The concept of gifts, loans, public/private partnerships (PPP), and investments, and the reluctance to define their true status in specific cases presents a clear opportunity for obfuscation and clouding of topics that should be transparent. The clarity is very necessary for accounting for public funds, and in many ways affects the standard accounting procedures when dealing with them. The gift is quite easily understood for at some time in their lives, many people have given or received in this manner. I bought my friend a pen for their birthday, wrapped it up, and delivered it with a nice card, and this was happily received. The ownership of the pen is transferred from me (the buyer) to my friend (the new owner), and there is no need for accounts receivable or payable to be generated.
However although nothing is owed, there may be an implicit payback by services or favours at a future date. So if Mr X decided to buy Miss Y a Range Rover for her birthday, then perhaps it was with the prospect of getting some interesting favour or service in the future. Clearly this is a gift with implications.
Loans are also familiar to most persons, as they constitute a contract, based on a value, consideration, acceptance, and a responsibility to repay under certain agreed terms. In some cases there may be guarantees given by pledging assets, or simply secured by a personal reputation that satisfies the lender.
A motor vehicle loan is usually secured by a lien on the vehicle; a home loan by mortgage; or sometimes by personal guarantees where other unencumbered assets can be established. A credit card is also a loan facility with an obligation to repay that may not be secured by real assets.
Similarly, loans from individuals (Government bonds), foreign governments, and international agencies (IMF, World Bank, IDB) require the same consideration for repayment. Furthermore, the approval by the international agencies is like a character reference and allows other lenders to feel more secure without demanding collateral. These are usually stated as Country Credit Ratings.
In the case of the PetroCaribe this is a loan with extended credit facilities based on the price of oil supplied at a given time. There is a portion that is paid on receipt, and an extended period (over two decades) at low interest rates. However there is a debt established which can be repaid in cash, or in agreed goods and services. The exports are paid for by the Government of Jamaica to the exporter in Jamaican dollars from the Fund established by the PetroCaribe Agreement. In simple terms we can repay a lot of debt to Venezuela by working efficiently in Jamaica, and thereby reduce the burden on our grandchildren through our exports.
PPPs imply the pooling of two or more resources to create a value that is expected to surpass the individual values of the resources (a bit like 1+1=3). In the private sector (outside of public funds) these may be mergers, partnerships, joint ventures, or similar agreements. In PPP transactions the resources or expertise (specific talents/experience) involve a private entity and a government or government corporation.
So gifts, loans, and PPPs, may constitute simple transactions, but when they are designed to produce a future benefit/profit, then they are characterised as being “investments”. This creates the opportunity (if the future benefits are not specified), for obfuscation or an opaque transaction. This breeds rumours, false/fake news, prejudice, and accusations that become viral in this world of instant communication, and that damage reputations.
The ONLY protection is full transparency in describing investment activities, especially those concerning public funds.
If a company is building a factory that requires no public funds then that is a private matter that only requires some exposure to shareholders, and may exclude the media (unless they require some publicity). If a private contractor builds the factory and is paid, then they have no part in the ownership or usage of the building. This is like your home, for if the builder is paid then their relationship only has to deal with warranties provided for defective work.
If a private company buys Government assets then there is a requirement for transparency in the transaction. This is simply a sale.
If the Government enters an arrangement with a contractor to build a highway, and the Government provides the land for the highway, what is the value of the land provided? If in addition the Government gives the contractor additional land, has the highway been fully paid for by the people of the country? Who then owns the highway, and who should be the ones setting and collecting the tolls?
If the Government enters a PPP with a contractor and provides the land for the highway, and also gives additional land to the contractor, what is their share of ownership? Do we pay a toll exclusively for maintenance?
The same holds true for prime lands for hotels, airports, or cruise shipping piers. The Government may announce these as investments so as to appear to be responsible for development, but in reality it may only be a sale. If, in fact, they are an investment, then the perceived future value must be accounted formally in an annual report that compares investment forecasts with reality. This will make their stewardship transparent.
Yes, public officials need to adopt the virtues of integrity and honesty in order to survive the awareness of an educated and watchful young population that you helped to create, or be “hoisted on your own petard”. Investment is serious business that must produce future benefits that yield exceptional results. To do this well there must be a clear accounting for the project.