When it comes to hotels who can’t pay their debts, there has got to be a better way
The plight of local hoteliers struggling to pay millions of tala they borrowed from banks and other lending institutions, to build properties under the promise of huge returns from a booming tourism industry, is not new.
The issue has constantly made the headlines during the past few years and it is unlikely to go away in a hurry. The facts are simple enough to understand. Let’s quickly look at them.
With the promise of riches to be made from a “booming” tourism industry which the Government constantly talks up as the mainstay of the economy, hoteliers take the plunge and borrow millions of tala to build.
Like anything in business, it’s a risk. In some cases, some of them know very well they cannot afford to pay back these millions but because it’s a risk that could possibly pay off, they take it anyway.
But risks don’t always pay off. Which is what has happened. And to make things even more difficult, the promise of the Samoan tourism industry “booming” has been more or less a broken one so far.
Which means that while the hoteliers are struggling to pay their debts with the chance of foreclosing becoming a real possibility, the lending institutions are also left in a difficult position because they need their money.
The cycle becomes even more complicated if taxpayers fund the lending institution. Take the Development Bank of Samoa and the Samoa National Provident Fund for instance. Ordinary members of the public, contributors are entitled to that money as much as any major business in Samoa.
So what do the hoteliers who cannot pay their loans do?
They seek help from Prime Minister Tuilaepa Dr. Sa’ilele Malielegaoi and his administration. Which is precisely what appears to have happened in the case of the Pasefika Inn, as highlighted in a story titled “Cabinet bails out hotel” published on the front page of the Samoa Observer on Wednesday.
According to what we’ve been told, Cabinet last month stopped the auction of the hotel by the Samoa National Provident Fund (S.N.P.F.) after it was repossessed for falling behind on loan repayments. A copy of a Cabinet Directive dated 14 November 2019 instructed the S.N.P.F. to give the hotel until December 2020 to pay up.
The Owner, Pulepule Steve Young, confirmed that they had made a request for assistance from the Government.
“We took our case to the Government because we needed help. We are struggling,” said Pulepule. “Keep in mind, we went into business after the call by the Government to invest in hotels and we did, but there are not enough tourists to occupy the empty rooms. And it is not just our hotel that suffers from this predicament."
To be fair to Pulepule and Pasifika Inn, he is not the only one. Earlier this year, Cabinet was given a similar request to intervene with the millions and millions of debts owed to the Development Bank of Samoa (D.B.S.) by at least eight other hoteliers. In the end, Cabinet stopped the Development Bank of Samoa from taking legal action and seizing the assets of these tourism properties.
Pulepule refused to divulge how much Pasifika Inn owes. The S.N.P.F. has also not responded to requests for comments yet. What we do know is that in the cases of S.N.P.F. and D.B.S., the Government is owed millions by these hoteliers.
In an ideal world, the right thing to do is for the hoteliers to pay their debts as they promised to do. Failure to do so should open the door to the lenders to do what they have to do – including foreclosure.
The trouble here is that the Government has intervened and now the lines have been blurred, we cannot see where this will end. In other words, if Cabinet has intervened to give these hoteliers a helping hand, where would they draw the line in terms of intervening with everything else?
What happens when businesses in other sectors start asking for similar help with their loans? Will Cabinet intervene too?
We believe there has got to be a better and more transparent way of handling such matters where Cabinet would not have to intervene. From our standpoint, the Government’s focus should be to do the best they can to ensure the business environment is conducive to allow the hoteliers to pay their loans.
The lending institutions, in this case S.N.P.F. and D.B.S, should be left to do their jobs. After all, the Government has already appointed laui’as to run those places. They know what to do.
There is a reason governments in most places in the world are privatising their business-related functions. Politicians are not cut out as business people. Which is a huge part of the problem we have in Samoa today. But that’s a story for another day.
Lastly, if Cabinet is intervening to help business people who owe millions, will they do the same thing for a village farmer who is struggling to sell his talo at the Fugalei Market, to pay his five hundred tala loan?
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Have a productive Thursday Samoa, God bless!