Tony Vieira's Comments
18 October 2017

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Anatomy of the Clico disaster
(Aired 4 May 2009)

 

   The Trinidad and Tobago's Central Bank which apparently still functions for the purpose for which it was created, unlike ours here in Guyana which has been denigrated to becoming increasingly subservient to the Ministry of Finance, its role diminished to collecting statistics and undertaking bank inspections has abandoned − or doing very badly- one of its most important roles, i.e. the oversight of the financial sector; anyway according to the Governor Ewart Williams of the Central Bank of T&T "international issues did not cause CL International to fail, the fall in methanol prices and decline in real estate values associated with the global crisis were, at best, just triggers which would hardly have posed problems for CL Financial had these operations not been linked to its financial companies within a conglomerate, that followed highly questionable financial practices.

                                                                                                         

The T&T Central Bank's Governor's statement identified three such questionable practices and I quote him:  (i) ‘excessive related-party transactions which carry significant contagion risks';  (ii) ‘an aggressive high interest rate resource mobilization strategy'; and (iii) ‘a very high leveraging of the Group's assets'. All of these were relevant to how Clico Guyana was being run.

 

The Clico disaster is probably the biggest failure of a Caribbean company in our history and has the potential to affect thousands if not hundreds of thousands of people in the region.

 

   The saga started on 30th January 2009 when the Prime minister of Trinidad and Tobago [T&T] Patrick Manning announced that a major bail out package had been agreed on to help the Trinidad-based conglomerate, CL Financial Group, out of serious financial trouble.

 

Under a Memorandum of Understanding (MOU) signed between the parties, the government of Trinidad and Tobago promised to provide funding to the company in exchange for collateral and an equity interest in the Colonial Life Insurance Company (CLICO) to protect the Trinidadian policy holders; note this ladies and gentlemen the bail out helped only the Trinidadian policy holders. The package offered to Clico Trinidad had noting to do with the operations of Clico Guyana.

 

  As a further condition of the MOU the license of the CLICO Investment Bank (CIB) was also to be revoked as CL Financial moved to divest itself of 55 per cent holdings in Republic Bank Limited and shares in Methanol Holdings Trinidad Limited (MHTL).

 

  This should have signalled to all territories within the Caribbean that they should look at their local Clico companies closely to determine if they posed any risk to the people who were insured or had invested in the local branch of the Company.

   Ladies and Gentlemen this is not a time for finger pointing here in Guyana, but we do have to investigate the matter and we have to determine how, and if, the statement by the Governor of the Central Bank of T&T, which was the monitoring body tasked with regulating and monitoring Clico Trinidad since 2004, is relevant to us in view of the Clico collapse but especially following the Globe Trust collapse here.

   You see ladies and gentlemen when we emasculate our institutions of monitoring, supervision and regulation, and man them with people who are politically pliable and ineffective we cause numerous other problems and in our case there is no doubt that the Bank of Guyana played no significant part in this matter and they should have, since Clico was issuing bonds promising 6% return and as such should have been forced to operate under the Financial Institutions Act as if they were a lending institution, and prompted by what Christopher Ram has written, I also believe that the Financial Institutions Act mandates them to; but they were not monitoring Clico effectively and we have to ask why?

    We also have to determine if Ms Van Beak alerted the BOG to the fact that Clico Guyana was haemorrhaging large sums of the local shareholders money to other countries so that the local Company's assets were several billion dollars less than their liabilities and what we did about it? In fact we have to determine whether they could have done anything about it at all?

     The Governor of the bank of Trinidad and Tobago had this to say on the matter "In our regular monitoring of CIB and of Clico since 2004 (when insurance supervision was transferred from the Ministry of Finance to the Central Bank of T&T) the Central Bank has consistently focused on these deficiencies but have been stymied by the inevitable challenge of change and by inadequacies in the legislative framework which do not give the Bank the authority to demand these changes [i.e. Clico and probably other big companies with a barrage of lawyers are frustrating action by the governments in the region at every turn and so escape complying with the financial regulations]

  It would be easy to blame Ms. Van Beak and apparently someone already has, but we must find out all the facts before we apportion blame, what is for sure is that this government does not have the money to pay out close to 12 billion dollars, as our President has promised, since after decades of mismanagement the money is just not there.

 

   But if we don't have the money and can't possibly raise what amounts to 10% of our total national annual budget for the bailout, a lot of Guyanese will be hurt in this collapse.

 

   Governor Williams of the Central Bank in Trinidad was telling us that the Central Bank had been concerned about CLICO's operations since 2004. He was saying that the Central Bank could do nothing about their concerns because of the absence of the necessary legislative authority. The obvious question is why the necessary legislation was not put in place? The next obvious question has to be whether there is an adequate legislative framework here in Guyana to force Clico in this case to comply with our Commissioner of Insurance who was quoted as having determined since 2004 that this company's liabilities in Guyana outstripped its assets by several billion dollars. It even formed part of her 2007 report.

 

   We have learnt one thing from the CLICO debacle and that is that the governments in this region must equip themselves immediately with the necessary legal framework and supervisory powers to effect adequate regulation of these large financial entities mushrooming in the region in the public interest, and as one writer put it "not seek to close the gate after the horse has bolted".

 

    In the CLICO case, it is clear that the authorities within the region cannot claim that ‘they did not know'. They did know as early as 2004 according to the Governor of the T&T Central Bank, this is what we must investigate i.e. why having clear evidence that Clico was up to some very irregular business activities all over the Caribbean not one government in the region rushed in to save their citizens from the huge losses they will inevitably have to bear.

  

  In our case despite warnings since 2004 that the local Clico Branch Clico Guyana Limited had liabilities which were billions of dollars greater than their local assets and we had in fact documented it since our Finance minister was able to pass on to the Bahamian Government "a plethora of correspondence, including wire transfers of substantial amounts, dating as far back as 2004 with CLICO (Guyana) utilizing several local banks to transfer money to CLICO (Bahamas) accounts in Ocean Bank in Florida"

  Ladies and gentlemen at this time I will not speculate too much on the legality/illegality of the Bahamian government being legally entitled to liquidate Clico Bahamas, a company in which 51% of its assets was Guyanese at the end of 2007; and if the trial is legally binding on them or indeed whether Clico Guyana will be entitled to any of the liquidating proceeds to relieve our citizens of part of the 12 billion burden they will now have to carry, that will have to be determined by the Bahamian Courts, apparently we have retained legal personnel to represent our interests there and that is at least a step in the right direction.

 We obviously have to handle the situation very carefully since if they don't recognize that Clico Bahamas was holding substantial assets of Clico Guyana, and to date their actions establish that they may be unprepared to accept our position, the repercussions to our citizens could be devastating. 

      This matter was brought to our parliament on 12th March on a motion to have a commission of inquiry on the matter from opposition leader Robert Corbin  the motion was denied but the matter was passed on another motion to the Economics Services Committee [ECS] by the Guyana Parliament, shortly after at a meeting of the ESC on the 27th March 2009 the ECS decided that they would commence the investigation by calling on Ms Van Beek to give evidence, the committee also decided to conduct their investigation in camera before releasing its findings to the House, at the next ECS meeting on the 17 April 2009  the chairperson Ms Gail Texeria announced that since this matter was sub judice, she has been directed not to discuss it further and consequentially it has now been virtually withdrawn from the ECS, we in the opposition do not agree that what we intended to discuss are in fact the elements of the matter now before the court, especially since we decided to discuss it in camera and so the sub judice principle is just a red herring to force us not to discuss the matter and expose the shortcomings of the Guyana Insurance Legislation and its enforcers which allowed this debacle to happen.