|Now that he has won|
Philip C. Galanis
Published: Nov 12, 2012
“The task of perfecting our union moves forward.” – U.S. President Barack Obama
We suggested in this column last week that President Barack Obama’s reelection would have historic implications. Therefore, this week, we would like to Consider This... now that Obama has been re-elected, what does it mean both for the U.S. and for us?
Obama’s re-election has confirmed several things: issues matter and vision matters, as do specific plans for realizing the vision.
The United States
What does it mean for the United States? As Joe Klein astutely observed in the November 19, 2012 Time magazine article “Obama’s Mandate for Moderation”: “It is no longer possible for a rural, regional, racially monochromatic political party to win the presidency. We are now a manifestly different country.”
Perhaps no one can better appreciate this than the Republican Party, which failed to unseat the occupant of the White House. And they failed to do so despite an anemic economy, an unprecedentedly high unemployment rate at the end of the first term of a president seeking a second, a Supreme Court decision which enabled wealthy Republicans to finance their candidate’s campaign with unlimited financial resources, unimaginably excessive home mortgage foreclosures, historically gargantuan fiscal deficits in the face of a seemingly uncontainable national debt, which led to a credit rating downgrade of the federal government, a questionably flawed foreign policy regarding the Arab Spring and an inadequately explained intelligence failure in Benghazi. The political decks seemed intractably stacked in favor of the Republican candidate. Notwithstanding all these realities, the American voters were undeterred.
The majority of the 120 million Americans who cast their ballots on Tuesday past gave the president a renewed mandate. In doing so, they have ratified the president’s domestic plans to fully implement “Obamacare”, to invest in badly needed infrastructural improvements, and to repatriate manufacturing jobs to America.
On the international front, Americans endorsed the president’s plans to avert a trade war with China through collaboration rather than confrontation, to engage Iran diplomatically regarding the latter’s nuclear ambitions, to militarily disengage from Afghanistan in an orderly fashion and to continue his unrelenting war against drug traffickers and terrorists, including the controversial drone strikes in the case of the latter.
The impact on The Bahamas: U. S. fiscal deficits and FATCA
In light of America’s annual trillion-dollar fiscal deficits and its national debt of $14 trillion, the new administration’s primary objectives will be to reduce the systemic tax leakages. In a similar manner as the European Union, which spearheaded the OECD’s blacklisting of many offshore financial centers, including The Bahamas in the late 1990s, it is conceivable that the United States will accelerate its efforts to close the tax leakages by imposing harsher restrictions on its citizens who invest overseas, including The Bahamas.
We have already observed signs of this by the passage of the Foreign Account Tax Compliance Act, known as FATCA, which is aimed at Americans who have offshore bank accounts for the purpose of evading the payment of U.S. taxes.
The law requires banks either to collect and turn over data on U.S. clients with at least $50,000 or to face a 30 percent withholding tax on any payments made on U.S. securities to the offshore bank.
The law, which goes into effect in 2014, was passed after investigations that showed some wealthy Americans were being sold tax-evasion services by UBS, a Swiss bank. When he signed the law on March 19, 2010, Obama called FATCA “a major new and positive development in the efforts to stop offshore banks from using secrecy laws to help U.S. taxpayers evade their taxes.”
The referendum on web shops
In a similar manner, we should not believe that the recent decision by The Bahamas government to conduct a referendum on web shops has escaped the ever-watchful eye of American regulators who believe that web shops are engaged in unregulated banking activities, with the ever-present threat of money laundering spinoffs. The most effective way to allay those concerns is for Bahamians to approve the referendum next month on web shops, which will place such operations under a strict anti-money laundering regulatory regime.
If the referendum question regarding web shops is not approved, we can assume that some of the web shop operators will continue their activities, as they have for decades, without the umbrella of legitimacy and regulation. Such an eventuality could have dire consequences for The Bahamas.
The question of the possibility that such “illicit” web shops could be used for money laundering purposes will arise, with the potentially devastating consequences that The Bahamas could once again be deemed to be uncooperative in the fight against money laundering. Experience clearly demonstrates what could ensue from such a perception. The Bahamas could once again be blacklisted with all the attendant consequences that would follow a move led by an Obama administration bent on stemming all leakages, legal and illegal.
The Bahamas government is singularly determined to prevent this. In his communication to Parliament on November 1, 2012, the prime minister emphatically declared that if the electorate does not approve the referendum question regarding web shops, the government will “take all necessary steps to ensure that our gaming laws are enforced, and that the transgressors of those laws are dealt with in full accordance with those laws.” The prime minister also said that if the question is approved: “Great care will be taken to adapt the existing raft of anti-money laundering regulations in our country in a way that would ensure the effective monitoring, control and suppression of money-laundering in all its myriad forms in relation to web shop operations.”
Domestic economic impact of the U.S. election
Bahamian tourism has been and will continue for the foreseeable future to represent the primary engine of our economic growth, largely fuelled by Americans living on the east coast of the United States.
The sustained growth of Bahamian tourism will continue to be driven as much by our success in offering Americans and other visitors a quality experience at a relatively competitive price, as it will depend on Obama’s ability to successfully reverse the U.S. economic recession of the past four years. We are not likely to witness a return to American stopover visitor numbers of pre-recession years until there is more discretionary income, which will only occur after the recovery of the U.S. economy.
We have observed the catastrophic damage to the eastern seaboard of the United States occasioned by Hurricane Sandy. We should not underestimate the severe impact that that hurricane will have on our ability to attract tourists to our shores until Americans recover from Hurricane Sandy. We wait with bated breath and considerable anxiety to understand how that hurricane will affect the upcoming tourist season in the New Year.
In the final analysis, the results of this week’s general election in the United States will certainly affect us here in The Bahamas. The extent to which The Bahamas will fare will depend as much upon how we manage our own internal affairs as how Obama and the Congress will respond to the challenges that confront that great nation as it seeks to form a perfect union.
• Philip C. Galanis is the managing partner of HLB Galanis & Co., Chartered Accountants, Forensic & Litigation Support Services. He served 15 years in Parliament. Please send your comments to email@example.com.