Animal Farm | Certainties and methodical doubts!

Albano Martins

1. In early April, I published my forecast of Macau’s inflation for March. The official figures were only to be released on April 20. My forecast was 1.62 percent.

The reason appeared simple, for after the Chinese New Year, prices would return to the normality of a world where people show some respect for each other: festive times have long encouraged greed.

As inflation was 1.46 percent in February, how could I explain such an increase, if the index fell in March? The explanation was obvious, it resulted from the calculation process itself, since inflation is measured by the average CPI variation of the last twelve months: a simple exercise of common sense and a little bit of mathematics.

I concluded that the CPI (General) could fall in March (as it almost always does after the Chinese New Year), but inflation would be much more robust than the 1.46 percentage points recorded in February. However, if I were to be deceived and there was no such fall in the CPI (General), we could have a much weightier March value, in the order of 1.70 percentage points.

I did not follow my gut to put these numbers together, for intuition does not count for much in these exercises.

Inflation data released for March, was – guess what – 1.62 percent!

2. We have come to perceive how the Macau Jockey Club has the Government eating out of the palm of its hand.

The earlier concession contract stated that if the contractual obligations therein were not fulfilled, the concessionaire would be subject to termination of the contract. The truth is that the Government has done nothing for so long, and nobody in the community has been aware of such special treatment!

Obviously, many important obligations were secretly forgiven, since termination clauses were never triggered. Was this for the good of Macau and, of course, of China? I have my doubts!

Indeed, the old contract had a clear termination clause. Today, on the basis of this example of constant non-compliance, the Government has taken another stance. This clause has disappeared. Today it does not clearly state that they will rescind but, so subtly, that they can rescind!

This wording opens the door to more defaults!

My doubting mind persists, however. The capital required was previously three billion, you see, and now, after several decades, the idea is for 1.5 billion! This is not half of what it was, but much less due to purchasing power decreasing over these decades!

Is this called investment, or divestment?

If the concessionaire’s debts were 1.3 billion patacas in 2016, and I believe, in 2017 they will have increased, and if in 2023 the required capital will be 1.5 billion, how will they pay these debts in the interim?

If they should break even (conceivably a great step forward for the company, although not expected, at least officially), that means there will be only 200 million patacas remaining after liabilities!

But the losses will continue year after year!

In conclusion, what investment will the Jockey Club actually make to convince the Government that it will transform that decaying and ill-managed space (including plans for the retired horses) into a new pillar of diversification?  The contract is silent on this. A curious operation of legal engineering!

The debt of 1.3 billion at the end of 2016 – numbers for 2017 are missing – cannot be erased by any amount of financial engineering and – the legal fraternity must forgive me – any amount of legal engineering.

Unless, the creditors shall forgive the debt! Whoever they shall be. Does the Government know? Is the Government really aware of the situation? Indeed, I have my doubts, many of them! But 24.5 years of concession history has me stumped!

Powerful men dance to a different tune!