|10BELMOPAN55||2010-02-02 20:40||2011-08-30 01:44||CONFIDENTIAL||Embassy Belmopan|
DE RUEHBE #0486/01 3562239
ZNY CCCCC ZZH
R 222239Z DEC 09
FM AMEMBASSY BELMOPAN
TO RUEHC/SECSTATE WASHDC 2190
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
C O N F I D E N T I A L BELMOPAN 000486
FOR WHA/CEN JENNIFER VANTRUMP
E.O. 12958: DECL: 12/22/2019
TAGS: ECON EINV BH
SUBJECT: AMBASSADOR MEETS WITH GOB ABOUT BTL NATIONALIZATION
REF: A. BELMOPAN 332
¶B. BELMOPAN 480
Classified By: DCM Diffily for reason 1.4(b) (d)
¶1. (C) Summary: On December 15 the Ambassador, DCM, and Econoff met with Financial Secretary Joseph Waight and Belize Telemedia Limited (BTL) board member Alan Slusher. Waight and Slusher provided valuable information about the state of the economy, as well as information about the lead up to the nationalization of BTL, the GOB,s projections for the future of the company, and the likely outcome of possible arbitration: Belize will not pay. They also reaffirmed that this takeover was a unique, one-time phenomenon. In a later meeting with the American Chamber of Commerce, businesses highlighted their growing concerns. End summary.
¶2. (C) When the Ambassador, DCM, and Econoff met with Financial Secretary Joseph Waight and BTL board member Alan Slusher on December 15, the GOB representatives began by describing the downturn the Belize economy has taken over the past year. The Prime Minister formally announced that the country was in a recession on October 29. One of Belize's primary revenue sources, tourism, has taken a hit, with the number of overnight visitors down by 5-8% from 2008. The number of cruise ship visitors is actually on the rise, as they cash in on inexpensive deals from carriers; however, the spending by both groups in Belize is less than in previous years. Commodity prices are down for some of Belize's main exports; at the same time, imports are down, resulting in less revenue from duties and taxes. One bright spot for the budget is that tax revenue from oil companies is up, but this is a consequence of less investment in exploration, which oil companies were able to write-off in previous years. Reduced investment in exploration now could translate into reductions in production and revenue in the coming years.
¶3. (C) Waight also confirmed that foreign direct investment (FDI) was at a standstill, not only as a result of the global recession, but also because of investors, concerns regarding the GOB,s nationalization of BTL, the largest company in Belize and a monopoly telecoms provider (ref A). The GOB reps spoke very candidly about the takeover and its aftermath, and provided insight into the GOB's rationale for the nationalization. While Slusher stated that it is the intent of the GOB to reprivatize the company at the & earliest opportunity,8 and that the original timeline was one year, he admitted that this will take longer than expected due to forthcoming litigation that will be lengthy. They believe that until this litigation is complete, the chances of selling BTL are slim.
¶4. (C) Slusher also expressed that one of the main complications that the GOB encountered during the takeover was that all of the files and correspondence had been removed from BTL offices. As a result, the GOB was not aware of many of the contracts and loans outstanding until they were contacted by various contractors looking for payment. Prior to the takeover the GOB also did not realize the full extent of Michael Ashcroft's network of interconnected companies, or how money from BTL was being siphoned into them (ref B). Slusher was disgusted with how BTL was being used to finance other enterprises. One example he cited was the relationship of BTL and Speednet, owner of Smart, a rival, telecom provider also controlled by Ashcroft. BTL paid for much of the technology owned and operated by Speednet, and signed agreements for the provision of services with the company which were not subject to oversight by the Public Utilities Commission (PUC). A cell phone tower that cost BTL one million dollars to erect and $10,000.00 annually to maintain was leased to Speednet for $500 a month. Slusher claims that these agreements were written for the benefit of Speednet, since BTL,s Accommodation Agreement with the GOB already guaranteed it a 15 percent rate of return per year.
¶5. (C) Because BTL was just one element of Ashcroft's intricate web of companies, Slusher maintained that it could not be governed as one would a regular company. He believes that BTL was just part of Ashcroft's larger conglomerate, where every unit serves the overall goal, which he believes is to &extract as much money as possible from Belize.8 Slusher pointed to the Accommodation Agreement, signed under the previous PUP administration, as one of the means by which BTL extracted money from Belize. He also stated that certain taxable revenues for BTL were never declared and the previous Prime Minister and Minister of Finance, Said Musa, prevented anyone in his administration from doing an audit of BTL. In the days leading up to the nationalization, BTL gave away, to other Ashcroft interests the items it had purchased for them, and moved $70 million worth of dividends in three days.
¶6. (C) Slusher confided that PM Barrow was personally opposed to the nationalization because he knew it would send the wrong signal to investors; however, neither he, not his advisors, could see another way to stop BTL and Ashcroft from continuing to fleece the country. Reflecting on the role of the previous PUP administration, he then posed the questions, & How do you protect a country from a rogue government? -- its own government, that turns bad?8 Taking this idea further, he stated that all of the suspicious deals and money siphoning that took place with Ashcroft and BTL prior to the nationalization, could not have occurred without the &active encouragement and participation of the previous Government.8 He and Waight stressed that the nationalization was in the national interest, and that nothing similar would take place in the future.
¶7. (C) Despite all of the allegations that were made against BTL and Ashcroft, the GOB reps stated that the company is sufficiently profitable to continue running. They also made a point of informing the Ambassador that in the aftermath of the takeover, several rating agencies, including Moody's and Standard and Poor's, contacted the GOB to express concern; however, Slusher said that after explaining the background and reasoning of the takeover to these companies, Belize's credit ratings were not negatively affected. He used as evidence the fact that strong local support demonstrated that the nationalization was in the national interest. Even so, he said he understands why the idea of a government taking over a major telecommunications provider is not likely to be met with much support internationally.
¶8. (C) In spite of all of their promotion of BTL and framing the takeover in moral terms, the GOB reps did inform the Embassy of some news that may be of further concern to investors. In contrast to what the Prime Minister has expressed to local media, they admitted their belief that the GOB does not want to go to international arbitration, but wants the matter resolved in local courts. They explained that all arbitration awards would have to be confirmed by national courts, which have been uncomfortable confirming any awards relating to the Accommodation Agreement, since it is seen as unlawful. They believe that the issue of compensation should be decided by the process of negotiation provided for by the nationalization.
¶9. (C) Econoff met with the Board of Directors of the American Chamber of Commerce later in the week, and they continue to express their concerns about the takeover. While there is no love lost between Ashcroft and the Board, the majority view the GOB's actions as more personal than business. While items such as the Accommodation Agreement may have given him an unfair advantage, they pointed out that Ashcroft has contributed a lot of money to Belize, some in the form of loans to the Government, they say. Meanwhile, there are other individuals who have taken out loans with the GOB, many of which have never been repaid. AmCham pointed out that recovering these funds would be in the national interest, yet the GOB has not gone after them. They also point to the fact that since the nationalization, internet service quality has not improved, access to voice-over internet protocol (VOIP) has not been unblocked, rates remain the same, and the GOB is reducing competition and alienating supporters by blocking SMART's access to international trunk lines and removing their equipment from towers.
¶10. (C) Comment: Politics in Belize are personal. Targeting Ashcroft is an easy way to rally public support, and so is reversing some of the secret deals carried out under the previous administration. Yet, the promises the GOB made during the takeover, including increasing competition, lowering rates, and improving quality, have yet to be fulfilled and the business community is becoming ever more anxious. While the GOB reps were adamant that the nationalization was in the best interest of Belize, it is difficult to believe that that was the administration's only motive for the takeover. The distinction between an expropriation and nationalization in the public interest is a very important issue, as this will be a key factor in determining the GOB,s obligations under international investment treaties. In addition, while the reps were aware that the takeover is already having negative effects on investment, they did not seem willing to recognize the total effect that the nationalization and pending litigation would have on an already fragile economy.
¶11. (C) Comment continued. The processes of arbitration and litigation will most certainly continue for several years. The Prime Minister said in March 2009 that the GOB will not honor decisions by international courts or tribunals where that ruling conflicts with the position of local Belizean courts. His reversal of stance in this case has taken many by surprise. It may be an attempt to confer legitimacy on the nationalization, by appearing to comply with international procedures. However, even if the GOB agrees to take the case to an international level, which is unlikely, they will be unable to pay out on any decision which comes down against them. Waight confided that his office is struggling to come up with the cash to give all GOB employees the final check of the year one week early, a Belize tradition. If the GOB barely has the ability to pay its own employees, it certainly does not have the money to honor any rulings which require a payout. The GOB cannot afford to hold on to the company and pay legal fees. In 2005 Ashcroft bought back BTL at a profit, a year after the GOB had paid him a lower value for his shares. At the time, the GOB was forced to absorb the difference. Speculation has already begun that the company will be back in Ashcroft's hands shortly. End comment.