The ostrich and the sandhill
Stabroek News. Editorial. March 1, 2009
So the global financial turmoil has finally reached these shores. If the government really believed all those reassuring words they have been plying us with all this time, they should now be in a state of total shock. Alternatively, perhaps they didn’t believe what they were telling us after all, and instead of sticking their heads ostrich-like in the sand, they planted their rear ends firmly on the sandhill where the bad news was buried.
But bad news will out, and on Thursday a very tetchy President was at pains to defend how his government had handled the Clico crisis. Mr Jagdeo was asked if the government had not deceived the public by its reluctance to reveal the true state of Clico (Guyana) earlier, to which he responded, “So what would we have said? You give me a hypothetical situation… I should have gotten up one day and said this institution would collapse tomorrow? We feel it would collapse tomorrow? That’s what you expect me to say huh? Because the institution is still very viable. We feel that over time we can recover all the assets, clear all the liabilities from assets, so that the treasury is not exposed. The worst that will happen, maybe, we think, is that you may have to wind up the institution… But we still hope to cover all of their liabilities from assets.”
The inference could possibly be drawn from this that at the time the citizenry was being fed the ‘monitoring’ mantra, the government may have known more than it was saying, but that at the same time, it took the line it did because it believed it could “cover all [Clico (Guyana)’s] liabilities from assets.” A kind of combination of the ostrich and the sandhill, you might say.
The truth of the matter is, however, that the exact chronology of what the government knew and when, and exactly what they did as a consequence of what they knew, is a little fuzzy. At a February 5 press conference, we reported President Jagdeo as saying that the government was monitoring the situation closely, but that citizens could be assured that their interests were protected. We also reported him as telling the media that he had looked at the liquidity position of Clico (Guyana) as well as at its assets and liabilities. The only problem he could envisage in the short term, he said, was a mismatch between liabilities and assets in the event of significant changes in the company’s investments abroad. “But we are paying close attention to the issue,” he was quoted as reassuring everyone.
How close, one wonders. And did he mean that if there was a ‘mismatch’ between assets and liabilities in the short term, nevertheless, citizens could still be assured that their interests were protected? Nobody knows, although as indicated above three weeks later, on the day of his second press conference, he seemed to be suggesting that they could. The least that can be said about this is that not everyone connected to the financial sector shares the President’s confidence. In addition, considering that last Wednesday a petition was filed in the High Court as a consequence of which Clico (Guyana) was placed under judicial management, all citizens had more than a little justification for treating his remarks with scepticism. That petition followed news the day before that Clico (Bahamas) had gone into liquidation pursuant to an order granted by the Supreme Court there. It was this development which forced the government here to act because of the size of the local company’s investment in the Bahamas firm.
The degree of Clico (Guyana)’s exposure to Clico (Bahamas) was alluded to by the President at his Thursday press conference. The former company had invested $6.9B in the latter, representing 53% of its assets, and Mr Jagdeo conceded that the local entity should not have had such a large proportion of its assets invested outside the country. It should be noted that this is in contravention of the Insurance Act which requires that 85% of an insurance company’s statutory fund be invested locally, and in 2007 Deloitte and Touche, the auditors of Clico (Guyana)’s accounts, drew attention to the company’s failure to comply with the statute.
That the government was fully cognizant of the local company’s flouting of the law was made clear by the President, who was quoted in our report in Friday’s edition as saying that Clico (Guyana) had persisted in the practice despite “instructions from the Commissioner [of Insurance] to the company over a year ago and recently to reduce this exposure.” Well this is interesting, more especially as our report goes on to indicate that 51% of Clico (Guyana)’s assets were invested in the Bahamas company in 2007, and that this figure increased to 53% in 2008. What action, if any, Commissioner of Insurance Maria van Beek took to ensure compliance with the law and her instructions was not mentioned; all that can be said is that if she did anything at all it was ineffectual, which at the very least would be an adverse reflection on the regulatory environment.
As stated above, when he spoke to the media on February 5, President Jagdeo informed those present that he had looked at the assets and liabilities of Clico (Guyana), leaving no doubt that he must have been aware of the company’s Bahamas investment. Did he inquire into the status of that investment? Did any of the responsible officials do so? One would have expected that detailed investigations would have commenced from the time the news broke about CL Financial Ltd of Trinidad a month ago. Certainly one does not imagine that government officials would just have accepted the soothing noises emanating from Clico (Guyana) as gospel; to do so would have been nothing short of irresponsible.
So when did they find out that there might be problems with Clico (Bahamas)? Even if they did not know before, like the rest of the nation they surely must have been alerted on February 8 that the Bahamian company might hold the fate of the local insurance entity in its hands. In his Business Page of that date Mr Christopher Ram in very careful language had mentioned (among other things) that in 2008 AM Best Co Inc, a financial services credit rating organisation had “downgraded Clico (Bahamas) Limited’s financial strength rating…” He had gone on to observe that the ratings for Colonial Life Insurance Company (Trinidad) had been similarly downgraded on February 2, “as news broke of its troubles…” He had also adverted to the fact that 59% of the Bahamas company’s assets had been invested in a related company, Clico Enterprises Ltd.
He had ended by recommending that the authorities act now, and in addition to other measures, actually send someone to the Bahamas (and Trinidad) to obtain details of what the situation really was. Clearly this piece of sensible advice was not taken, and in the absence of any statements to the contrary, one must assume as well that no other kind of contact was made at the time with the Bahamian authorities, such as with Prime Minister Ingraham, who holds the portfolio of Minister of Finance. However, if it was, and the Government of Guyana was in fact advised of the exposure of the Bahamas company and the likely evolution of events there, why did it not act immediately here? Why wait until the liquidation of Clico (Bahamas)?
As it was, the fears of Clico (Guyana) customers were assuaged neither by the statements issued by the company’s CEO, Ms Geeta Singh-Knight, nor by those of the government, and many moved to close their accounts long before the bombshell news of last Thursday. Certainly after February 8, the discerning reader of Business Page would have had questions in his/her mind, so why not the government?
The entire fiasco raises a host of issues, not least those of regulation and government action or inaction at critical junctures. However, there is also the matter of what the public is told, and when. Given what has happened citizens will now have little faith in anything the administration has to say on the subject of the financial sector, thereby undermining public confidence in our financial institutions as a whole, despite the fact they are solid. It is true, of course, that if the government is doing nothing there is very little it can tell people without causing a panic. The bottom line is, however, that if it had some notion of the situation with Clico (Bahamas) it should have acted much sooner, in which case it would not have been required to dissemble in public; and if it didn’t know, it stands condemned on the grounds of not discharging its obligations to the people of Guyana in the way that it should have.