The Wall Street Journal has reported:
Standard & Poor's Ratings Services lowered its long-term sovereign rating on the Isle of Man from triple-A, the firm's highest rating, citing the British crown dependency's external vulnerabilities and lack of monetary flexibility as credit weaknesses.
S&P lowered the Isle of Man's local and foreign currency long-term sovereign ratings one notch to double-A plus, which denotes high credit quality, from triple-A, which denotes the highest credit quality. The outlook is stable.
So just as the Isle of Man is running into real trouble with a shortage of VAT, a shortage of offshore business as recession hits the world and as demand on its public finance increases so that borrowing becomes a real prospect for the first time S&P goes and downgrades it, spoiling their perpetual argument that they can always borrow their way out of their crisis (although that would require UK consent, a change in their law and decidedly gullible lenders).
Amusingly, the WSJ adds:
S&P noted the island's ratings could come under pressure if its offshore financial sector loses business to competitors, without offsetting economic and fiscal adjustments. Isle of Man has a high income level, strong fiscal balance sheet and political stability, but the firm noted the island's ratings are constrained by its undiversified small economy, which makes it more vulnerable to external shocks. The firm also said it expects GDP per capita growth to be lower over the next few years, in part due to lower growth in the U.K.
Or the VAT crisis has really hit home and tax haven business has little prospect for growth. I make no apologies for either if I've had any influence at all. And in conclusion they say:
However, the island's ability to diversify its economy further away from financial-sector-related activities could potentially trigger an upgrade, S&P said.
Try Plan B, I say. I wrote it for Jersey, but you're welcome to it. Looks like S&P are saying it's time to look at it.
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I think it is more the Isle of Man is being dragged down by the failing uk.
is there no situation you cannot blame on others?
“ratings agency knowingly seek to undermine stability.”
I wonder who said that 🙂
You may wish to look at this one too: http://www.channelonline.tv/channelonline/DisplayArticle.asp?ID=496961
The sooner all jurisdictions learn that they should aim towards self-sufficiency, the better. Island communities are at the end of supply chains and any food and energy shortages will be felt acutely. Too much emphasis has been placed on economic growth: if you have the wherewithal to feed, heat, educate and provide decent (though not necessarily world leading) healthcare for your population that is the main thing. But for an Island community you need to control the population.
Quite so Roger. But the elite in power in the Isle of Man (and no doubt also in Jersey & Guernsey) show scant real concern for their population, any more than they do for the (once) innocent non-tax-dodgers and pensioners who fell for their glossy publicity and deposited their hard-won savings there – and are now rejected by those who were once so glad to welcome them and branded as tax-dodgers by everyone else.
Maybe the tide is beginning to turn and they will come to regret their greed and self-interest. The concern of course is that, as always, those responsible will not be the ones to bear the brunt of the austerity when it comes. I fear for the ordinary Manx people who may just be beginning to realise that have been conned too.
Ah, I thought you were adding that Guernsey have been downgraded by S&P – exactly as the IoM, from AAA to AA+
“S&P noted the island’s ratings could come under pressure if its offshore financial sector loses business to competitors, without offsetting economic and fiscal adjustments.”:
Meanwhile, with the uncritical help of the Daily Telegraph:
“The Isle of Man is launching an international push to persuade more British expats and international companies to domicile their pensions on the island. The island’s financial promotional body, the Isle of Man Finance Partnership, has joined forces with the Isle of Man Association of Pension Scheme Providers (APSP) in this initiative. The main target of the campaign will be financial advisers and its buzz phrase will be “international retirement solutions”. ”
Judging by the avalanche of enraged comments this has provoked from the victims of recent disasters in the IOM financial sector (KSF, Premier Shareholders), they may have an uphill struggle on their hands.
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/8859610/Trust-us-says-the-Isle-of-Man-were-the-pension-place.html
Unlike the Telegraph, Shelter Offshore has been “looking beyond the headlines” and finds all is perhaps not as well as Mr Bell and his cronies would have us believe:
“Just reading the positive promotion of the Isle of Man’s position at the moment, one could very easily be forgiven for thinking that this is a progressive, secure, open and transparent jurisdiction, with investors’ best interests at heart. However, you needn’t scrape too far beneath the headlines to see an entirely different side to the story.”
http://www.shelteroffshore.com/index.php/2/dont-bank-on-isle-of-man-11132
@anrigaut
You have the 100% support of the PSG in everything you have posted.
The Isle of Man government and its “resident” finance industry has much to answer for.
In the past and the present; and often in cases which have never been properly publicised because victims (frequently pensioners) lacked the wealth, the acumen or the energy (in the case of the elderly) to pursue the perpetrators of deception..
Let’s ensure that the WHOLE world is told:-
.
NEVER BANK OR INVEST A SINGLE PENNY ON THE ISLE OF MAN
There are some commentators who pay little heed to the ratings agencies:
http://www.taxresearch.org.uk/Blog/2011/07/05/tell-sp-where-to-go/ for example.
The Isle of Man still has the same rating as the USA, and better than Spain and many of its European neighbours
Your not trying to spin this story are you Richard for your own purposes?
Of course I’m spinning
Who doesn’t?
I don’t change my opinion of rating agencies, at all
But the message to the IoM is also clear – by the time you need to borrow you want be able to do so
And that’s a perfectly valid point
Who doesn’t spin – Well I guess big four Auditing firms giving their audit opinions – wait that’s wrong – I guess you were right after all.
Anyway… (i) How do you know when the IoM will decide to borrow, it could be tomorrow and if so (ii) are you saying that AA+ rated “sovereigns” won’t be able to borrow.
I would say the likely hood of the IOM establishment of adopting Plan B ranges from infinitesimally small to zero.
If the Isle of Man had stepped in quickly to deal with the failure of Kaupthing Singer and Friedlander (IOM), with whom I had a deposit not an investment, they would have had thousands of grateful depositors and possibly a financial industry in better shape. Instead their Chief Minister claimed that “As far as the situation for the Isle of Man is concerned, we are accepting our responsibilities and endeavouring to rectify the situation.” at the United Kingdom Treasury Select Committee on the Banking Crisis, 3rd February 2009. They then essentially ended up doing nothing. The IOM now has thousands of angry ex-depositors who are telling the world “Don’t Bank on the Isle of Man”.
I agree
The chance is zero
And your message is a sound one as a result
I support the message.
But would rate the chances of change at slightly above zero. Maybe I’m too much of an optimist, but comments like this on the manxforums website suggest all may not be lost:
“We desparately need to deversify our economy & direct some of the long millions that go into subsidising the finace sector into building more worthy, sustainable & moral industries. It is always very easy to say we are doomed without the FS, that there is nothing else here but I believe that kind of attitude underestimates the Manx people considerably. I can see why certain people believe it, especially those who’ve made lots of money from the FS but personal greed should not be put before the good of our nation & the demise of the FS can only be good for our national & cultural identity and even our long term economy.”
Monkey boy at http://www.manxforums.com/forums/index.php?/topic/49432-tax-havens/page__st__180
Still a minority view, but possibly gaining ground and, unlike the IOM Chief Minister, no-one posting on this forum in a thread entitled “Tax Havens” is any doubt that the IOM is indeed a tax haven, a fact now being openly admitted and with which some at least are clearly uneasy.
That’s the game. Ratings agencies come along and downgrade sovereign debt, adding hugely to interest payments and leaving it easier for speculators to make bets against your currency and create havoc.
And when countries are on the down swing of their business cycle, banks and corporations can step in and pick up national assets dirt cheap.
It’s a scam and Europe, the UK and the US are all falling for it.
I fear you’re right
But I hope there’s no insider dealing…
Although if done through an offshore account who knows?
I’m sure Steveos right & I don’t think we can afford to be relaxed about this one.
My response, simply, would be to legislate that debts arising from foreign exchange movements are all “debts of honour”. They are, after all, pure gambling. That way, if the loser wants to do the right thing & pay then all well & good but there is no liability enforceable in law.
That’s the way I do business with my bookie & I see no reason it should be different for other gambling debts.
Think that may reduce “arbitrage” rather sharpish !
Not really sure anyone should be bothered about what S&P say. They didn’t exactly show themselves to be competent during the last financial crisis, which was further backed up by mistakenly downgrading France yesterday!
Still, if the IOM hadn’t started the race to the bottom in corp tax maybe they wouldn’t be in this situation…….
Ricahrd, whilst you are commenting on the S&P Rating you might also like to comment on this (quoted from the IOM newspaper):
“IT’S official, it seems — we are not a tax haven.
The confirmation has come from no less a person than President Nicolas Sarkozy, a long term critic of the offshores.
In a report delivered to the G20 summit in Cannes, the Isle of Man was named as one of only eight jurisdictions in the world hailed for the highest standards in tax transparency.
And now, based on that same Global Forums report, French President Sarkozy has named the 11 countries that are considered by the world’s leading economies as ‘tax havens’.
Sarkozy says the report to the G20 identifies Antigua, Barbados, Botswana, Brunei, Panama, the Seychelles, Trinidad and Tobago, Uruguay and Vanuatu as lacking legal systems that allow exchange of information for tax purposes.”
Apparently the IOM has significantly greater tax transparency than the United Kingdom! Perhaps you could comment on why the UK is not rated as highly as the IOM?
2 reasons
1) The UK actually does things in reality and fails as a result, the IoM only does most things in theory and so can’t fail
2) The UK does need to get its act together on its company registry – which is crap to be polite to it, as I have probably said more publicly than just about anyone else
Remember TJN ranks the UK a much more important tax haven then the IoM so your comment just hints of paranoia
@Paul Kerruish-Kelly You note:-
“Apparently the IOM has significantly greater tax transparency than the United Kingdom!”
So the thousands of Isle of Man registered companies supported by large squads of bankers, lawyers, accountants are all camped out there for the weather or err… the sheep?
They are certainly not engaged in the business of making the Isle of Man transparent and relying on the right-wing President Nicolas Sarkozy as an adjudicator in this matter is about as bizarre as asking the ultra left-wing Carla Bruni, for an opinion.
Or Silvio Berlusconi
PSG – you’re right of course – the test is set up by the OECD using wholly inadequate criteria
PSG – of course you are right. Well said.
As one regular contributor to the manxforums website recently posted: “Are we kidding ourselves? We know we are a tax haven. It’s how we earn a living. We may wish it were not so but there it is.”
On that site not known for its left-wing tendencies, no-one rushed forward to deny this frank admission, though the majority feeling still seems to turn around “OK, maybe its not ideal, but what else can we do?”
http://www.manxforums.com/forums/index.php?/topic/49432-tax-havens/page__st__150
Interestingly though, the Department of Economic Development has just announced a new 3-year strategy to revive the island’s much neglected tourist industry. Could it be that – with the writing plainly on the wall – the need for a plan B is beginning to be taken seriously?
http://www.iomtoday.co.im/news/isle-of-man-news/what_can_the_island_do_to_boost_tourism_1_3958077
Maybe I’m ignorant in matters of finance, but does the Isle of Man need to borrow with its reserves, or are they all invested? Surely if not, the Island will be affected little more than from a PR point of view?
It’s just a question, I’m not making comments either way.
They don’t need to borrow now
But the chance they might has increased – largely due to their inability to manage the VAT adjustment
And the message is clear – byt the time they need to borrow they won’t be able to do so
I’m a little unclear on the borrowing question. I understand that the IOM has corporatised many players such as the water authority, electricity generator and distributor and the equivalent of town councils.. which did borrow.. to the tune of hundreds of millions of pounds. So although the IOM Government might not be allowed to borrow.. these corporatised bodies did. I think they borrowed when the IOM Govt thought they could use the generous VAT share to repay the loans.
Tell me more
Can you prove the borrowing?
I read a little about the borrowing on the iomtoday website. http://www.iomtoday.co.im/news/isle-of-man-news/mea_must_make_plan_to_repay_huge_borrowings_1_1743761
and http://www.iomtoday.co.im/news/politics/mea_chief_chose_not_to_reveal_loans_1_2796272 and from Manx Herald http://www.manxherald.com/index.php/politics/529.html
I must admit, I thought I had read of a larger figure, but its still in the hundreds of millions. As for borrowing by other corporate bodies.. I only have unreferencable gossip to recall so perhaps I should be a little more careful with my choice of words, back peddle, and write that I have heard it “alleged”.. but paragraph 10 of the Manx Herald article does make me think if I hear some gossip about corporatised bodies borrowing money.. that since its apparently not against the law..maybe its plausible to believe it might have happened in the past and may be happening now, and might happening in the future as well….???
Ahh.. found something in the accounts for Douglas Borough Council. http://www.douglas.gov.im/btdownloads.asp Page 20 of the Statement of Accounts for 2011 shows short term borrowing of £4.5 million and long term borrowings of £60 million.
And when I looked for the similar statement of accounts for the MEA the stated figure for net borrowing (page 30) in 2010 is £368 million. http://www.gov.im/mea/about/financial.xml
So I guess I’m believing what I wrote previously, and wondering does it matter if the IOM Government cannot borrow, if the corporatised bodies (if I have classified them properly) already can and do, since ultimately when a population of approximately 80,000 (is 40,000 customers a fair assumption?) on the Isle of Man have to repay the £368 million borrowed by the MEA and realise they cannot afford to buy electricity any more.. won’t it be the IOM Government that is expected to pay off the loan?
Isle of Man Sewerage and Water Authority account for 2010 http://www.gov.im/water/reports.xml?menuid= page 22 shows short term borrowing of £2m and long term of £75m. In my opinion it seems like smoke and mirrors for anyone to claim the IOM Government does not borrow when these bodies, owned by the IOM Government and with political appointees in their boardroom… do.
Oh, flipping through the MEA accounts it seems of the £350m+ borrowing, about £300m is borrowed from the IOM Government. Which I guess makes it seem not quite as bad.. as I guess if the IOM Govt leant the MEA its own money, then it probably had it laying around somewhere looking for a use… I think I’ll stop rummaging as I don’t think I’m that good at it!
@Spoon of Internet
You write: – “I think I’ll stop rummaging as I don’t think I’m that good at it!”
No one can possibly plumb the dark, depths of the Isle of Man government; the island has no Freedom-of-Information Act and the population is kept comatose largely on bxllshit.
Buying a Manx Dictionary may help: Here you will learn that “low” means “high” the word “professional” means “amateur” and “capital security” and “capital guarantees” are meaningless.
This dictionary should be issued to everyone, particularly pensioners, thinking of banking or investing on the Isle of Man.
Why is Jersey not rated by Standard and Poor?
Because a) they don’t borrow and b) they didn’t think it worth paying £25k or more for PR as a result
In fairness, that seems like a good decision, for once