Cayman Islands Rejects Bankruptcy Claims

by Phillip Morton, Investors Offshore.com

07 September 2009

The Leader of Government Business in the Cayman Islands, William McKeeva Bush has in a statement responded to recent press reports and to a letter from Parliamentary Under Secretary of State with the UK Foreign and Commonwealth Office, Chris Bryant regarding the sustainability of the island’s finances.

In his letter, justifying the UK government’s decision to block the jurisdiction’s plan to further increase its borrowing, Bryant wrote that he was “alarmed” at Cayman’s deficit for the fiscal year 2008/09 following a surplus in the preceding year, and underlined that the Cayman Island government must secure its finances to ensure that it does not continue in the red for following years.

Bryant argued that the government should make 'difficult decisions' to expand its tax base, and cut expenditure, to ensure its long-term fiscal sustainability.

In response to the UK government’s calls, seeking to assuage concerns, Bush stated that:

“The Cayman Islands, like the UK and US, is a part of the global financial infrastructure which is facing the most significant economic downturn of the past 40 years. As you are no doubt aware, Cayman’s two main industries - tourism and financial services – are amongst the most significantly affected sectors around the world.”

He continued: “Although, we are confident that the strength and resilience which has contributed to Cayman’s significant growth over the past 40 years will continue to serve the country well, the government’s efforts are being directed to ensure that Cayman’s existing revenue bases continue to be attractive to international markets.”

“Work is currently being undertaken to cut government expenditure by USD110M (KYD89m) and we have identified a number of new revenue measures that will result in new annual sustainable revenues. Some of these include customs duties, licence fees, and a number of other indirect taxes,” Bush went on to confirm.

“The government has also implemented an aggressive inward investment programme through private sector partnerships which will result in a number of new infrastructure projects and other developments. These will result in the region of USD3bn of inward investment in the short to medium term. We are confident that these measures will result in a surplus for the current fiscal year.”

“Regarding recent media coverage suggesting that the Cayman Islands is bankrupt, we can confirm that these accusations are incorrect. Indeed the recent statement made by Moody’s confirms that the Cayman Islands remains one of the most highly rated financial services jurisdictions in the world.”

Bush explained that: “The Cayman Islands government wishes to borrow for capital projects that were started under the previous government, and will be the primary focus for capital expenditure which includes the building of two new high schools.”

“The reality is that our requirement to seek the UK’s permission is based on statutory restrictions which we, the Cayman Islands government, have placed on ourselves to ensure continued prudent fiscal management.”

“In three weeks time we will be presenting our budget which will continue to maintain Cayman’s sound financial stability. The Cayman Islands is well placed to take advantage of the global economic recovery and we are committed to continuing the success of our indirect tax system which has served the country so well over its history,” Bush concluded.

In its recent report, Moody’s noted that, after carefully monitoring developments in the jurisdiction, the outlook for the Cayman Islands’, with its Aa3 rating, ‘remains stable’, a decision welcomed by the Cayman authorities.

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