Opinion: “Surrendering Our Independence”

September 16, 2014

[Opinion column written by Larry Burchall] Once upon a time there was a strong movement for Independence for Bermuda. In 1995, Premier John W Swan tested that national feeling by calling a Referendum on Independence.

Though skewed by an Opposition organized boycott, that 1995 Referendum said “No!” However, the idea of Independence has never actually disappeared.

Beginning in 2010 Bermuda started losing part of its existing political independence by surrendering its 300 year-old financial independence. This surrender happened during the time in power of the political party that has always been the strongest advocate for Independence.

In 2014, Bermudians are in thrall to foreign lenders. Bermudians are in thrall because, having lived eighty-three years in a phenomenally successful economy, a few began thinking that Bermuda was so special that the rules of economics and laws of arithmetic no longer applied here.

But oh, how wrong those few were. Those rules and laws did apply.

The consequences of ignoring those rules and laws are now biting harder each day. A combination of ignorance and complacency blended with nine years of Government non-management. This combination created an unprecedented six year economic recession, high debt, and high unemployment.

On this day, Bermuda owes $2,185,000,000. On this day, Bermuda has an annual interest cost alone of $111,852,500 or $306,445 a day.

Bermuda and Bermudians are now entirely dependent on the calculations of foreign lenders and the conclusions of foreign analysts. Bermuda was silently tipped into this unprecedented financial dependency when Bermuda passed the point of ‘no easy return’ in 2010.

In each spring of 2015, 2016, 2017, 2018, 2019, and 2020; Standard & Poor’s, Moodys, and Fitch Credit Rating agencies will come, examine, analyse, and then report. Each time they report, each agency will grade us. Each agency will decide whether we stay level, go up one ‘notch’, or down one ‘notch’ on their credit rating scales.

Annually, Bermuda’s new financial masters – Bermuda’s new Imperials – send their colonial inspectors. Annually, these colonial inspectors come, inspect, calculate, decide, and then rule on what the ‘natives’ are doing with the financial master’s dollars. The value decisions about us Bermudian ‘natives’ are entirely and completely theirs. It has been like that since 2010.

Each time Bermuda gets ‘notched’ down, Bermuda faces the prospect of an increase in the interest rate charged when Bermuda’s existing debt is, inevitably, ‘rolled over’.

Between now and Christmas 2017, Bermuda will be reviewed thrice. Spring 2015, 2016, and 2017. The credit rating agencies will make three sequential and critically important decisions. Do they notch us up, leave us where we are today, or do they notch us down? It’s entirely their decision.

Bermuda must return to the lending troughs no later than 2017. If Bermuda gets three notch-downs by Spring 2017, then Bermuda can expect a material increase in the interest rate demanded by our foreign lenders.

In August 2013, with Bermuda’s credit rating still in S&P’s “A” band, and with J.P. Morgan and Barclays as our ‘book runners’, Bermuda paid 4.854% for the $750,000,000 that Bermuda borrowed.

When, inevitably, Bermuda goes back to the market in 2017 to get the top-up funding needed to get through to 20720 [20 July 2020], Bermuda could still be in the lowest part of S&P’s “A” band. Bermuda could also have been notched down and be in S&P’s “B” band.

Either way, in 2017 and beyond, Bermuda should anticipate paying higher rates than that fortunate 4.854% of August 2013.

Whatever rate Bermuda gets in 2017 will indicate the rate that Bermuda will likely get on 20720 when Bermuda rolls over that first $500 million bond bundle. Ten years earlier, we got those bonds at 5.603%. With six notches between now and 20720 – Spring 2015, 2016, 2017, 2018, 2019, 2020 – we should anticipate materially higher interest rates at unavoidable rollover on 20720.

In 2010, Bermuda silently and secretly surrendered its long-held financial independence and placed its economic fate in the hands of outsiders. Through our own in-house financial non-management coupled with national complacency compounded by national ignorance, Bermuda threw away the financial independence that Bermuda had kept and jealously guarded for over 300 years. Bermuda created its own financial dependency on others.

There is a way out. Get overall Revenue on a fast rising trend.

How? If you fully understand Bermuda’s national situation and how Bermuda’s economy actually works, you will recognize that Bermuda’s GDP must grow. How? Grow ResPop.

You may tire of it, resent it, or even hate it; but the answer will never change. It is the only way that Bermuda can claw back its lost financial independence.

Grow ResPop!

- Larry Burchall

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Comments (55)

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  1. Now, if only we, you / me can convince the majority…? You’ve hit the proverbial nail upon its head Larry. The future looks grim :-(

    • Black Soil says:

      Putting the Bermuda govt at the mercy of the bankers is one of the reasons why I left the PLP. Insane.

    • Punch happy says:

      Once again a brilliant article calling ll hands on deck and not just a few. Everyone to make it happen.

      • PIRATE says:

        GREAT ARTICLE!!!

        NO NEED TO SCROLL BELOW. YOU FIND MORE OBA vs PLP HATE. THIS ARTICLE IS A CALL TO ARMS FOR EVERY BERMUDIAN. IF YOU PUSH OBA OR PLP AGENDAS ON THIS SITE YOU LOOSE ME IMMEDIATELY. UNITE BERMUDA. ENOUGH PARTY POLITICS. BOTH SIDES ARE INCOMPETENT.

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  2. Starting point says:

    Somehow this message needs to be communicated to payment Bermudian levels, many of us understand this but many do not, they are not knowledgeable of debt ratios, interest payments, ratings etc.

    Message –

    Everything in Bermuda is owned by foreign banks, if we don’t pay the banks they BY LAW charge us more, if we don’t pay this they seize our assets and will not lend any more money.

    Every person living on this island owes the foreign banks this money, every child, every man, women, every PLP voter, every OBA voter, even the homeless dude on Reid street owes the bank this money. The only way for us to owe less money is to have other ‘new’ bermudians join us to pay it off. End of story, oil fields will not help, 100% increase in tourism will not help, gaming will not help because those revenues go into paying for our existing jobs, roads, defence etc. New revenues does nothing to pay off the debt because we continue to spend more than we make…..new revenues will not even get us to a break even amount fyi.

  3. Allspice says:

    Larry Burchall speaking the truth that nobody wants to hear.
    Articles devoid of political expediency and pointing to the hard realities are exactly what Bermuda needs right now.

    We may have to work for it, and we may have to do some things that we don’t like and that are politically unpopular. That’s a problem because we Bermudians do like to cling to our beautiful illusions and most of us have never seen Bermuda strike bottom. That hasn’t happened in almost seventy years.

  4. Just the facts.... says:

    A well thought out and well articulated piece of writing. I quite like the usage of the phrase ‘colonial inspectors’ to make people realize just the bad state we are in.

    Unfortunately, we have no real plan available to us to help us get out of this hole we find oursleves in. The ideas floated out there (gambling,etc.) only seem to be potential changes… but we have no facts as to the real benefits.

    We need to re-invent ourselves…. we need new visionaries who can think differently. I wish I knew who they were as I would be pushing them to come forward! We are on the right path with the surge in ILS business… but can that sustain in the long term? That has always been the problem with all Government planning is the propensity to look only to the next election term (5 years) than to the longer term outlook.

  5. Barclay Simmons says:

    I agree with you Mr. Burchall. Several writers have commented on the impact of our population decline. I think part of the answer must come from showing Bermudians the tangible value that comes from new arrivals to the island. If we can fill empty apartments this is the most direct benefit. As demand in apartments increases, this has an upward effect on rental prices. This provides much needed help with mortgages. More workers also means more by way of payroll tax receipts for the Government. Our annual deficit is around $300mm which means we have much to do in a short space of time.

  6. On the topic ... says:

    On the subject of the 1995 Independence Referendum and the Opposition boycott, fact is that the “no” vote was overwhelming. Speaking from memory, if every single voter that did not make an appearance had instead turned up and voted in favour of independence it still wouldn’t have passed.

  7. swing voter says:

    some people will never connect the dots Mr. Burchall. You’re wasting your time explaining the facts over and over and over …..PLP PLP PLP is all they want to hear!

    • Welcome to the Circus of Clowns says:

      It’s much better then hearing …….UBP BDA OBA X Premier Cannonier Premier Dunkley. Which party is it now clowns and who the hell is in charge of the Circus? You fools are running out of red kool aid.

  8. bdaboy says:

    So, the majority of those who wanted a yes vote to independence, instead didn’t vote at all, thus losing….what was their strategy?

    • Dockyard Lackey says:

      They did not want Independence under the UPB. It had to be PLP. Same old, same old.

    • read it again says:

      Please read the article again. You don’t seem to have understood it.

    • PBanks says:

      From what I gather, the whole issue was that the PLP didn’t want independence to happen *under the UBP*. Rather, they’d prefer the UBP to be destabilized, and independence to be decided as part of a General Election instead of a separate referendum.

      • bdaboy says:

        the PLP wanted independence which would have ensured special member ship in the EU, protection of the island by the UK, and reduced fees for Bermudians attending higher education in the UK….wow, what a utopia.
        Did they think this through at all?

        • PBanks says:

          None of us has a crystal ball, but if Bermuda had indeed gone independent in ’95, things here would likely have turned out a whole lot differently… regardless of which political party was in control.

  9. Justin says:

    Let’s not forget that the debt is in USD, not Bermuda Dollars! Yet there are some that want to bang on about the OBA selling us to the highest bidders, but what they don’t want to say is what party put us in this financial position where we must find ways to increase revenue to pay off the debt!

  10. Ex PLP voter says:

    I will never vote for the PLP again.
    What they did to enslave us to foreign lenders cannot be forgiven.

    • Time Shall Tell says:

      Since we don’t produce or export anything of significance we have been slave to foreign entities for a long time. Nothing new..

      • Politricks says:

        The difference being that prior to 2010 we were not financially liable to the tune of a couple of billion with interest payments costing the taxpayer $111mn a YEAR! You add in civil service costs it equates to more than 50% of Government revenue covering debt and salaries leavign little to bothing for infrastructure investment and funding of social programs.

        So this is something that is relatively new to Bermuda as before 2010 our debt was minimal at best.

      • Build a Better Bermuda says:

        The fundamental difference is that the economic model the UBP built was to bring foreign business here for them to spend their money here, either through jobs/wages, minor taxation, fees, services… but ultimately there is no expectation to pay this money back, so it stays in the economy. The PLP mismanaged the model, either through ignorance or arrogance, and embarked us on the US economic model of bringing in foreign capital through foreign borrowing, the trouble with that is that money that came in must eventually leave, and when it does that it will be taking additional money from our economy through interest rates. The PLP sold us out to foreigners.
        By inviting foreign business to our shore, brings in jobs for Bermudians, whether directly or indirectly. Borrowing money does not, but makes us indebted to foreign entities, so who do you thinks policies are more anti-Bermudian and enslaves us to foreigners.

  11. CJ says:

    Thank you Mr. Burchall. I thought this was a graet article.

    • swing voter says:

      I’ll never say never, but for the here and now would I vote for them? HELL TO THE NO

  12. Rumforbreakfast says:

    I suspect I’ve said this before, but LOVE Larry Burchall. Such a smart man who understands Bermuda’s complexities better than most. Have you read “Fine as Wine”?

  13. Stephen Thomson says:

    I get it and I understand it. But, truthfully, I am angry.
    I am angry that we allowed ourselves to get in this mess. We, as Bermudians, took our eye off the ball and allowed our then elected government to make a complete shambles out of our economy. They spent as if there was no tomorrow. Our children will suffer for our poor decisions. This will be the first generation in many that will be handed a worse deal than their parents were afforded. We failed them plain and simply and we need to correct this mess and welcome back as many people as possible as visitors, workers, investors etc.
    We have always needed foreign customers. Now more than ever.

  14. jt says:

    And Alvin Williams thinks the OBA is selling Bermuda to foreigners….laughable.

    • Kangoocar says:

      Alvin Williams, is laughable all the time!!!! His level of ignorance astounds even me every time he posts!!!!!!

  15. Coffee says:

    Bermuda by nature is a parasitic society . The United States Government propped up and created a artificial invisible economy via the presence of the Naval Base and the Naval Annex .
    When they left it was only a matter of time before the government of the day had to borrow money from somewhere .
    Now we are living in THE DAY OF THE JACKAL ….. And every Bermudian will be called a lazy Bermudian because many will fail under the weight of personal and the national debt .
    It was never the business acumen of the forty thieves that made Bermuda . They just did well with other peoples money . I could remember an old Bermudian family business that went under in the late 70′s , a real estate investment firm , well many black Bermudians lost a lot of money , my family included . Today I see the descendants , they haven’t missed a meal , in fact they travel quite lavishly on other peoples money .

    • Kangoocar says:

      @coffee, Bermuda by nature is a parasitic society???? Ever since the BRITISH settled here we In fact have been very creative on how we earn a living!!!! But don’t let facts get in the way of your silly stories!!! Now when it comes to yours and other black families losing money in a real estate investment firm. Why is it that YOU don’t mention that white families also lost money in that investment????? I actually think your family deserved the loss because through nothing but greed ( the promises of returns that were unrealistic ???) your family and many other WHITE families that lost money should have known that if something appears to be to good to be true, it probably is to good to be true!!!! Very similar to the plp I may add!!! Your family chose to invest that way to avoid your perceived 40 thieves nonsense and they got exactly what they deserved!!! I by the way never invested and never lost a penny!!!!!

      • Coffee says:

        In Kangoocars way of thinking privateering is creative .. Oh well we can’t save them all ! Bermuda was built on thievery and slavery … Very creative indeed …..

  16. MB says:

    Yes but everyday you hear on talk radio,
    plp and from Luverne how ‘we may be better
    off without intl business’ or the local people
    in the Caribbean islands ‘hold all the good jobs
    and we don’t here’ and generally: ‘we hate expats’

    Conveniently forgotten that the islands have such a
    thing called industries, and exports.
    If we exported or had industry we would need every Bermudian
    we could find as well, but as Larry points out we are slaves
    to foreign money. We may be able to rebuild tourism
    to be a huge industry like Caribbean and it would mean jobs
    for Bermudians but for now we have the intl companies and
    in this competitive climate of today if we dont kiss their
    asses they wont come here, stay or grow here.

    But anyway, for every foreign ‘good job’ created here
    the PLP and union etc don’t seem to get that that
    means ‘good jobs’ for at least 2 Bermudians, think about it!
    I bet every one on this rock can name at least 20 Bermudians
    with great jobs in intl business – many of them in the plp and oba.

  17. We Are Not Amused! says:

    Bermuda will NEVER go Independent under any Government.
    The plp and their blind followers can dream as much as they like,it will never happen.

  18. Ex PLP voter says:

    THE PLP SOLD US OUT!

  19. The Real Truth says:

    Time shall tell….you are spot on in your comment….”Since we don’t produce or export anything of significance we have been slave to foreign entities for a long time. Nothing new..”And what is more we will continue to be a slave to foreign entities whether we make or owe them 5 BILLION dollars…When will Larry and his admirers get this…..WAKE UP….we are always going to be dependent or slaves to the outside….

  20. ….Surely you jest. says:

    The only part of this analysis which is credible is the reference to “non-management” of the economy. On that Larry is correct. The tragedy is that the same non-management is occurring under this government. However, I simply cannot agree with the conclusions of this analysis. How can it be suggested that the only way for our economy to grow and thrive again is to increase the population, presumably with imported labour at varying levels? This ignores very real trends all across the globe and in fact is the same attitude of purported uniqueness applying to Bermuda that Larry says got us into this mess. David Burt’s recent message of economic diversification is the only thing that will save us. Businesses will never return in the on-island personnel numbers they did previously. They’re not doing it anywhere so why would they do it here? The sooner we wake up and realise that the model has changed (and one IB leader everyone loves to quote told us this in a recent speech) the better off we’ll be and we can stop standing on the shore looking out to sea in the vain hope of “Res Pop” suddenly increasing. Larry, you’re wrong to suggest that’s the answer and wrong to suggest that it is something to which this Government or any government should devote their attention. It means that we as Bermudians are going to have to find another way to pay our mortgages besides putting ex-pats in ridiculously priced apartments adjoining our homes. The world has changed and any analysis that does not refer to that fact and simply throws out images of the 1980s and 1990s heyday is flawed and full of false hope.

    • Lois Frederick says:

      Don’t forget there is Commercial Immigration coming, that should increase our population along with encouraging others to come and also others to return. Don’t put too much faith in David Burt. He is very green behind the ears in regards to economics and commerce.

    • Sad says:

      Yeah of course everyone knows online gambling is the panacea of all our financial issues.

    • PBanks says:

      Regarding online gambling, Antigua is *still* locked in a battle with the WTO and the US after more than a decade, on their own offerings. Is Bermuda willing or ready to deal with that kind of situation going forward?

  21. Keepin' it Real!...4Real! says:

    Larry, your on point as usual, it is refreshing to read such TRUTHFUL or REAL words for a change…but i find your last statement about…
    “There is a way out. Get overall Revenue on a fast rising trend.

    How? If you fully understand Bermuda’s national situation and how Bermuda’s economy actually works, you will recognize that Bermuda’s GDP must grow. How? Grow ResPop.

    You may tire of it, resent it, or even hate it; but the answer will never change. It is the only way that Bermuda can claw back its lost financial independence.”

    Grow ResPop!

    i find this answer to be quite textbook…yes, its the ONLY way but you know that GRP…cannot work for such a small landmass…you will end up like an infestation…we need BIG LOOT to get us ALL out of this inevitable financial collapse which is teeter tottering as you SLEEP…you’ve heard of banker bailouts right?…well watch out for banker BAIL-INs…when you wake up and find the bank has frozen your money…you can only get what they want to give you…out of every hundred you might get twenty five…be wary of your cash…

  22. Unbelievable says:

    Grow the Resident Population?

    Well that can only mean a couple of things…..more Bermudians or more work permit holders. We know we are going to get more Bermudians.

    Guess which is going to get the most “opposition”?

  23. Creme Brûlée says:

    Mr. Burchall, great piece. You might also want to investigate the brain drain from these shores of educated and talented Bermudians. I am of the opinion that it is several thousand at this point – the UK might be the real beneficiary of granting Dependent Territories those UK passports and right of abode.

  24. Bermuda123 says:

    Great piece by Larry Burchall as always. Ignore the commentators who argue about whose fault it was – the only useful outcome of that is to impact your future voting decision, but quite frankly that is really not important today. We need revenues. Growing Res Pop is essential, but is only one part of the story. That will help Govt payroll tax dollars, but really, while right now we have no choice, it no longer makes global sense to tax employers to emply people in Bermuda. What we need are new revenue streams.

    Has anyone considered trying to refinance at least some of our debt by borrowing from our large IB community with large balance sheets? They have big investment portfolios and are generally getting woefully low yields in the market. 4.5% is an unheard of return right now for them. How about a syndicated loan from the ABIR members at 1% for 5 years? Balancing their “lost interest” against a successful Bermuda where they can continue to get the regulatory and tax benefits seems like a reasonable balanced return to me.

  25. Seriously says:

    $306,445 a day divided by 60,000 Bermudians… That’s $5.11… The Burchall Tax will hit some Bermudian families hard… kids count too!

  26. Truth says:

    Thanks Mr. Burchall for another well written article. However I strongly feel that the real story is not being told as to how
    A great number of Bermudians and Bermuda ended up in such a financial mess. Bermudians fell for the predatory lending practices of our local and foreign banks which ULTIMATELY led to our financial ruin and living beyond our means!
    Bermuda’s financial ruin for most Bermudians started with the sale of the Bank of Bermuda…………….we are now back under a whip worst than our colonial masters! Kiss Bermuda Goodbye.
    Ps. Of course this is only MY opinion………. Folks get out of debt now! Get rid of party politics!

  27. zzzzz says:

    Mr. Burchall. Thank you for you opinion pieces. Very insightful.

    Could you please explain why interest rates in Bermuda have not been reduced in an effort to stimulate the economy as they have been in other jurisdictions?

    In my view the high interest rates reduce our ability to compete with other jurisdictions hindering efforts to grow resident population and therefore the economy.

  28. bluebird says:

    WELCOME to ecconomic “PLANTATION” The PLP did use the “RACE CARD”
    and placed you all back on the plantation.
    You do remember…..Vote for PLP or they will put you back on the Plantation.

  29. bluebird says:

    @zzzzz,
    Lower interest rates do not stimulate the ecconmy just look at the US at rates of nearly “ZERO”
    Look at the conservative states and other countries that have a SMALLER government (ie) less government spending and “LOWER TAXES”.
    That is what “STIMULATES” an economy and produces jobs because “PEOPLE” have more disposable income.
    You cant spend more that you have incoming neither can the Government.

    • zzzzz says:

      I would guess you are a banker…

      Agree lower taxes can stimulate an economy as people would have more disposable income.

      To me, cutting interest rates would also give people more disposable income and has the additional benefit of not reducing the governments tax base.

      I agree the the civil service is bloated an inefficient in most areas however I do not think it would be wise to start radically cutting it back while the country is still in recession.

      Your comment “Lower interest rates do not stimulate the ecconmy just look at the US at rates of nearly zero” is lost on me. For a mature economy the US is growing strongly and creating jobs.

      Given the US economy is largely based on consumer spending I find it very hard to believe it would be growing strongly (if at all) if mortgage rates were at 6.5% as opposed to 3.5%.

      • Banana Boy says:

        ZZZZZ you are correct to a degree, but lowering interest rates (for any reason but usually to stimulate the economy) only works when there is a number to be lowered that is higher than zero. The banks cannot lower loan rates without lowering deposit rates also. Pure economics I’m afraid. Banks are not a charity – they have expenses like the rest of us.

        • zzzzz says:

          Banana Boy – I am very interested in this area so appreciate your comments.

          I have just taken a look at my mortgage document which I assume is similar to everybody else’s. It states that the interest rate will be 2.5% above the Banks Bermuda dollar base rate. I currently pay 6.25% interest total so the Banks Bermuda dollar base rate is therefore 3.75%.

          Who sets the Banks Bermuda dollar base rate and how is it calculated? I have done a Google search on this and there is no readily available info on this.

          Moving onto your point that deposit rates are basically zero and therefore interest rates cannot be lowered. In the US deposit rates are also basically zero however in the US it is possible to obtain fixed rate mortgages at 3.5 to 4%. Here in Bermuda I believe typical mortgage rates are between 6 and 6.5%.

          My question is therefore why can the US banks offer lower mortgage rates than the BDA banks. Could it be:

          1) greater economies of scale?
          2) more professionally managed/greater competition?
          3) Bermuda banks collude and take excessive profits?
          4) other?

          If the answer is 1 then we should merge the 3 banks, regulate the new bank as a monopoly and give Bermuda access to cheaper capital. I am not in favour of monopolies but that is a side issue.

          If the answer is 2 then more banking licences should be handed out to qualified parties.

          Depending on the reason for the spread the possible solutions are radically different!

          It would be valued by people like myself if Mr. Burchall or another qualified Bermudian was able to explain in layman’s terms why interest rates are so high and what if anything can be done about it by the Government.

  30. Vote for Me says:

    The comments are interesting as always.

    Anyone care to comment on the significance of 2010 in the article?

    A more accurate article will relate to the Civil Service being the real hero of Bermuda’s economic success and how thay are now expected to be the saviour by taking significant decreases in pay.

    The writer should also specify how he expects to increase our population by up to 5000 without the attendant increases in rents and prices in general that will have a significant impact on the average Bermudian.

    • LiarLiar says:

      2010 is when the PLP decided to raise payroll tax during th emiddle of a recession with no form of consultations conducted beforehand with the public and other stakeholders. This breach of trust and increasing the cost of living resulted in many job makers and their employees leaving our shores.

      The civil service does not contribute to GDP and actually eats away at our tax revenue and relies on the private sector to survive. The private sector created the boom of Bermuda’s success while the public sector benfited via the growth in revenue which was then bloated by the previous Government without ensuring efficiency also increased. In other words the civil service was not Bermuda’s hero by any stretch of the imagination in relation to our past economic successes. But I would love to hear your theory on how the civil service somehow created our boom.

  31. Voter (original) says:

    If Scotland understands that if they become independent they will need to bring more people in to prop up their pension and other schemes, then why don’t Bermudians understand this too