Recent events continue to underscore the different approach to public finances between the ruling PLP Government and the United Bermuda Party, as Bermuda lurches from one disaster to another.

Our approach is based upon the principle of stewardship, which is about being responsible for someone else’s property. The level of care and prudence demanded in handling someone else’s money is far greater than one would require for one’s own.

Moreover, as a steward for someone else’s assets, it is the steward who is accountable for what happens to it. Unfortunately, there has been zero accountability for the long string of mistakes made by this Finance Minister. With the PLP, the buck doesn’t appear to stop anywhere.

Last week, Government reported that the overall Bermuda economy shrank 8.1 percent in 2009. In the world of economics 8.1 percent is an exceedingly large number. That means that, after taking inflation into account, in a mere12 months, the Bermuda economy shrank back to about the size it was in 2005. This is a breathtaking and frightening retreat! It is the largest setback to the local economy since record-keeping began, and I dare say since the outbreak of the Second World War.

The Finance Minister has, predictably, blamed it all on the global recession. No accountability there. The table below tells a different story.

None of the large nations the Minister likes to compare us to have had anything close to the kind of drop we have had, and even island nations to our south have outperformed Bermuda handsomely.

There are some insights we can glean from the table above:

l Larger more diversified nations weather economic storms better than small, poorly diversified countries;

l Bermuda has performed worse than economies similar to ours.

l Only Ireland has a performance in the same order of magnitude as Bermuda, and its problems have been exacerbated by massively failed banks.

My oft-repeated analogy of the comparison of how much better a large eight-engine B-52 deals with adverse conditions than a single engine Cessna is still perfectly appropriate. This data backs up the case. A small undiversified economy like ours (the single engine Cessna) is much more vulnerable than larger diversified economies (the eight engine B-52).

That means we cannot use debt/GDP ratios to hoodwink Bermudians into thinking that the Government’s debt levels are acceptable. But this is precisely what the Premier/Finance Minister has done time and again. The source of the tax revenues the Bermuda government uses to service its debt is from our economy, like any other country. The difference is that Bermuda’s undiversified economy is at greater risk than large diversified ones, therefore so is the tax revenue.

Common sense therefore dictates two courses of action to reduce that risk:

? Execute sustained efforts to diversify the economy; and

?Be super cautious on debt because other country’s debt/GDP ratios don’t apply to us. Debt/GDP ratios are not risk adjusted. They should be but they’re not.

Unfortunately, this government has failed us on both these common sense approaches. There has been no serious effort to diversify Bermuda’s economy and they are still in denial on debt.

Then there’s the issue of financial planning. If you had a financial planner who forecast that your income would decline by 2.5 percent and then your income actually fell by 8.1 percent you would be looking for a new financial planner. How could the PLP get Bermuda’s forecasting so wrong? I wish I knew the answer to that question, but I don’t. We may never know because no one takes responsibility.

Planning, budgeting and forecasting is a difficult business, but that’s the job of the Finance Ministry, as it is with finance ministries anywhere in the world. Failure to properly forecast the economy’s performance has major consequences for everybody in the country, from the corporate boardroom to the family budget. In our case:

n Government badly overestimated its revenue stream because revenues are dependent on the rate of growth of the economy. It had to raise taxes to compensate for that error.

n But knowing the profound weakness in 2009, how realistic does the forecast growth of 1% for 2010 now appear? In view of the weakness in 2009, that estimate, in my view, has no chance of being close to the mark. That means that revenues for this year have been overestimated once more.

n There are promises to make cuts next year but without major cuts in THIS year’s spending (a year that’s almost gone) another government current account deficit looms large, and the debt will rise again.

n Either that or another tax hike is in the offing.

What does this mean to average Bermudians?

First, the psychological aspect of the economy is crucial: optimism promotes growth and prosperity but pessimism breeds stagnation and decline. Unrealistic optimism such as we saw in the last two Government budgets is dangerous and the minister and her officials have plenty of blame to shoulder in this regard. So we must remain optimistic, but also be patient and determined as the immediate future will remain difficult.

Second, I urge families, as I have repeatedly urged the government, to live within their means. Control spending wherever possible.

Third, jobs will continue to be scarce, so if you have one, hold on to it.

Fourth, certain banking institutions extended 100 percent mortgages during the period of economic overheating. Some of those mortgages will now be in trouble, as the “irrational exuberance” of both banker and borrower have proven to be, well, irrational. This will put more downward pressure on home prices and rents. Landlords beware!

The new KEMH project will help the construction sector. It will also bring foreign exchange into the local economy and give it some levity. However, it should always be remembered that this is borrowed foreign exchange, not the earned kind. Borrowed foreign exchange has to be repaid, in this case by the users of the hospital, i.e. the Bermuda public.

I comeback to my oft-repeated point of view: If Bermuda’s economy is a wagon, it’s a one horse wagon. That horse is highly intelligent, not dumb, and it will not tolerate getting beaten. So the choice between beating that horse and feeding it is an easy one. We must feed it! As that horse strengthens it will provide us with the earned foreign exchange we need to employ, clothe, feed, house and educate our people.

It is Government’s responsibility to enable that process. So far they have failed miserably.