{"id":32071,"date":"2021-07-23T07:46:57","date_gmt":"2021-07-23T03:46:57","guid":{"rendered":"http:\/\/www.mauritiustimes.com\/mt\/?p=32071"},"modified":"2021-07-23T07:46:57","modified_gmt":"2021-07-23T03:46:57","slug":"the-mic-did-not-save-jobs-it-saved-the-capital-of-the-shareholders-and-the-profitability-of-the-banks","status":"publish","type":"post","link":"https:\/\/www.mauritiustimes.com\/mt\/the-mic-did-not-save-jobs-it-saved-the-capital-of-the-shareholders-and-the-profitability-of-the-banks\/","title":{"rendered":"“The MIC did not save jobs, it saved the capital of the shareholders and the profitability of the banks."},"content":{"rendered":"
Interview: Kugan Parapen<\/u><\/span><\/h5>\n
\"\"<\/u><\/span><\/h5>\n

Is it normal that banks are still reporting billions in profits when the State is resorting to the central bank\u2019s reserves to bail them out?”<\/span><\/h2>\n

* ‘If one is investing Rs 80 billion in the future of the country, why hide it from the population?<\/strong><\/span>
\nThere can be no valid reason to hide the terms and conditions of the disbursements and even less the name of the recipients’<\/span><\/h3>\n

* ‘Over the last 60 years or so, salary income as a percentage of wealth created has been on a declining trend, meaning a bigger share of the economy is going to capital instead of labour’<\/span><\/h3>\n

Our guest this week, Kugan Parapen, comments on government’s handling of the pandemic, with the spike in Covid cases, the vaccination hesitancy and the resort bubbles. He expresses concern over the end of the Support schemes and the potential increase in job losses with Workers Rights amendments appended in the Finance Bill. He roundly condemns the opacity around the MIC’s disbursements which he feels have deceitfully safeguarded shareholder interests and bank profits rather than jobs. Read on.<\/strong><\/span><\/p>\n

Mauritius Times: At a time when we are opening up to tourists, with accommodation in ‘resort bubbles’, there has been lately a four-fold spike in the number of Covid cases; schools have remained open, and our borders will be open to Mauritian nationals, residents and tourists travelling to the country for long stays as from 1 October. Is the Government doing the right thing in its management of the pandemic given the urgency to restart the economy?<\/strong><\/span><\/p>\n

Kugan Parapen:<\/strong> Government has made a major U-turn in their approach to dealing with the pandemic. It has moved from a regime which wanted to be Covid-free to one which supports a \u201cnew normal\u201d, that is a society which lives with the reality of Covid-19. The recent spike in infection rates has to do with this new normal.<\/span><\/p>\n

However, with the imminent reopening of borders, the situation could radically change. Welcoming foreigners back to our shores opens the possibility of importing new deadlier strains of the virus and if these were to contaminate the local population, the Government will have to revise its strategy. The \u2018red zone\u2019 approach does not seem to have been particularly effective and thus new strains increase the probability of lockdowns.<\/span><\/p>\n

As a country, we should hope that such a scenario does not materialise as it would be catastrophic for our economy and society.<\/span><\/p>\n

With respect to the vaccination effort, the Government has adopted a rather authoritarian approach when a more pedagogical approach would have perhaps yielded better results. Many are wary of the influence of \u2018big pharma\u2019 on world affairs and will always have doubts when it comes to resorting to their medicine. The divide between pro-vax and anti-vax is wide and the authorities should have aimed to address the concerns of a vocal minority. They have chosen a hard-line approach instead.<\/span><\/p>\n

* Rising unemployment – 50,000 according to Statistics Mauritius, but double that number according to the Opposition –, and the growing cost to the Exchequer of financing the wage & self-employed assistance schemes as well as quarantines in hotels are also adding urgency to the situation. Do you think Minister Padayachy’s measures are an effective answer to the current situation? <\/strong><\/span><\/p>\n

The measures taken by the Minister of Finance with respect to supporting wages for employees and self-employed since the outbreak of the Covid-19 virus have artificially kept the unemployment rate at low levels. This has been a strategy which has been mirrored by most governments around the world and which was justified given the situation. What is of more concern however is what comes next.<\/span><\/p>\n

We are concerned with the lack of economic vision and lack of boldness to tackle chronic structural economic imbalances. Youth unemployment has been a major issue for many years now and I am afraid that without the emergence of new modern and sustainable pillars as well as broad based reforms, the unemployment problem is here to stay.<\/span><\/p>\n

* Trade-unionists have taken issue with the proposals contained in the Finance Bill relating to the Workers Rights Act 2019, the amendment of which will allow any employer, who “intends to reduce the number of workers in his employment on the ground of restructuring for financial reasons”, to go directly to the Redundancy Board instead of applying for financial assistance. Why would any government want to do that since it might make it easier for firing employees?<\/strong><\/span><\/p>\n

Had it not been for trade unionists, the amendments to the Workers Rights Act in the wake of Covid-19 would have led to massive layoffs. It is under the pressure of trade unions and leftist parties that the government moved to freeze layoffs.<\/span><\/p>\n

Until now, a company could not go to the Redundancy Board without first going to the Mauritius Investment Corporation or the Development Bank of Mauritius to ask for support. Also, the Wage Assistance scheme alleviated to a large extent the salary burden of businesses. These extraordinary measures are about to lapse, and the employees are about to be confronted with the harsh reality of the amended Workers Rights Act. There is genuine concern among trade unions that unemployment will spike in coming months.<\/span><\/p>\n

Is it fair that a company, which has been supported by public funds during the economic downturn, is allowed to lay off employees as part of a restructuring programme? The Redundancy Board will play a crucial role – as the onus will be on it to determine the genuine cases from the others.<\/span><\/p>\n

* It’s said that restructuring is often a synonym for job losses which can have tragic consequences on the social fabric. How plausible do you think is the argument about impending social unrest in the Mauritian context resulting from job losses coupled with rising cost of living, and what can be done to mitigate its consequences?<\/strong><\/span><\/p>\n

Beyond doubt, there is a growing distress among the population, especially those at the bottom of the ladder. We\u2019ve heard first hand of many cases of small businesses having to shut down and witnessed a surge in \u2018beggars\u2019 on our roads. These are worrying signs indeed.<\/span><\/p>\n

By all accounts, the economic situation is unlikely to improve dramatically anytime soon and thus the vulnerability of the population will likely deteriorate further. In such a context, people can get so desperate that they resort to extreme actions. The recent rioting in South Africa is a warning of how things can unravel in such situations. It is no coincidence that the Government of South Africa is now considering granting a basic income to vulnerable groups.<\/span><\/p>\n

The Wage Assistance Scheme and the Self-Employed Assistance Scheme have helped many during the crisis and the authorities would be ill-advised to unilaterally withdraw it in the coming months. Instead, further attention should be given to those who are not entitled to the support schemes but currently find themselves in a position of vulnerability.<\/span><\/p>\n

With respect to the cost of living, it is of vital importance to quell the depreciation of the Mauritian Rupee as this has been the main contributing factor behind the loss in purchasing power.<\/span><\/p>\n

* We have learnt from the Finance minister in reply to the PNQ of the Leader of the Opposition, this week, that the MIC’s loans to the tune of Rs 30 bn to distressed enterprises would have been instrumental in saving 30,000 direct jobs and another 90,000 indirect ones — a claim rubbished by Hon Duval during the same PNQ by revelations of “fishy business” at the level of the MIC. What do you think about the minister’s assertion about its job-saving potential?<\/strong><\/span><\/p>\n

The government is misleading the population and is using the working population of the country as a scapegoat for the bailout of the corporate sector.<\/span><\/p>\n

Government has put forward the argument that the local banking sector would crash if the MIC did not intervene and inject billions in the tourism and manufacturing sector. It is worthwhile examining this supposition.<\/span><\/p>\n

Back in 2008, the United States central bank, the US Federal Reserve, bailed out several major banks as they were deemed \u2018too big to fail\u2019. Similarly, Mauritius has encountered its \u2018too big to fail\u2019 moment in 2020. And if so, why? International institutions like the International Monetary Fund raised the alarm bells on numerous occasions pre-Covid19 on the highly concentrated exposure of the banking sector to the tourism industry. They viewed it as a major risk to the financial system of the country.<\/span><\/p>\n

In spite of these warnings, little to nothing was done by the regulatory bodies to address the problem. And even less by the concerned banks. They kept on increasing their exposure to the industry without any proper risk management adequacy. Even worse, through their investment banking arms, they shifted the risk to their clients.<\/span><\/p>\n

It needs to be clear in the reader\u2019s mind that bankruptcy does not always result in massive layoffs. In the present case, had the hotel groups, especially those which were the most heavily indebted gone under water, there would have been a restructuring with a wipe out of the hotels\u2019 shareholding and a likely significant haircut on the debt owed by these entities. This would have resulted in domestic banks registering massive losses on their debt exposure to the tourism industry (bad debt) and this would have meant significant losses for the banks.<\/span><\/p>\n

Tourism is generally a very viable and lucrative business and there can be little doubt that there would have been many investors lining up to take over the hotel groups that have gone bankrupt. The impact on employment in this industry would have been minimal. By using jobs as a shield, Padayachy is justifying the unjustifiable.<\/span><\/p>\n

The MIC did not save jobs, it saved the capital of the shareholders and the profitability of the banks. Is it normal that banks are still reporting billions in profits when the State is resorting to the central bank\u2019s reserves to bail them out?<\/span><\/p>\n

Was the financial system ever at risk of collapsing? Should the burden have been shared between the private sector and the public sector? The MIC is a textbook case of socialisation of losses and privatisation of profits. And Padayachy is its architect. So much for the self-proclaimed apostle of the poor.<\/span><\/p>\n

* It’s not known whether Lord Desai left the MIC for those reasons, but the fact of the matter is that the terms and conditions of the disbursements of the MIC, shielded from parliamentary scrutiny and the Director of Audit’s oversight, will not be made available to the public for reasons of confidentiality. What’s your take on that? <\/strong><\/span><\/p>\n

The Mauritius Investment Corporation was unveiled as the vehicle which would put Mauritius on the road to recovery and propel it in the future. In its mission statement on its website, the MIC is described as: \u201cGeared towards the future in mind, the MIC is a strategic accelerator, investing to ensure the nation\u2019s wealth enhancement. The MIC is committed to invest in strategic projects aiming at making Mauritius an innovation-driven and self-sufficient economy.\u201d<\/span><\/p>\n

We should not underestimate the size of the funds (Rs 80 bn) available to the MIC – it represents at least 12.5% of the Gross Domestic Product of Mauritius. Should the MIC fail to live up to its glorified expectations, it would represent, by far, the largest amount of money thrown down the drain by any government in our history.<\/span><\/p>\n

Based on the Private Notice Question put forward in Parliament on the MIC and its lack of transparency, there is serious cause for concern. It reminds me of the Build Mauritius Fund (BMF) scandal. In 2014, the newly elected government announced with much fanfare the creation of the BMF – the aim of which was to modernise the country\u2019s infrastructure and ensure that every household could have access to water 24\/7. Only a few years later, the BMF was closed and the funds transferred to the Consolidated Fund of the government.<\/span><\/p>\n

In the current situation, one can unfortunately foresee a misappropriation of funds on the horizon, in spite of the assurance given that the funds would be used to shape the future of this country.<\/span><\/p>\n

The opacity cloak around the disbursements of the MIC of some Rs 30 billion is certainly a red flag. If one is investing in the future of the country, why hide it from the population? The clause of confidentiality put forward by the government and even by the Speaker of the National Assembly is void. There can be no valid reason to hide from the population the terms and conditions of the disbursements and even less the name of the recipients.<\/span><\/p>\n

Bailout packages are not a Mauritian invention and history suggests that there should be total transparency on the matter. Taxpayers have a legitimate right to know how their tax rupees are being spent.<\/span><\/p>\n

* Another hot issue these days concerns the controversial Social Contribution and Social Benefits Bill, which is welcomed as a “solidarity tax” by some, but to others it’s considered “discriminatory” against private sector employees. What are your views on this debate, and do you think the SCSB will address the issue of the sustainability of our pension system? <\/strong><\/span><\/p>\n

That one should repeal an act as far reaching as the CSG Act after only one year since its promulgation does not reflect well on the professionalism and rigorosity of the Minister of Finance and the government in general. We get the impression that the CSG was a fast-tracked measure in last year\u2019s budget and that it is now being tinkered with. Does it make it more palatable? We doubt it.<\/span><\/p>\n

With the demise of the National Pension Fund, the end of the individual pension scheme is all but confirmed. The grand experiment of a publicly managed pension system has crashed spectacularly. How can we talk of sustainability when the pension system you are referring to is no more?<\/span><\/p>\n

Many still believe that the contribution that employees and employers are paying will go towards a pension scheme. Disillusionment awaits sadly. Padayachy has been shrewd in implementing the transition. By referring to the new social benefit as a retirement benefit, he has confounded many people, especially those who would have been entitled to the NPF pension scheme down the line.<\/span><\/p>\n

In a nutshell, the individual contributions to a pension scheme have vanished and the new contributions can be viewed as a direct tax on income. In an overly simplistic way, one can consider the income tax to have risen from 15% to at least 16.5%.<\/span><\/p>\n

I have been a keen advocate for progressive taxes given the light fiscal regime in place but is the trade-off worth it in this particular case? There were suggestions that a collective pension scheme will replace the NPF, but this definitely is not the case. The SCSB Bill makes provision for the contributions by both employees and employers to go to the Consolidated Fund. Hence those funds will not be managed as a pension scheme but rather used by governments to fund public expenditure.<\/span><\/p>\n

Also, over the last 60 years or so, salary income as a percentage of wealth created has been on a declining trend, meaning a bigger share of the economy is going to capital instead of labour. Thus, in terms of progressivity, taxing corporate profits would make more sense. Last but not least, employers who pay higher salaries are being taxed at twice the rate as those employers who pay lower salaries. One could argue that it is somewhat unfair that those employers who exploit the labour force by paying low salaries get away with a lower social contribution.<\/span><\/p>\n

Those who rooted for the incumbent government in 2019 were never told the whole truth. What is being done now — this is something which was never part of the manifesto of the government alliance — may smack of a massive misleading of the population. Unfortunately, the population was taken in by the political rhetoric, and they followed blindly – much to their discomfiture today.<\/span><\/p>\n

\n

* Published in print edition on 23 July 2021<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

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