by Shadow Finance Minister Grant Gibbons.

To His Honour the Speaker and Members of the Honourable House of Assembly: Mr. Speaker, I am pleased to present to this Honourable House the United Bermuda Party reply to the 1999/2000 Budget Statement. I believe it is important to begin by reminding Honourable Members of where Bermuda's economy stood one year ago, under the stewardship of the United Bermuda Party Government.

At that time, we stated that successive United Bermuda Party Governments had never lost sight of the following fundamental economic principles: living within Bermuda's means, balanced budgets, borrowing only for capital account, a low and predictable tax system and no income tax. By putting these principles into practice, Bermuda's economy, as we reported last year, was robust, and our economic indicators, including growth, balance of payments and inflation, were outstanding.

We have heard in the PLP Budget Statement that Bermuda's economic performance over the last year, under management by the United Bermuda Party Government, continued to be outstanding. The key indicators showed real growth in GDP of 4.3 percent in the fiscal year ended March 31, 1998, a performance that exceeded that of the major industrialised countries. Since the 1992/93 recession, the economy has grown annually on average by 4.1 percent in real terms. The rate of inflation has been low and stable, averaging 2.0 percent in 1998. Estimates of the balance of payments current account surplus of $171 million at the end of the third quarter, 1998, had already exceeded the very healthy surplus for the first three quarters of 1997. At the beginning of November, 1998, Moody's awarded a AAA rating on Bermuda's domestic currency.

Retail sales in 1998 exceeded 1997 results by 4.3 percent after removing the effects of inflation. Strong growth in international business spending is anticipated to continue from 1997. The construction industry saw a high rate of output, with approximately $93.5 million of total work put in place in the first three quarters of 1998. The 1999-2000 PLP Budget Statement, while acknowledging continuing structural difficulties in the tourism industry, accurately describes the economy as performing "very well''.

Mr. Speaker, This contrasts sharply with the statement of the PLP Finance Minister last September that Bermuda needed to be rescued from the "precarious position'' to which the United Bermuda Party had brought it. Indeed, as most observers will recognise, the United Bermuda Party has left the PLP Government with a "surging'' economy and an extraordinary financial base from which to operate.

This is an inheritance that must not be squandered.

The fiscal results for both revenue and expenditure for the current year 1998-1999 are excellent. For the first time in eleven years, both current and capital budgets are expected to be in balance. Government revenue for 1998-1999 is expected to exceed the budgeted number of $511.4 million by almost $20 million. The projected final expenditure of $477.2 million is within 0.4 percent of the original target of $475.1 million. The surplus on current account of $54.1 million after debt and sinking fund charges, combined with cash in hand at the beginning of the year, is more than sufficient to cover the projected capital spending of $61.7 million. Consequently, no new borrowing is anticipated in 1998-1999. The Government debt of $149 million including guarantees, as defined in the Government Loans Act, is, therefore, well under the $185 million statutory limit set in 1991. This record of solid, economic performance cannot be clouded by political rhetoric. As the PLP Government undertakes to manage Bermuda's economy, these enviable economic indicators and statistics are the standard by which Bermudians will judge the PLP Government's economic performance in the future.

Those of us on the United Bermuda Party benches wish to assure the Bermudian people that we will continue to advocate relentlessly for those economic fundamentals that have provided the foundation for Bermuda's unparalleled prosperity.

Mr. Speaker, The United Bermuda Party wishes to acknowledge that the Minister of Finance and the Finance Ministry staff have prepared a Budget that is generally reassuring. This is extremely important in order to maintain the confidence of the business community as well as those international bodies who, increasingly, sit in judgment on Bermuda's financial stability and reputation.

Most new governments use their first budget to set out their priorities and their intentions regarding economic policy. However, the Progressive Labour Party has largely missed that opportunity by substituting people-pleasing rhetoric for a complete statement of economic principles.

Exceptions are their three new commitments to keeping borrowing to ten percent of GDP, no income tax and no borrowing for current account. Since the PLP has only lately come to adopt centrist ideas that United Bermuda Party Governments have practised for years, we urge them to provide Bermuda with a more complete list of the economic principles that will guide their decision-making in the future.

EXPENDITURE AND INFLATION Mr. Speaker, One of the key ratios in any budget is the degree to which expenditure has grown from the previous year. In last year's Budget Statement, the UBP Government projected an increase in current account expenditure over the prior year of 2.9 percent, or $13.4 million dollars. By comparison, in this year's Budget Statement, the Minister of Finance is projecting current account expenditure of $511 million, which is a $35.9 million increase, or 7.4 percent, beyond the original estimate for 1998-1999. Put in other terms, this increase in expenditure is almost three times last year's increase, almost four times the rate of inflation and almost four times the projected rate of GDP growth. Alarm bells should be ringing.

There are occasions when governments choose to spend heavily in order to stimulate a cooling economy. The robust state of Bermuda's economy certainly does not require stimulation. Under our current circumstances, large increases in Government expenditure can lead to increased inflation, especially when the percentage increase significantly exceeds the current rate of inflation.

Increases beyond the natural rate of GDP growth can also overstimulate the economy.

Another reason why it is important to contain inflationary pressures is that the US rate of inflation is now below Bermuda's. When this occurs, we lose our competitive edge, because the costs of doing business and vacationing in Bermuda increase faster than similar costs in the United States. Our efforts to rejuvenate tourism become even more difficult.

Mr. Speaker, In past years, spending increases of the magnitude represented in this Budget could only have been supported by tax increases, a situation known in more familiar terms as "tax and spend''. In the PLP Budget, however, we find the spend without the tax, a situation only made possible by the United Bermuda Party legacy of strong revenue growth, which made tax increases unnecessary.

Nonetheless, the United Bermuda Party is concerned that the increase in spending in this Budget will put inflationary pressure on Bermuda's economy.

This would be a most unfortunate turn of events, contrasting sharply with the Finance Minister's stated intention to support policies leading to low inflation.

EXTERNAL ECONOMIC CONSIDERATIONS Mr. Speaker, Bermuda is not an island economically. The vast majority of jobs, Government revenue and the foreign currency we earn are generated by the services we provide to those based outside Bermuda, whether they be visitors or international business. Similarly, we only have to look back to the recession of the early 1990s to see how the economic performance of our business partners impacts Bermuda's economy.

As we outlined in last year's Budget, the continuing advance of globalisation has been a double-edged sword, both broadening markets and creating instability with rapid capital flows and impacts on exchange rates and financial systems. Since then, the Southeast Asian economic crisis has deepened and spread. The virtual collapse of Russia's financial and monetary system, followed by an exchange-rate crisis in Brazil and instability in other South American capital markets, has had a significant impact on the economies and people in those regions. Questions about an adequate economic and banking recovery programme for Japan have added further insecurity.

Mr. Speaker, Two-fifths of the world is currently in recession.

The devastating human impact of these economic events and the volatility of financial markets has led to calls for a new international financial architecture to better manage the process of globalization.

Recognising that a single voice can have only minimal impact on global finance, countries have turned to international bodies, such as the OECD and the International Monetary Fund, to address their collective concerns. Their issues include financial instability, money laundering and eroding tax bases.

To date, these international groups have had more success in identifying problems in the workings of global markets than they have had in finding solutions.

Needless to say, there has been a search for villains in this story. Various international bodies have pointed the finger at sloppy financial supervision, offshore financial centers and, more recently, hedge funds as contributing to the instability. In the last year, Bermuda has defended itself from accusations of fiscal irresponsibility. The results of the United Bermuda Party Government's submissions to the OECD and the European Union are not yet known, but our original request for a face-to-face meeting was granted.

Fortunately for Bermuda, we are dependent for most of our business on the United States, whose economy is still healthy and performed better than expected in the last quarter of 1998. However, many believe that the US economy will slow in 1999 and that a stock market correction is likely. A number of indicators in 1998, including liquidity problems in certain financial sectors, increasing cutbacks in corporate capital spending and job losses more than 50 percent above the prior year, point to a slowing of the economy ahead. The US Council of Economic Advisors February report forecasts that real growth will slow from 3.9 percent in 1998 to 2 percent in 1999.

Indeed, Chairman of the US Federal Reserve Bank Alan Greenspan said on February 23rd that the US economy "appears stretched in a number of directions'' and that there are "considerable upside and downside risks to the economic outlook''.

Bermuda must heed these warnings. The eventual impact of uncertain financial markets is likely to be a slowdown in US consumer spending. A significant market correction in 1999 could impact negatively on discretionary spending on travel, further stressing Bermuda's tourism industry. Financial instability could also affect the health of our international business sector, with consequent loss of jobs. During times of instability there is a flight to quality by investors, who are less likely to invest in riskier capital projects, particularly those offshore.

Given these economic trends and increasing calls for restructuring the global financial architecture, the United Bermuda Party offers the following six economic guidelines for Bermuda going forward.

First, our Government's capital and current expenditure as well as revenue and debt management should be prudent and reflect the possibility of an economic downturn.

Second, we should ensure that our regulatory and supervisory legislative programme incorporates standards set by international financial organizations, such as the Basle Banking Supervisors.

Third, we should recognize that many onshore jurisdictions with whom we do business are adopting transparency and disclosure guidelines which Bermuda must carefully balance against the need to maintain the integrity of its economy.

Fourth, Government and the private sector together must defend Bermuda's financial reputation before international bodies in order to differentiate us from less well respected financial jurisdictions.

Fifth, we must continue to be sensitive to the needs of our customers, whether they be visitors or international business, as globalisation will continue to generate more competition and more competitive operating requirements.

Sixth, Bermuda must continue to invest in the education and retraining of our people in order to compete successfully on the world stage. Mr. Speaker, We know that whether we like it or not, globalisation is here to stay. Driven by technology, the pace of globalisation is daunting. Windows of economic and financial opportunity open and close quickly. The United Bermuda Party believes it is no longer appropriate for governments to take a wait-and-see approach. They must be proactive partners with the private sector and clearly understand their responsibilities in creating an attractive economic environment. Inactivity on economic issues is falsely reassuring and carries a high price in missed opportunities.

Indeed, one could regard the 1999-2000 PLP Budget as a missed opportunity, as notable for what was left out as for what was included. Last year, the PLP stated that "...we operate in an extremely competitive international business environment and he who wavers gets left behind''. Unfortunately, the PLP Government has wavered and hesitated, and Bermuda is getting left behind.