Author: ChrisRam

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Advice by the Clico liquidator for continued payment of premiums is legally questionable

In Business Page of October 3rd, 2010 I expressed the hope that those who were entrusted with powers and duties for the liquidation of Clico would ensure full compliance with the laws. For the several hundreds of persons who have so far received their cheques, the law and its processes are not important. But spare a thought for all the others who are in limbo, uncertain of their fate and funds and getting information from Mr. Lawrence Williams, the Court-appointed liquidator, that conflicts with commitments given by President Jagdeo. Let us remember that those in limbo include the NIS which is owed about six billion dollars by Clico and for which one way or the other we the taxpayers will have to bear the cost.

So far the liquidation has gone according to the script written by the President, a script that sets out a process and scheme of preference not consistent with the law. During the time, I have received many complaints and copies of correspondence and policies from persons who were told that because their policies did not have any cash surrender value they have nothing to get. There is merit in that. But what I find most uninformed, irrational and unlawful is what appears to be a circular-type letter sent by Mr. Williams to one policy holder earlier this month.

In the letter Mr. Williams identified eight types of policies sold by the company and encouraged the holders of those policies “to continue payment of premiums to avoid losing contracted benefits.” Whatever might be his intentions – and I know him well enough to know that these are well-meaning – what he is trying to do is legally questionable, unnecessary and unlikely to benefit policyholders.

The principal duty of the liquidator is to call in the assets and ascertain and pay off the liabilities of the entity. He can only carry on any business with the approval of the court.

Of the eight types of policies at least two are not susceptible to cash surrender value so his advice to pay premiums on those is ill-conceived. It would be silly for the holder of one of these policies to put further money into Clico. Find another insurance company and get another policy.

And for those policies that are so susceptible, there is no reason why any negotiations for the sale of a portfolio of policies to another insurance company – the rationale for his “encouragement” – cannot include policies that have already earned cash surrender value and those that have not. Why is he encouraging people to gamble on whether or not the belated efforts will succeed? Insurance is about covering risks, not taking a gamble.

But once again the Office of the Commissioner of Insurance that should be looking after the interest of the policy-holders and advising on technical issues has allowed itself to become a bystander.

The acting Commissioner Ms. Tracy Gibson now has taken up office at Clico, apparently appointed by Mr. Williams, along with Mr. Maurice Solomon, to carry out the liquidation on his behalf. Might I add that under section 375 of the Companies Act, Mr. Williams needed the permission of the court to make those appointments.

Unlawful action and poor supervision have played no small part in the substantial losses the country, its taxpayers and policyholders have suffered from the Clico fallout. Even if the Office of the Commissioner of Insurance makes the doubtful assumption that its obligations with respect to Clico ended with the appointment of a liquidator, the office holder should not abandon policy holders and become associated with actions that can bring the Office into question.

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A tribute to Winston Murray – in his own words

Introduction
Business Page joins in paying tribute to Winston Murray, economist, attorney-at-law and politician who offered this country a unique blend of experience, expertise, capacity for research, hard work and patience, all reinforced by unusual humility, integrity and respect for others. He was proud of his roots in the Essequibo island of Leguan, the place and community where he was born, but which our political system did not allow him meaningfully to represent; committed too to the PNCR which he served with distinction for several decades, but which rejected him when it most needed him; a firm believer in the virtues of a healthy, informed and honest debate, outside and inside a parliament in which he excelled over and above all others of his time, a parliament that is poorer for his passing; a patriot in the most noble sense of the word, putting country above self and personal considerations.

No word is sufficiently adequate or praise generous enough to describe Mr Murray the man, the servant of the public and this son of Guyana. The word ‘void’ at the national level cannot convey the space created by him during forty years of dedication, or the experience and expertise gained in vocations and professions ranging from the primary school teacher, the diplomat, public and political servant, economist and attorney-at-law. Inadequate too is the word ‘loss’ at the level of the party to which he committed his entire career, serving it steadfastly even as its appeal became tarnished by mis-steps and non-steps and its leadership pool haemorrhaged from dissatisfaction within the ranks.

Today’s tribute to Murray is one mainly in his own words, drawn from Hansard, the official record of the debates in the National Assembly. I go back only to 2007, the year in which Dr Ashni Singh, a technocratic Finance Minister presented his first national budget. I chose that year because Murray saw in Dr Singh the prospects and possibilities of a new culture and a combination of competence and integrity in the financial management of the country’s affairs.

Even when he soon came to question his initial opinion of and optimism about Dr Singh, his disappointment was expressed in the best tradition of parliamentary courtesies. So on February 9, 2007, on Dr Singh’s first budget presentation, this is what Murray had to say of him:

“I wish to congratulate the Honourable Minister of Finance, Dr Ashni Singh, on the occasion of his inaugural presentation of the National Budget. This Minister has shown a refreshing approach to openness, and in fact, prior to my coming here today, drew my attention to certain small discrepancies, which are really printer’s errors, and I thought that, even though small, the fact that he should call to mention them was not an insignificant occurrence, and I hope that that same spirit will be a hallmark of his tenure as Minister of Finance.”

On his reservations about sugar’s contribution to the economy and GuySuCo’s turnaround plan
“Sugar was supposed to be the flagship within the traditional sectors, but the present position shows that for the last years, the industry has been making significant losses and is projected to continue to do so until at least 2012, when it is projected to return to marginal profitability. This is the position notwithstanding the fact that Government has taken over significant debts from GuySuCo and notwithstanding the bragging of about $2 billion worth of cost reduction in 2009. This industry is being significantly subsidised by the Guyanese taxpayer. A massive investment to over US$160 million is expected to ramp up sugar production ultimately to 450,000 tonnes per annum. The issue is that at what cost of production and, therefore, how competitively?

“The state of the Skeldon factory and the availability of the 1.2 million tonnes of cane necessary to feed it are also causes for concern. We are assured in the turnaround plan that the canes will be available. The question is: How soon? Until then, the Skeldon factory will continue to operate below capacity, thereby negatively affecting the cost of production and possibly the technical functioning and efficiency of the factory.”

On budget size and oppressive taxes
“I could not leave the 2010 framework without reference to and comments on the statement that Guyana’s largest budget ever, requires the introduction of no new taxes. Given what I have said earlier about tax yield and tax burden, the issue is not ‘no new taxes,’ but rather doing something to lift the oppressive burden of taxation on the citizenry. That is what we have to do. And with that connection we call for the return of the VAT windfall to the people through a reduction. And we call for a reintroduction of a graduated progressive rate of income tax.”

On accountability, Clico, the Lotto Funds and integrity
“With respect to the Economic Services Committee, I have to highlight the unresponsiveness of the Minster of Finance to invitations to him to come to that Committee to update us on matters relating to C.L.I.C.O. There was a resolution passed in this National Assembly for this Committee to follow up on such matters. We have written him at least twice and he has not had the courtesy to even grant us the favour of an acknowledgement.

“Equally grave, if not more so, is the failure of the Minister of Finance himself, a highly trained professional, to observe some principles of financial governance. He continues to allow the Lotto Funds to be placed into a separate bank account instead of being put into the Consolidated Fund. He continued to allow the sale of public assets to be put into a separate bank account instead of finding its way into the Consolidated Fund. And now under the LCDS he is talking about putting money through G.R.I.F. (Guyana REDD Investment Fund), but nowhere in the scheme of things is there contemplation for bringing this money into the Consolidated Fund which is where it belongs to be supervised by this Parliament on behalf of the people of Guyana.”

On strengthening Caricom
“I believe we need a more dynamic and functionally relevant framework for the furtherance of the goals of CARICOM. For example, I believe that the Secretariat should have a strong project development arm that seeks to use available data, and make and support project proposals to strengthen regional capacity. It could also be involved, if only as an observer, in relevant discussions between and among Member States in the formulation or execution of projects. The institution cries out for being streamlined and possibly being restructured. It is no accident, I wish to observe, Sir, that the Heads of important international agencies are generally not permitted to serve more than two terms, normally a period of ten years.”

On limitations of politicians and the usefulness and role of experts
“Politicians see the electoral cycle as the framework of their operations, and so their eyes are set [on the year when elections will come]; and the measures that they will take will not necessarily address the longer term economic problems that the country faces, but are likely to be guided by the imperatives of an election victory… I say therefore to the Hon Minister of Finance and to the Government more generally that they should heed their own advice and agree to the setting up of a group of experts, who can independently analyse where we are, where we are likely to go and propose measures for dealing with what is likely to be a most difficult situation.”

On the airstrips at Leguan and Wakenaam
“It did not escape my attention, for example that in 2008, the sum of’ $108 million was earmarked for airstrips at Leguan and Wakenaam along with rehabilitation of the airstrip at Baramita. Obviously, the projects for the airstrips at Leguan and Wakenaam did not materialise, as they are therefore repeated for 2009… I think it is a sick joke to propose such a project when the citizens of Leguan are more concerned about proper and adequate number of beds at the cottage hospital; when they are more concerned about the availability of drugs and other medicines at the facility; when they are more concerned about the reliability and timeliness of the ferry service and about better drainage and irrigation facilities.”

On further evidence for corruption
After recounting several cases of the illegal purchase of drugs, impropriety in the regions and drawing attention to Guyana’s low ranking on the Transparency International Corruption Perception Index, he offered to the Speaker of the Assembly, “Sir, but perchance they want more evidence, I advise them go to the project site where projects are being implemented; and go to the villages across Guyana and talk to the people, and you will get all the evidence you need, to know that corruption is endemic in this country.”

On VAT and revenue-neutrality
“Throughout the Debate on the VAT Bill in 2005, all the major Government Speakers and the Ministers in particular, emphasized the revenue neutrality of the tax. We were assured that the solemn intention of the Government was to collect the same amount of money as would be foregone by the taxes that would be scrapped. A regime of Excise Taxes was also going to be introduced on so-called sin and luxury goods with the intention of maintaining the pre-VAT prices on those goods. Thus, the tax of these goods VAT plus Excise Taxes would result in pre-VAT levels of revenue being collected and that overall the collection of VAT plus Excise Taxes would be revenue neutral.”

On contract employees
“The Government has included a category in the Estimates known as ‘contract employees’ and we have again on numerous occasions requested that the information on ‘contract employees’ should be fully set out at the back of the Estimates. Do you know for the traditional Public Servants there are appendices O through S, which state the category in which each Public Servant falls, and in another Table gives you the salary scale applicable for those positions? And that is all we are asking for in the interest of transparency that these Contract Officers who many people see as replacing; that is why you do not want to put the authorized staff in the Estimates.

They are replacing the traditional Public Servants more and more but there is no transparency of their method of appointment or of levels of salary they are paid. We call upon you to explain to this National Assembly during this Debate, why it is not possible for you to include this as an appendix to the Estimates the framework in which contract employees are employed in the various agencies and the levels of their remuneration.”

On making belief and missing the truth
“In January 2010, the Hon. Minister of Finance brought a request for supplementary provision for, among other agencies, the Ministry of Housing and Water in the sum of $5.6 billion of which $4 billion was for housing development. I cannot avoid commenting on this because, to me, it represents a brazen act of illegality which should not go without being mentioned and pursued.

“We were making believe here that we were appropriating $5.6 billion to the Ministry of Housing and Water. It is clear that the Hon. Minister of Housing and Water, with prodding from and acquiescence of the Minister of Finance, missed the mark of truth in this Hon. House when in response to my question as to how much of the $4 billion had already been released he said ….”

And later when the question surfaced in the Committee of Supply and with the Housing Minister still reluctant to come clean, Mr Murray lamented, “I note that the Hon. Minister is not budging and is not answering any of these questions, could I ask whether he has become deaf all of a sudden because I want to know. This National Assembly needs to know. Is there a deliberate act on the part of the Minister to withhold information from the general public about his compliance with the Constitution, compliance with the law and about his observation of a proper budgetary process? Is that his intention?”

Sense of humour
On Irfaan Ali, Minister of Housing and Water: “Please I want it to be noted that I am not saying that Minister Ali is rubbish, I am saying that what he said is rubbish.”

“And I want to suggest that in naming this Budget under the title Staying the Course I would not like to stay on this course. That is the first point. I did not recommend it.”

“This year will be another year of trying to find a reasonable job, or of trying to get a visa to leave for ‘Region 11’ or of joining the ranks of the unemployed. This must be a sad state of affairs after seventeen years of P.P.P. /C. rule, but then, I suppose, it could be blamed on the twenty-eight years of the P.N.C.”

And after a scathing critique of the 2009 Estimates and Budget Speech, challenging the other side with the irresistibility of truth, the force of logic, the mastery of detail and the display of oratorical skills, he ended with the following words: “I therefore apologise for any inconvenience that may have been caused in the course of this presentation.”

A true gentleman is a rare being.

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Dr Singh’s appointment as acting Prime Minister was unconstitutional

Article 101 of the Constitution was this month tested when Dr. Ashni Singh, an unelected Member of the National Assembly, was sworn in to act as Prime Minister. The Article states that “The President shall appoint an elected member of the National Assembly to be Prime Minister of Guyana…”

The press was convinced that Singh could not be appointed but the Office of the President (OP) ruled that “the appointment was well considered and is within the ambit of the constitution of Guyana.” No explanation was offered and one must therefore make assumptions about the logic of the ruling. Is it that OP considers that since Dr. Singh’s appointment was an acting one, the Constitutional limitation does not apply? If that logic is applicable, which I doubt, then it should also apply to corresponding constitutional powers in which case an acting President could not have appointed Singh. The Office of the President cannot have it both ways.

And let us take a very practical example. Let us apply this logic to the Audit Office and specifically the position of the Auditor General. Section 8 of the Audit Act 2004 provides that “The salary, superannuation, benefits and other conditions of service of the Auditor General shall be the same as those of the Chief Justice.”

Since the holder Mr. Deodat Sharma is not qualified to hold the substantive position as Auditor General and is therefore only acting in the position, would either Dr. Luncheon or Mr. Sharma tell us if he is entitled to and avails himself of the benefits of section 8 of the Audit Act including a tax-free salary?

My view is that the acting President does have the power to make the appointment but only of someone qualified under the Constitution, which clearly rules out Dr. Singh. And that only a properly qualified person – which would rule out Sharma – could act as Auditor General and enjoy the benefits of the law.

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VAT no burden: A different perspective (Conclusion)

Introduction
Business Page of October 31 had referred to statements both by President Jagdeo and Finance Minister Dr Ashni Singh that the Value-Added Tax and the Excise Tax introduced in 2007 would have been revenue neutral. In 2007 alone, the excess of over the prior year – the basis for revenue-neutrality – was $12.6 billion, or 49%, of which VAT by itself had exceeded the taxes it was supposed to replace by a staggering 76%. Over a four year period the combined excess would therefore be approximately $50 billion. The question then is whether or not a reduction of taxes would have hurt or helped the economy and more importantly, whether the government has been honest with the VAT rate of 16%. And here a distinction needs to be made between the economy and important segments of the economy. Two women’s interests organisations, Red Thread and Grassroots Women across Race are under no illusion and from their own experiences are convinced that VAT for many, many (women) is a burden that is beyond bearing.

The government and its economists remind the country that the women miss the bigger picture of the “macro-economic fundamentals” and that the women ignore the benefits which taxation brings to the country as a whole such as the availability of accessible and free education, health care, better roads and other infrastructure. Those who make these arguments for the government often ignore the questionable quality of the public services and might never have gone to the Admissions Unit of any of our public hospitals to see the hours of waiting before receiving attention, nor are they likely to have been aware of the state of the Den Amstel or Cane Grove Primary Schools. They ignore too that however good the roads which the poor and the rich alike enjoy, the Guyana economy – whether in the hinterland or on the coastland – is a cash economy. The stallholder or the minibus conductor will only accept money and if you do not have money to pay, neither the availability of the goods nor the quality of the roads makes any difference.

The rent which the single mother is asked to pay for the most modest accommodation in the most working class of areas is often more than the gross pay of the nurse or the teacher in the public school system. Yet the more fortunate among us would carp about the nurses for their inattention to patients or the teachers for supplementing their income with “lessons.”

Jagdeo has closed the VAT rate debate
The problem in the discussion about the economy and taxation is that those two sides are speaking from very different perspectives and interests. The Minister of Finance is engaged in an abstract argument of which he may have no personal experience and speaks from the top. The Red Thread and Grassroots Women Across Race on the other hand speak of their daily experiences from the bottom. It is not hard to see the real issues from the theoretical arguments.

The problem for the poor is that the strength and logic of their argument count for nothing and since they have neither the time nor the inclination to wage a sustained and effective campaign, change in their favour is almost impossible. Jagdeo has already said that VAT is no burden which means that for all intents and purposes the matter is closed. Of course no one expects the government to admit that as an expenditure tax, VAT is borne only by consumers. Since women bear the predominant role in equipping the children for school and putting food on the table, they feel the pain of the VAT more than the menfolk.

Favouring the better off
Nor will the government wish to admit that the tax system is skewed in favour of the better off; that all tax changes since 1992 have effectively shifted the burden to the poor and in favour of the better off. Guyana has effectively abolished Estate Duty which used to capture in death the taxes which were avoided in life. A capital gains tax which already favours the shareholding class over the working class has been abolished on the gains made from trading in shares in public companies. Just ask yourselves which is the dominant shareholding class and you will see the bias in the tax system. And as the column has consistently pointed out the perquisites, expense allowances and benefits received by the managerial and entrepreneurial class including chauffeur-driven expensive vehicles, 24 hour security and meals at the most expensive restaurants are generally tax free, while the travel allowance paid to the ordinary to get to work on the minibus is taxed at the rate of 33⅓%. For the poor a meal out is a cheap Chinese while the managerial class enjoys business paid nights out at the expense of the taxpayers.

Even in tax administration, the die is loaded against the poor. They are at best employees who are sitting ducks under the PAYE system and neither need nor can afford an accountant to represent them at the GRA. Contrast that with the self-employed who decide how much tax they will pay and often pay the equally dishonest accountant to aid and abet them in manufacturing accounts to suit.

Solution
The solution in my view lies both in the income as well as the expenditure side of the accounts. In fact I think it is necessary first to decide what is the expenditure that the government needs to incur and then consider how best to finance that expenditure. Let us use as an example the Ministry of Health for which there are two ministers. With little understanding of what their roles are and not enough work for them to do, the two ministers dabble in the day-to-day affairs of the ministry and the hospitals in a manner that creates confusion rather than solutions.

In my discussion on the recent maternal and child deaths with two leading doctors I was shocked to learn that while many hospitals have modern buildings and state of the art equipment the experts and technicians to operate them are not available; that we seem to pay more attention to AIDS than to women’s health issues; that basic information on ante-natal care and nutrition is not disseminated. And pointedly, that in what appears to be a matter of policy, we underpay the caregivers.

Drugs and money for friends
This is the same ministry which along with the Georgetown Public Hospital Corporation has been paying hundreds of millions of dollars annually by way of advance payments to a friend of the government to buy generic drugs from India. These same drugs can be purchased direct or by way of tender through other suppliers at reduced cost. In 2009 the payments by the Ministry of Health and the GHPC amounted to $2.135 billion! That the government persists in this reckless arrogance suggests that instead of attempting to reduce cost, the government is more concerned about enriching its friends.

Excluding the expenditure on health by the regions, the GPHC and the Ministry of Health spent $7.3 billion in 2009 in the recurrent budget. This means that the dubious drug purchases alone accounted for 30% of the expenditure of those two agencies. If we add capital expenditure, the total expenditure in 2009 by these two agencies was approximately $10 billion. In 2010 the budgeted current expenditure of the GHPC is $3.5 billion while the expenditure for the Ministry of Health is $4.5 billion.

Reduced expenditure does not mean reduced value and it is my view is that with better policy formulation, efficient execution, reduced waste and corruption and enhanced cost management, the annual expenditure allocation on the Ministry of Health can be reduced by at least a couple of several hundred millions of dollars, if not billions.

Ministry of Local Government
Now, take the Ministry of Local Government that has overseen the destruction of democracy at the local government level. This ministry that operates like the Wild West has a Minister and two former ministers paid exorbitant salaries and benefits for doing mainly party work. If this ministry was scrapped, we could very well save much of the $250 million in the recurrent budget and $1.250 billion in capital budget.

Then we can look at the Ministry of Public Works and Communication which in 2009 had a capital budget (including supplementaries) of $10.2 billion but did not even keep a contract register to record details of financial transactions of projects undertaken by the ministry. On roads and bridges alone some $5.9 billion was spent in 2009, no doubt much of it completely wasted.

The Office of the President and NICIL which are the havens of non-accountability, non-transparency and favouritism control funds that are so secret and mismanaged they are beyond the reach of any auditor or accountant. In fact nothing less than a forensic auditor by a trained fraud investigator could unravel what has taken place around these entities.

The bigger picture
What is a safe bet is that included in the total recurrent and capital expenditure in 2009 of $128 billion, must conservatively, be at least 15% ($19.2 billion) of avoidable, unnecessary expenditure that could be cut without any loss of efficiency. If say 60% of those savings ($11.52 billion) are applied to improved salaries to government employees and payments to our senior citizens, the remaining 40% ($7.68 billion) can be applied to a reduction of the VAT which is budgeted in 2010 to bring in $25 billion. That means that instead of VAT having to bring in $25 billion in 2010 it need only to bring in $17.4 billion. The VAT rate can therefore be comfortably set at 12%, bringing a boost to the economy and relief to the poorer sections of our society.

The evidence from economic research around the world indicates that tax rates have a direct influence on saving, entrepreneurship, lower rates of economic growth, reduced rates of personal income growth, lower rates of capital formation and lower than expected aggregate labour supply. In the case of Guyana, high tax rates may also cause outward migration and the brain drain.

Just as I am sure that both the President and the Finance Minister know that 12% is what the VAT rate should have been in the first place, they also know the economic arguments for lower rates. But then from the government’s point of view that would reduce the pool of funds for whimsical spending.

Of course a more detailed examination of the current revenue and expenditure structure will necessarily reveal other possibilities. Meaningful tax reform will suggest variations of the existing tax structure, the way revenue is raised between the central and regional governments, and possibly new means of collecting taxes from those who do not currently pay. Organisational changes could see the restructuring and reduction of the number of ministries and departments, number of ministers and advisers, resulting in the reduction and re-prioritisation of expenditure.

While it would be nice for the Economic Services Committee of the National Assembly to take on such an exercise, I am not optimistic that this or the reduction of the VAT rate will happen any time soon.

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The New Guyana Company has not filed annual returns for nearly two decades

Today I had a conversation that I cannot help but link to two telephone calls I made yesterday. If in fact today’s conversation is linked to my calls yesterday, then we have the frightening possibility of illegal wire-tapping of telephone calls made by law-abiding citizens.

The calls were about the New Guyana Company Limited, the publishers of the Mirror newspaper. I am aware that my mother, of whose estate I am the executor, was a modest investor in the company which was launched some time in the 1950s or ’60s. Indeed,according to ancient records in the Companies Registry, her name, Mrs Jankie Ram, is recorded on Folio 859 of the company’s share register, the same folio on which appears the name of my late brother Ivan Ram.

My examination of these public records was revealing. The New Guyana Company Limited has not been filing any annual returns for close to two decades, and from all appearances has not been holding any annual general meetings, as I am sure my mother would have notified me. To make matters worse, under the Securities Industry Act 1998, the New Guyana Company Limited is a public company with stringent reporting obligations. I can also say that I saw no evidence that the company was continued under the Companies Act 1991 although that may reflect deficiencies in record-keeping rather than non-compliance.

These point to a form of serious corporate fraud on the investors in the company and a disregard of the companies and securities laws of the country. As executor of my mother’s estate, I am consulting with legal counsel on options to restore and protect the rights of what may turn out to be approximately two thousand investors and to ensure that our laws are observed.

On the wider issue of wire-tapping, it is would seem that politically connected persons who might have an interest in concealing the malfeasances of the company might have intercepted my telephone conversation.