that very well, and it’s reflected in their admonishment: “Ou we jaunne, ou pwend pou beurre.” [You see yellow and you take it as butter] Allen Chastanet and some of his surrogates exemplify in concrete form, the concepts.
In fact, they tried to issue a buyers beware or disclaimer, albeit subliminally. They chose to celebrate the first anniversary of their electoral victory with a big gala, under the theme “All that glitters.” Attendees and others were to complete the thought by recognizing it is not gold. A random selection and examination of policy actions pursued by Allen Chastanet to date will illustrate the fool’s gold that have been and is being sold.
Wily sales and marketing personality that he is, he deployed a catchy election slogan: “Five to Stay Alive.” Included in the “five” was the immediate reduction and ultimate elimination of the dreaded Value Added Tax (VAT). Even at the time of publication of his party’s election manifesto, he had already admitted to a small gathering in Gros Islet that VAT is the best and most effective tax in the world. Yet, he was promising the general population that he would replace it with a more creative and less onerous means to raise the required revenue. Fool’s gold.
Upon assumption of duties as Minister for Finance, he was advised by the IMF and other financial agencies that it was foolhardy to reduce the VAT as it would lead to significant loss of revenue. For political reasons, he persisted in lowering the rate. The 2.5% rate reduction was too low to be meaningful for most consumers, but significant enough to adversely affect government revenue performance. For instance, to save $25 on groceries, the largest VAT-able category in most household budgets, they would have to spend upwards of $1000. Most households spend well below that amount on monthly groceries. In any event, the grocery items consumed primarily by poorer households were already either zero-rated or VAT- exempt. Thus the 2.5% reduction had no positive impact on them.
Of course the revenue shortfall from the VAT reduction needed to be recovered, so another golden product needed to be deployed and sold. Included in the “five to stay alive” was a promised 50% reduction in vehicle license fees. When time came to deliver on that commitment Chastanet reneged. He offered instead to reduce fees by 50% of the last fee hike.
To appreciate the magnitude of the chicanery it must be recalled that as a means of getting road users to contribute to financing road development, the SLP administration in 2015/16 raised the annual vehicle registration fee. The extent of the fee increase depended on the curb-weight of the vehicle, and ranged from $100 to $200. Thus all Chastanet would offer was a reduction of the annual fee by $50-$100, or by sums ranging from $0.96 to $1.92 per week. However, the ruse was revealed when he imposed an excise tax of $1.50 per gallon of fuel, ostensibly to finance road construction. On average, most vehicle drivers would consume between 8-10 gallons of fuel per week. Thus, with one hand he gave vehicle owners between $0.96 and $1.92 per week, and with the other extracted between $12 and $15 weekly from them. Those who imagined they were replacing Kenny an’ Tony for better, now had on their hands Dr. Jekyll and Mr. Hyde-ous.
For further illustration of his financial sophistry, it should be recalled that soon after the elections he signed a Framework Agreement with Desert Star Holdings to develop “The Pearl of the Caribbean.” It would be spun as “Delivering Southern Hope” when in fact it would be Destroying Southern Hope, as hundreds of acres of land is alienated from the locals and sold or leased to a foreign investor at rates unimaginable by a local investor. The investor obtained lands at peppercorn rates of $1 per acre, for a 99-year duration. In some imaginations the “Pearl of the Caribbean” will include a marina, a racecourse, hotel resort, villas, apartment buildings, entertainment and leisure facilities. Curiously, the government of Saint Lucia is to reimburse the developer for costs associated with the project, yet, as per the framework agreement, it is not a partner.
Consistent with the greater fool theory, there are those who are seeking reward, who upon analysis of the Framework Agreement thought it a bad deal and could point to no redeeming aspect in it. They are part of the chorus of hagiographers who are calling the PM visionary, yet none of them have commended the signed agreement. Then again, maybe they are being tongue in cheek, recognizing that his vision is quite blurry.
Forget for the moment that the previous government had reached an impasse with the developer over the proposed terms, and that in less than six weeks of formation of his Cabinet the agreement was signed. Yet, based on the optical illusion which the renderings have provided, they feign elation with the project. An acknowledged loss-leader racecourse was prioritized ahead of healthcare, and now is inactive after just a single show. Can anyone expect the poisoned tree to bear good fruit?
In much the same way that he facilitated a foreign developer to acquire land in the south, on terms unavailable to locals, the same was done in the north of the island with the Cabot development. Some may wish to make a distinction on the basis that the lands in the north were not locally owned, and that the NIC got a $2.4 million return on the investment. Those who make that argument are either myopic or are looking for the greater fool.
To be pellucid: the Cabot developers have not behaved improperly in their pursuit of the financial arrangement. They pursued only what was in the best interest of their company. They do not have the same duty to Saint Lucian interests as do the Prime Minister and the Board of the NIC.
The Chairman of the NIC has indicated that it was the PM who initiated discussions with them about Cabot. But directors of the NIC have a fiduciary duty to secure the best interest of the corporation and contributors. Had the NIC not been previously interested in the purchase of the referenced lands and the developers came to them to secure financing of the purchase, their decision would have been worthy of support. However, having tried themselves to purchase the property, it is risible to applaud the NIC for gaining $2.4 million after twenty months, when they could have waited less than five months to gain a return of over $50 million, by holding out to purchase the lands themselves.
Those pointing to the fact that the lands are undeveloped and questioning where the funds to meet the infrastructural cost of developing the land would come from had NIC purchased it are either willfully or woefully ignorant. The Chairman of the NIC himself, in attempting to rationalize the loan granted, emphasized how small a portion the amount represented in terms of the entity’s asset base. The NIC has hundreds of millions in cash deposits available to it. If the NIC did, as it claimed, a due diligence and determined that the project was viable, given their leverage in the land purchase, they would have satisfied their fiduciary duty by pursuing a partnership with Cabot through a joint venture.
The COVID pandemic laid bare the foolery of prioritizing the completion of the DSH racecourse ahead of the Saint Jude Hospital. Notwithstanding the disputed stage of completion or even the extent of remedial works necessary to bring the construction to completion, the indefinite suspension of works on the hospital was injudicious. The very audit which was done to give cover to the initial decision concluded that the stopped facility could have been made good and satisfy healthcare requirements.
Having stopped construction for nearly three years, the PM decided to build a new hospital on the same site as the stopped facility. Several elements of that decision demonstrate why it represents fool’s gold. While it might have been thought to be politically opportune to stop construction, the cessation was way too long. The hospital could have long been completed, commissioned, and chiefly, available for the proper management of the pandemic in the south. The delay and new build has translated to increased cost of delivering a heath facility, as remedying the identified defects would have been far cheaper. Moreover, the footprint of the built facilities leaves virtually no room for future expansion of the hospital.
The PM, among others, floated using the old structures for a medical school. As interesting as this idea may at surface level seem, it raises far more troubling questions. Does the government already have a medical school in mind to occupy the buildings? Will they give up the buildings at peppercorn rates to the operators? Will the school gain admission privileges at, or will their students be able to do rotations at the hospital? If the answer to any of those questions is no, it will illustrate the absence of thought in such a suggestion. If the answer to any of them is yes, it will expose the inequity and lack of transparency in the decision making of the administration.
These examples were randomly chosen, yet a clear pattern emerges why his policies are not advancing the general well- being of Saint Lucia. If other examples are chosen, they would similarly confirm that either Allen Chastanet is selling the people of Saint Lucia fool’s gold, or he himself is the embodiment of fool’s gold.
This article first appeared in the April 2021 edition of the STAR Monthly Review. Be sure to get your printed copy on newsstands or view it here: https://issuu.com/starbusinessweek/docs/star_monthly_review_-_april_30_2021
