Caribbean Trade Law and Development

Tag: 2017

  • PM May calls snap election: Pros and Cons

    PM May calls snap election: Pros and Cons

    Alicia Nicholls

    United Kingdom (UK) Prime Minister, Theresa May, has today ‘reluctantly’ announced that Britons could be going to the polls in a general election on June 8, 2017, three years shy of the due date of May 2020.

    The UK has a parliamentary system of government. Since 2011, parliamentary elections are fixed for every five years pursuant to the Fixed-Term Parliaments Act. However, early general parliamentary elections may be called before the five year period, inter alia, where two-thirds of the House of Commons (including vacant seats) vote in favour of same. In the UK parliamentary system (also known as the ‘Westminster System’) and in most British-inherited parliamentary systems like those in the Caribbean, the Prime Minister is not directly elected. In practice, though, it is the person who leads the party which wins the majority of seats in the House of Commons who becomes the Prime Minister.

    The announcement of an early poll is surprising for two main reasons (1) it comes after months of denials by Mrs. May that she would be calling an early election, and (2) it also comes less than a month after the May Government made the UK’s notification under Article 50 of the Treaty on European Union (Lisbon Treaty) of its intention to withdraw from the EU.

    Pros

    So what are the upsides? Firstly, it is likely that in light of the disarray of the Jeremy Corbyn-led Labour Party, the Prime Minister is anticipating a stronger Conservative working majority in Parliament, reducing the likelihood of the final Brexit deal being voted against.

    The Tories currently have a 17-seat working government majority in the House of Commons following the 2015 poll, which is a slim majority when one considers that there is a total of 650 seats in the House of Commons. After all, what Prime Minister would not want a more comfortable majority at home when facing difficult negotiations with the EU for the next (at least) two years? Prime Minister May said as much in her statement when she noted that “Division in Westminster will risk our ability to make a success of Brexit and it will cause damaging uncertainty and instability to the country”, and warned that “If we do not hold a general election now, [Opposition Party] political game-playing will continue.”

    Polls already show a Tory sweep, but let us also remember polls had predicted a “No” win in the Brexit referendum.

    Secondly, it should be recalled that Mrs. May became Prime Minister in July 2016 not through leading the party in a general election, but after then Prime Minister David Cameron resigned following his Brexit defeat.  If Mrs May leads the Conservative Party to victory in the June 8, 2017 poll, she would have:

    (i) won a ‘direct mandate’ from the British people to pursue her own domestic agenda, which frees her from pursuing some of the policies promised by the then Cameron-led government.

    (ii) This mandate, she would hope, would help quell the dissenting factions in her own party who disagree with her handling of Brexit thus far.

    (ii) She would not be legally required to call another general election until June 2022, by which time the messiness of Brexit would be largely past (hopefully). Recall that Brexit negotiations could be extended up to 4 years, at which time the May Government would not wish to negotiating a final deal with the EU-27 while having to worry about an election at home which could be lost due to an unpopular final deal.

    A third pro is likely economic. Although predictions of a British recession following the Brexit vote have not come to past, there is no telling what would happen to the British economy once the Brexit negotiations are underway. It makes more sense for Mrs. May to seek an election now than wait until things take a turn for the negative.

    Cons

    Firstly, on the flipside, calling a snap election after having made the Brexit notification and ahead of the negotiations with the Europeans risks adding even more uncertainty to an already uncertain political climate.

    Secondly, although polls favour a Tory win, what happens if the polls are wrong and the Tories lose to an anti-Brexit Labour?  Or what if Labour and the Liberal Democrats expand their number of seats, further reducing the already slim Tory majority?

    Thirdly, she risks dealing with ‘voter fatigue’.

    Calling the election at this time is a risky move but one, which like all high risks, could have big rewards if the May-led Tories win and expand their mandate. In anticipation of a Tory win, markets took the news of the snap election quite enthusiastically. Sterling appreciated  against the US dollar to 1.26. However, it is also potentially a big gamble and the decision to hold the poll after triggering Article 50 is curious. It will be up to British voters to decide whether to reward or reject the gamble.

    What is next?

    When the House of Commons meets, they will need to deliberate and vote (as required under the Fixed-Term Parliaments Act) on whether they are in favour of an early election. A two-thirds majority will be needed. For his part, Labour leader Mr. Corbyn has supported the decision to go to the polls in his statement released on his official Facebook page following the Prime Minister’s announcement.

    For Prime Minister May’s full statement, please see here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

  • IMF Staff Recommend St Lucia CIP Revenues be used Primarily to Reduce Debt

    IMF Staff Recommend St Lucia CIP Revenues be used Primarily to Reduce Debt

    Alicia Nicholls

    In the  Concluding Statement of their 2017 Article IV Mission to St. Lucia released February 6, 2017, International Monetary Fund (IMF) Staff recommended that revenues from the island’s Citizenship by Investment Programme (CIP)  be used primarily to reduce the island’s high public debt and that limits  be placed on the amount of CIP revenues used to finance high-priority expenditure. The recommendations were based on a country mission undertaken by IMF Staff during January 16-27, 2017 pursuant to Article IV of the IMF’s Articles of Agreement. The IMF’s Concluding Statement outlines the preliminary findings made by IMF Staff during their mission.

    In their commentary on St. Lucia’s macroeconomic performance, IMF Staff noted that although tourism activity was weak,  unemployment continued to fall. The Staff highlighted the economic reforms programme currently in the process of being rolled out by the Government. The Staff expect positive but moderate short-term growth. However, they cautioned that the island’s high public debt, which currently stands at 82% of GDP, and its “delicate fiscal situation”, require prompt attention. They also made suggestions on how the fiscal package  announced could better achieve its targets.

    St. Lucia’s CIP

    In January 2016, St. Lucia became the fifth Caribbean country to offer a CIP as an alternative tool for attracting foreign direct investment (FDI), joining fellow Caribbean CIP countries: Antigua & Barbuda, Dominica, Grenada and St. Kitts & Nevis. St. Lucia’s CIP offers four investment options: a monetary contribution to the National Economic Fund (NEF), a real estate investment, a Government bond investment or an Enterprise Project Investment, with qualifying investment amounts set for each type of investment. In an effort to add exclusivity to the programme, the number of applications which could be approved by the Board had been capped at 500.

    This was the IMF Staff’s first Article IV country mission to St. Lucia since the CIP’s first full year in operation. In their 2017 Concluding Statement, the IMF staff noted that the island received “relatively few applications in 2016” and that “the [St Lucian] authorities expect that the recent easing in the requirements and lowering of the costs to qualify for this program will encourage an increase in revenues.”

    Changes to St. Lucia’s CIP Regulations – 2017 

    Effective January 1, 2017, an Amendment to the Citizenship by Investment Regulations No. 89 of 2015  introduced several sweeping changes to St. Lucia’s CIP in an effort to boost its competitiveness. This includes, inter alia, a reduction in the qualifying contributions required, making it the most affordable programme in the Caribbean and the removal of the 500-application cap. A summary of the regulatory changes may be found on CIP St. Lucia’s website here.

    However, while the Government’s desire to make its CIP more competitive is understandable, some have legitimately argued that these changes may undermine the programme’s exclusivity and may lead to a “race to the bottom” in terms of competition on price and ease of accessibility among Caribbean CIPs. Indeed, with the number of CIPs in the Caribbean now at five and several other countries around the world also offering CIPs or some form of immigrant investor programme, Caribbean CIPs face stiff competition both inter se and abroad.

    As such, as I have argued before, increased cooperation among Caribbean CIP countries will be needed to ensure that high standards are maintained and that countries do not undercut each other in terms of price and robustness of their programmes. There seems to be some support for the need for greater cooperation, as St. Lucia’s Prime Minister, Allen Chastanet, earlier this year called for a joint OECS approach to CIPs.

    Moreover, while I strongly believe that CIPs can be legitimate tools for development once managed well through raising revenue, encouraging FDI, infrastructural development, job creation and attracting  High Net Worth Individuals (HNWIs), they should be used as an adjunct and not the main propeller for economic growth and development.

    IMF Recommendations

    In the Concluding Statement, the IMF Staff made several recommendations aimed at minimising St. Lucia’s risk of fiscal dependence on its CIP revenues, which can be volatile, and to reduce the impact of the global rise in interest rates. These recommendations included:

    • Using CIP revenues primarily to reduce the high debt.
    • Using a capped amount of CIP revenue for investment projects of primary importance
    • The importance of “transparency, appropriate governance, and careful due diligence” to reduce risks of sudden stops in CIP revenue inflows.

    More detailed information will be known when the full Staff Report is produced and released at a later date.

    The full IMF Staff Concluding Statement may be viewed here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.