Question

I have to write a term paper on:

• Do you believe that Bahamasair should be privatized so as to make it profitable?
• Do you believe that the government made a good decision to continue to support the airline giving it approximately 600million over a period of time (20million a year) or would you have prefer the money elsewhere?

I need more information on this for my term paper, someone help please

Submit a term paper (no less than 5 pages) in support of you answer

Answer 1

• The subject of privatizing state-owned enterprises, called public corporations in The Bahamas, sprang into prominence with the election of Margaret Thatcher as prime minister of Britain in 1979.
• Privatization became a household word with the rapid sell-off of banks and state-owned firms in several Latin American countries during the 1980s (including the virtual privatization of Chile's state-run pension system), and especially following the collapse of the iron curtain in 1989 throughout Central and Eastern Europe. Privatization has taken a variety of forms, ranging from vouchers, to a combination of vouchers in conjunction with selling a controlling stake to strategic investors, to private placements.
• .Privatization is justified on several grounds.
  • One is to eliminate the endless flow of taxpayer subsidies required to keep state-owned firms in business, thereby relieving pressure on state budgets.
  • Another is to eliminate political patronage and gross inefficiency that characterize the operations of many state-owned firms.
  • A third is to reduce public sector employment and the political clout exercised by public sector unions over wage increases and government economic policy.
  • A fourth is to link pay increases with increases in productivity.
• State-owned firms in The Bahamas fit the paradigm of privatization. Several major problems afflict the public corporations, which can be treated as an arm of the public services.
  • First, the public sector is grossly overstaffed. Many young Bahamians relish a position in the public corporations, which carries status, a relatively high salary, and virtual civil service protection.
  • Second, the government and the various public corporations and agencies have given excessive pay increases over the past decade. Both the World Bank and Inter-American Development Bank specifically caution against public sector pay increases because they tend to have a demonstration effect on other sectors of the economy.
  • Third, it is desirable to shift the ownership and management of public corporations to private enterprise ownership and management.
• Good progress has been made in privatizing state-owned hotels. But this progress must be extended to other public enterprises, which would transform large numbers of public sector 3 employees into private sector employees. This is especially so for the Bahamas Telecommunications Corporation, Batelco, since the retention and future development of banking and financial services require constant improvement of telecommunications services.
• Public corporations with monopoly status have little incentive to improve quality or reduce prices and often lack access to funds to pay for modernization. Complaints about the low quality and high cost of telecommunications services provided by Batelco are widespread.
• The portfolio of the Bahamas Development Bank has a number of questionable assets. Bahamasair may be the most overstaffed airline in the world.
• The high and rising overhead charges incurred by the National Insurance Board would be intolerable in any privately-managed pension fund.

A Statistical Portrait of State-Owned Enterprises in The Bahamas

• At the end of 1996, the total contingent liabilities of the government, consisting of that portion of the borrowing of the public corporations guaranteed by the government, stood at about $308 million dollars.
• The three main borrowers were the Bahamas Electricity Corporation (BEC), $132 million; the Bahamas Mortgage Corporation, $115 million; and Bahamasair, $36 million. (When the $308 million in government-guaranteed debt of the public corporations is added to the direct national debt of $1.24 billion, the total national debt comes to $1.54 billion, estimated at about 40% of GDP.) At the end of 1996, the total debt of the public corporations amounted to $389 million, of which just over half, about $213 million, consisted of foreign currency debt.
• The external debt of the public corporations takes the form of government guaranteed loans. 61% of the external debt is that of BEC. The total debt of the public corporations has come off its high of $474 million in 1992.
• A consensus exists within The Bahamas that the public corporations are inefficient, overstaffed, and routinely suffer from political interference primarily for purposes of employment. As part of my work with the Securities Market Task Force, I reviewed in 1995 what were then the most recent official published reports of the public corporations and interviewed several of their administrators. I also met with high volume purchasers of the services of the public corporations.
• What follows is the status of the public corporations as of mid-1995. Some of these 4 results may have become dated by recent developments, but the main trends still apply. I recommend that every educated resident of The Bahamas take the time and effort to study the annual reports and financial statements of the public corporations and public agencies.

Benefits of Privatization

• Privatization is an effective way to reduce the level of public employment. Employees in private firms instantly become private sector employees, and must perform their jobs in accordance with business considerations of efficiency. Everyone recognizes the poor quality of telecommunications services.
• Privatization of Batelco and the Bahamas Electricity Corporation affords the country the opportunity to accomplish several objectives at one time:
  1. improve their efficiency,
  2. reduce the size of the public sector,
  3. build broad popular support for peoples' capitalism,
  4. provide investment opportunities for public and private pension funds, and
  5. provide local investment opportunities for a Bahamas stock exchange.
• Privatization can be accomplished through several different mechanisms— vouchers, a combination of vouchers and sale of a controlling stake to a strategic investor, a private placement. Time does not permit me to review the pros and cons of these different approaches.
• Privatization has been the subject of much study, controversy, and criticism. But there is no doubt that public ownership is a greater failure in every respect. Try to imagine the economy of The Bahamas today if the government was still running the hotels, instead of several key private enterpreneurs who have rebuilt tourism in the country. Whichever method may be selected, and the method may vary among the different public corporations and agencies, it is important that the proceeds of privatization be solely allocated to retire national debt.
• Any foreign currency proceeds of privatization should go to enlarge the Central Bank's foreign reserves.
• Privatization would help establish a culture of equity ownership, allow Bahamians to participate in the economic future of these newly privatized enterprises, and facilitate local capital market development.