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Bermuda is one of the wealthiest fund domiciles around the globe with a GDP per capita of approximately $80,000. The economy is reliant upon financial services and tourism – both of which have been affected by the economic downturn. (Bermuda is the world’s third biggest reinsurance centre – after London and New York.)
The economy is currently in recession. Further growth prospects depend upon what happens to its tourism industry (which is heavily dependent upon the US) and financial services – in particular reinsurance and asset management.
Government and politics
Whilst Bermuda has a long history of political and governmental stability this is not necessarily certain to last forever. It has the third oldest parliament in the world and is the UK’s oldest colony and the longest lasting democracy in the western hemisphere.
Bermuda's first political party, the Progressive Labour Party (PLP), was formed in February 1963 with mainly black and working class voters.
In 1965, the two-party system was launched with the formation of the United Bermuda Party (UBP), which had the support of the majority of white voters and of some blacks. The current premier, Ewart Brown, is from the Progressive Labour Party (PLP), will continue to be tested by dissident PLP members continuing to push for his early replacement well in advance of the completion of his five-year term and national elections due in 2013.
Given the likelihood of a prolonged period of weakness in Bermuda's economy, Mr Brown could struggle to maintain authority over the government and the party. The premier's position has so far been bolstered by the reluctance of his most credible leadership rival, the minister of finance and deputy premier, Paula Cox, to challenge him. However, that may change if further political scandals concerning Mr Brown emerge and a leadership challenge could be called at short notice if a majority of PLP members decide he has become an electoral liability.
Mr Brown relationship with the UK and the Governor, Richard Gozney, came into the spotlight in June this year when he agreed to take a number of prisoners from the Americans who had been held at Guantanamo Bay. The British were unhappy that this decision was taken without their approval.
The issue of the Guantanamo Bay detainees has again raised the question of whether Bermuda will ever seek to obtain independence from the UK. Bermuda's experience with self-government has led to discussions of possible complete independence by both parties.
An independence referendum that was called by the UBP in 1995 was defeated. However the vote may not have been a true test of support for independence as the Progressive Labour Party urged its membership and supporters to boycott the referendum. This was despite independence having been one of the PLP's central principles since the party's inception in 1963. In 1968, the PLP election platform stated that, "No government can be either responsible or democratic while under the rule of another country. Colonialism is a cancer.”
Bermuda has occasionally and on very brief occasions suffered from civil disturbance (between some of the working class black population and governing class). For example there were disturbances in December 1977, following the execution of two men found guilty of the 1972-73 assassinations of Governor Sir Richard Sharples and four others. But from the 1980s, the increasing prosperity of all Bermudians, has largely ameliorated these tensions.
In November 2008 the UK government said it would conduct a review into Bermuda’s finance industry which angered Premier Ewart Brown who called it an insult to the colony.
Bermuda has been an oasis of stability in the Atlantic Ocean. It has a well developed infrastructure. There is, however, a small possibility that the political situation could deteriorate in the medium to long term.
Threats to this domicile
The one real threat to this domicile would be an unexpected and severe deterioration in the political situation in Bermuda. There is no more than a remote possibility at present that this could occur. And independence would not of course need to have any impact upon Bermuda’s financial services industry. The only concern would be (independent or not) that taxes could rise – possibly significantly - on the Bermuda’s fund industry. This domicile is in recession but will not want to find itself in the crisis position that the government of Cayman did this September.
The growing interest that the G20 countries are taking in all offshore centres could also have an impact on Bermuda. Added to which the AIFM Directive might possibly affect this jurisdiction insofar as it is home to managers that want distribution within the EU.