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The Jagdeo Initiative – what is that?

Sunday, October 23rd, 2011

Introduction
As President Jagdeo prepares to demit office in another few weeks there is a single issue with which his name will always be associated in CARICOM. And that is the common regional agricultural repositioning strategy which has been given the name Jagdeo Initiative. That it will remain only an initiative without any success is evident by Jagdeo’s failure to carry through his initiative even in his own country. Quite what is the Jagdeo Initiative and how did it arise?

In 2002 President Jagdeo had said to the leaders of CARICOM that agriculture had been buckling under pressures of trade reform, natural disasters and policy deficiencies; that the region had a poor implementation track record with the result that agriculture was not providing the region with food security nor covering the growing food import bill. He told his colleagues “… at this stage, we need a policy and strategy which will allow us to decide on what sort of institutions and mechanisms are needed to reposition agriculture.”

The region’s leaders were taken in by the self-confidence of the young Guyanese leader and taking him on his word rather than by his action, made him Lead Head responsible for Agriculture in CARICOM.

IICA and FAO recruited
Thereafter it was all bureaucracy and talk with nothing to show for it. Apart from the resources which he had at his disposal within Guyana’s own oversized and expensive Ministry of Agriculture, Jagdeo was also able to call on the Inter-American Institute for Co-operation on Agriculture (IICA) and the Food and Agriculture Organisation of the United Nations (FAO) to assist in developing a framework towards a common regional agricultural repositioning strategy. This included:

• A situation & Outlook Report (May/03) establishing the challenges and requirements of repositioning.

• A Ministers of Agriculture Forum (June/03) which supported the renewed call for action and the Jagdeo Initiative.

• And in July 2004, the Caribbean Heads of Government endorsed the first Proposal containing the Initiative’s vision, scope, focus and process.

Vision
Under the Jagdeo Initiative, by 2015, agriculture in the region will have “made substantial progress in its contribution to sustainable growth, within a framework of transparent institutions and good governance that enables the transformation of its products and processes, encourages investment, drives entrepreneurship and assures an acceptable and consistent level of food security.”

Scope and process
The scope of the initiative is to define and implement Interventions to address Key Binding Constraints within the context of the Community Agricultural Policy; Existing and planned complementary initiatives undertaken by national, regional and international organizations; Emphasis on non-traditional products, value-added and intensification of diversification and practical programmes with achievable targets.

The process comprised regular briefing meetings; establishing the context, scope and output of consultations; National Consulta-tions redefining the challenges, opportunities and requirements, regular workshops developing consensus on Key Binding Constraints, framework of Interventions and draft of 2nd Proposal to the Heads of Governments.

The process was to have received validation by the regional private sector and endorsed by the Agriculture Ministers in Jan 2005 and agreed by the Heads of Government in February 2005. For the next several months leading into 2006 there was supposed to be an Inventory of Interventions at National and Institutional Levels.

Overall responsibility for the Initiative was vested in President Jagdeo, with the next line down being the regional Ministers of Agriculture, Ministerial Delegates, Other Stakeholders.

Early criticisms
It seems that at some point around 2005/2006 Jagdeo lost interest in his own initiative and in fact did not even attend a High Level Symposium on the CSME held in June 2006 in Barbados. At the Symposium, Director of Operations and Integration for the Caribbean Region Mr. H. Arlington Chesney in a power point presentation described the initiative, somewhat harshly, as “not a perfect instrument; not a scholarly piece of work; evolving; a kick start and a vision and framework for all”.

Then in October 2010, Mr. Sergio Garcia, the CARICOM Programme Manager for Agriculture described in less than complimentary terms the series of earlier food initiatives that have languished in the region. Those initiatives of which the Jagdeo Initiative was the most recent, were described by Mr. Garcia as having “had limited, if any, success, however, because they have been prepared and executed in isolation from other policies. Actions taken have thus been sparse, diffuse… and uncoordinated.”

Jagdeo and his lead Minister
Mr. Garcia might not know it but that is characteristic of several of the initiatives undertaken by the Jagdeo Administration. Jagdeo also did not help his own cause by having a Minister of Agriculture who was no more focused that he was.

To address the problems of agriculture and food security both regionally and nationally required not only a realistic vision but focus, commitment and sustained work. Instead of these, Jagdeo and his current Minister of Agriculture Robert Persaud MBA seem to prefer politics and propaganda with the latter thinking it was all about pepper, papaw, pumpkin and pineapple! Are these guys for real?

That knowing the problem is half the solution did not apply to Jagdeo and his Initiative and consequently it barely advanced beyond the identification of “binding constraints” which any desk exercise could have produced. Paradoxically the Jagdeo Initiative farmed out many of the responsibilities for addressing these constraints to the other CARCOM territories with only a single task assigned to Guyana and even then only jointly with the Caribbean Agricultural Research and Development Institute (CARDI).

Trinidad
While Guyana’s food bill has trebled since the President came up with his initiative, other countries in the Caribbean have long since dispensed with the initiative. In 2008, then Trinidad and Tobago Prime Minister Patrick Manning said that his country could not “wait for others to lead the way” and that Trinidadians must produce more and consume less; and above all else “we must move towards the highest possible level of food production…”

While Jagdeo speaks disparagingly of the closure of sugar estates in the Caribbean, Manning saw it as “liberating thousands of acres of arable land for food production.” Contrary to what Jagdeo has said about Trinidad, that country has announced the availability of two-acre plots of land to six thousand new farmers and the creation of seventeen new large farms, all of no less than one hundred acres each. That in a country that could fit many, many times into Guyana.

This past week, CARDI hosted in Trinidad Dr S. Ayyappan, Director General of the Indian Council of Agricultural Research (ICAR) a public lecture on how agricultural research and development in India helped to reduce hunger in that country. It would have been very useful for Guyana to have invited Dr. Ayyappan to visit Guyana to do a similar talk here and meet with officials but perhaps the campaign agenda did not allow for distractions by such developmental issues.

Jamaica
In Jamaica both the Government and the private sector have demonstrated what could be achieved with national initiatives. While in Guyana the agricultural bank was shut down and NIS money was allowed out for Mr. Duprey’s CLICO, Jamaica was more sensible. There the Export/Import (Ex-Im) Bank of Jamaica is teaming up with the Scientific Research Council (SRC) to collaborate on ideas, and with the National Insurance Scheme for the establishment of special financial facilities aimed at boosting agro-industrial production.

Such financing has been used in SRC-produced technologies in activities that include drying and the preservation of foods, particularly spices and teas; those for smoking, in the case of meats; and canning and concentrate applications, in the case of fruit and vegetable processing. And the Jamaican regional giant GraceKennedy Limited has only just launched the Grace Fresh n’ Ready brand of processed vegetables and official handing over ceremony of a J$43 million post-harvest processing plant in that country. The plant was leased from the Ministry of Agriculture. The facility was the result of a multi-lateral partnership known as the Improving Jamaica’s Agricultural Productivity Project (IJAP) – which received funding from the Canadian International Development Agency (CIDA) – the Ministry of Agriculture and the Inter-American Institute for Cooperation on Agriculture (IICA) and GraceKennedy Ltd.

Conclusion
There must be some realistic doubt whether at some stage Mr. Jagdeo will prepare a status report on his Initiative on which CARICOM was led into spending lots of scarce money.

The silent and dormant agro-processing/packaging plants at Parika and Sophia testify to Guyana’s failure to address its mounting food bill and exploit its huge potential in agricultural products. There must be a sense of both relief and sadness among Guyanese that other Caribbean countries long ago realised that under Jagdeo the region’s agricultural initiative was going nowhere.

Sadness that Guyana blew a wonderful and historic opportunity to stamp its valuable contribution on CARICOM: relief that the other countries did not rely on our President to help them solve their food problems. They would still be waiting.

Meanwhile when I asked a couple of friends about what they know about the Jagdeo Initiative, the most polite response was what is that? One said the LCDS, while another said Amaila. Oh, well.

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The Clico fallout – Duprey, Monteil and Geeta Singh-Knight

Sunday, June 12th, 2011

Introduction
The Duprey name is legendary in Trinidad and Tobago. Cecil Duprey, a member of an ordinary local family in a matter of decades rose from practically nothing to become a household name in his country. He founded a successful conglomerate, established a business that would probably have been considered too bid to fail and his grandson Lawrence Duprey had visions of taking the company global. He was street smart and while living his vision – first in the Caribbean and then further afield – played the political field as a major supporter of the corrupt Basdeo Panday government. Duprey seems to have won President Jagdeo’s confidence here in Guyana which seems to have made available to him and his company CLICO endless opportunities to invest in Guyana. For example, CLICO’s forestry subsidiary Caribbean Resources Limited was allowed to retain concessions over huge swathes of Guyana’s forests even though it had for years defaulted on its obligations to the Guyana Forestry Commission. Duprey was preferred to DDL for GuySuCo’s molasses and was negotiating for an investment in an ethanol plant.

Mr Lawrence Duprey surrounded himself with some bright accountants, including Andre Monteil, a classmate of mine at South West London College from 1970 to 1973. Monteil is credited with being a key architect of CLICO’s expansion and some of its more aggressive and possibly illegal activities. While Monteil’s role in some transactions made him quite unpopular in Trinidad and Tobago, for the better part of two years, it was felt the Mr Duprey was untouchable. That belief was shattered this past week in Trinidad and both gentlemen are now in some real problems.

Double whammy
Reports emanating from Trinidad and Tobago suggest that the government of that country is moving against Lawrence Duprey and Andre Monteil for civil and or criminal conduct in the collapse of the insurance giant CLICO and its parent CL Financial. A civil lawsuit was filed last Tuesday by Trinidad’s Central Bank and CLICO against Duprey and Monteil for alleged mismanagement and misappropriation of CLICO assets which led to the fall of CLICO in January 2009. Then one day later Attorney General Anand Ramlogan directed that all files coming out of the probe into the collapse of insurance giant CLICO should be forwarded to Director of Public Prosecutions (DPP) Roger Gaspard to determine if criminal charges should be laid against Duprey and Monteil. The two hundred page suit should make interesting reading indeed.

Under normal circumstances the authorities in Guyana and the former key officers in CLICO Guyana should be taking great interest in the developments taking place in Trinidad. While the architects of the financial misadventure that has placed our National Insurance Scheme at risk were those in Trinidad, they found compliant Guyanese to carry out the Guyanese leg of transactions, even willing to ignore the country’s laws and defy its regulator. This column had previously called on the Bank of Guyana which has taken over responsibility for regulatory control of the insurance sector to work closely with its counterparts in Trinidad in the investigations and prosecutions of the region’s most expensive financial failure.

Deafening silence
So far we have heard nothing but a deafening silence from the Bank of Guyana whose Governor has, probably dangerously, been appointed the company’s liquidator. I say dangerously because it is not unusual for legal actions to be brought against a liquidator and the person most likely to do so would be the regulator. That is not going to happen even as the liquidation has in essence been contracted out! Indeed my understanding is that CLICO’s former CEO Ms Geeta Singh-Knight is still playing a paid role in the liquidation. We are truly an incredible country.

The CLICO debacle in Guyana has been addressed to some considerable degree in these columns before. I do not intend to do so again. Suffice it to say that the company had breached the provisions of the Insurance Act which require companies carrying on long-term insurance business to invest a base of 85% of its statutory fund in Guyana. In clear contravention of that legal requirement CLICO took the billions of dollars in the Fund and placed it in a related party in The Bahamas, incorrectly claiming that it was invested in Fixed Deposits, a matter that appeared to have escaped the diligent notice of CLICO’s auditors. The directors and officers of CLICO did not comply with a demand/request by the regulator to repatriate the Statutory Fund.

Trouble
Enter the law. Section 19 of the Insurance Act provides that any person who contravenes any provision of the Act, or any of its regulations or any direction or requirement made by the Commissioner of Insurance, is guilty of an offence. Unlike the normal presumption in law where the prosecution has the burden of proving beyond reasonable doubt the guilt of the accused, the Insurance Act shifts the burden to the “person” to prove that s/he did not knowingly commit the offence of omission or commission.

Sub-section (2) of the section provides that where an offence is committed by a company – in this case CLICO – and the offence is proved to have been committed with the consent or connivance of, or to have been facilitated by any neglect on the part of, any director, principal officer, or other officer or an actuary or auditor of the company, he, as well as the company, shall be deemed to be guilty of the offence. Ms Singh-Knight was both a director and principal officer of the local company and most certainly it would have been to Ms Singh-Knight that the Commissioner of Insurance would have been addressing correspondence and directions.

There is no doubt in my mind that as the new regulator the Bank of Guyana should have long initiated action against the officers and directors of CLICO Guyana, and that the failure by the BoG amounts in my view to a serious dereliction of duty. Now when the regulator fails, for whatever reason, to protect the public interest, there is trouble indeed. That is the situation we face.

Duprey and Monteil
The question has been posed to me whether Guyana can take similar action here against Duprey and Monteil. That is a question for really seasoned attorneys to answer. The Insurance Act recognizes that insurance may be offered in Guyana by persons who are not in Guyana. In fact the Act defines a person as including “a natural person and any corporation or other entity which is given, or is recognized as having legal personality by the laws of any country or territory.”

The challenge is that the laws of Guyana are generally only enforceable in the country’s courts and the question is under what law can the courts of Guyana compel Mr Duprey to submit to its jurisdiction. Article 38 of the revised Treaty of Chagauramas imposes an obligation on member states of Caricom, within defined limitations, “to remove discriminatory restrictions on banking, insurance and other financial services.”

Oddly, the treaty created a single economic space but left territorial jurisdictions intact, impervious to each territory’s domestic laws. The Caribbean Court of Justice only has original jurisdiction in relation to the treaty and the CSME and appellate jurisdiction from national courts. It may seem commonsensical that crimes or contraventions of provisions of the treaty committed in any territory should be dealt with in that territory. It is certainly worth further consideration and one only has to look at how the US used the long arm of its laws to bring to justice ‘Sir’ Alan Stanford for financial crimes committed in Antigua which defrauded Americans back home.

Local directors
But back to the directors of the local company and in particular Ms Gita Singh, its CEO who was at the centre of the questionable and disastrous transactions. In addition to the infractions of the Insurance Act there were clear breaches of the Companies Act (CA) which governs all companies incorporated or registered in Guyana. S 96 of the Act imposes on every director and officer of a company a duty to (a) act honestly and in good faith with a view to the best interest of the company; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

In the discharge of their particular duties which they have assumed, directors are bound to take reasonable care. Failure to exercise such care constitutes negligence. While the normal legal principle is that directors owe their duty to the company and to no one else, directors may be liable to outsiders for their own wrongs. This means that directors who are parties to a fraud or the commission of any other wrong are personally liable on the general principle that a servant or agent who commits a wrong is liable for damages resulting therefrom as well as the company.
Time to act

We should long ago have started an enquiry into CLICO for possible criminal conduct and the Bank of Guyana should, like their counterparts in Trinidad and Tobago, have begun civil action against them and their Trinidadian masters. This would have been an excellent opportunity to expand on our jurisprudence while penalizing those who break our laws and cause our people and country huge losses.

It may be that the Bank of Guyana is afraid to take action because President Jagdeo has stood by Ms Singh-Knight while he throws red herrings about investigating Globe Trust and CLICO. There must be some good reason for him to want to do so but his failure sends the wrong signal that some people can do no wrong and if they do, there will be no consequences.

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Guyana hosts regional accounting conference

Sunday, June 28th, 2009

Introduction
Guyanese accountants are this weekend hosting their counterparts from the region in the annual conference of the Institute of Chartered Accountants of the Caribbean (ICAC). This is the region’s umbrella body bringing together accountants of the English-speaking Caribbean. According to the ICAC website its membership is currently made up of seven members and four affiliates. The members are the national institutes of the territories of the region each of which operates under domestic statute.

The conference comes at another of those times when circumstances force the profession and/or the state to confront issues affecting the public interest. Sometimes the profession is affected indirectly rather than directly. One such example was in 1862 when the UK Parliament quickly reversed the 1856 Companies Act which had all but abandoned the mandatory accounting and auditing requirements of the 1844 Companies Act, encouraging a form of laissez-faire accountability. But the most dramatic and direct example of reform within recent memory was the Enron debacle which was quickly followed by a series of corporate failures forcing the US to pass the Sarbanes-Oxley Act in 2002. Failure was not restricted to the companies involved, but affected one of the pillars of the auditing profession – the prestigious Arthur Andersen which gave up its licences after being found guilty of criminal charges relating to the firm’s handling of the audit of Enron. The firm won something of a Pyrrhic victory when the Supreme Court of the United States overturned the verdict, but by then the firm’s demise had been sealed.

Blurring profit and professionalism
Only a few years preceding the Enron failure, Arthur Levitt, Chairman of the Securities and Exchange Commission of the US had said of the profession: “The audit profession has a long and distinguished history of guarding the integrity of our companies’ financial statements. They must live up to their history… I fear that the audit process, long rooted in independence and professionalism, may be diminished in the name of these increasingly lucrative and commercial opportunities.”

In other words accounting and auditing had become a business and the profession was in danger of individual accountants and firms putting profit and personal interest before the profession. The challenge for the society and the profession is how to balance the pursuit for profits with the objectives of the profession to set and maintain the highest standards of professionalism, to attain the highest levels of performance and generally to ensure that the public is convinced that the hallmark of the profession – independence and integrity – remains intact.

A market economy requires that there be credibility in information and information systems that are fed to shareholders and the public. And that persons who are certified by the accounting bodies to offer professional accounting and auditing services possess the highest standards of technical competence, experience and expertise and performance. Such issues must be ever present in the minds of those with responsibility for the proper functioning of our society.

Top of the chain
The region’s laws give to the accounting profession major and valuable roles to perform in the proper functioning of the economies of the countries. In Guyana these include the Companies Act, which assigns to the accounting profession the power to set and oversee the application of accounting standards and invests it with the sole authority to carry out the audits of locally incorporated or external companies registered to carry on business in Guyana. The Corporation Tax Act requires all companies to support their tax returns with financial statements audited by members of the Institute of Chartered Accountants of Guyana. The Securities Industry Act and the Financial Institutions Act all assign or delegate to the profession specific roles with regard to compliance with internal controls.

Under the principles of corporate governance the accounting profession in the role of internal auditors is regarded as one of the pillars of sound corporate governance, and in many jurisdictions the Audit Committee is one of the standing committees of the board with defined powers, rights, obligations and reporting responsibilities.

Increasingly too, accountants because of their facility with figures have risen up the corporate ladder and many of the region’s CEOs are either accountants or are MBAs majoring in finance or accounting. By law they sit at the top of the accounting pyramid. In practice they can be both the players and scorers adding to the challenge of meaningful regulation. Those are immense privileges that are sadly not always matched by commensurate responsibilities.

Making accountants more accountable
Enron and its ‘side-kicks,’ Tyco International, Adelphia, Peregrine Systems and WorldCom may have been perceived by the regional profession as a US problem, and it seems that the region saw itself as a witness to a fascinating spectacle, but no more. Now, faced with Stanford and Clico is the profession in the region right to ignore the possibility that these major disasters which continue to have ripple-down effects on households are as much governance and regulatory failures as they are accounting failures? Hopefully the accountants meeting at the Conference Centre would find time to address this critical issue.

The US tried its best in the face of resistance from the profession to make the profession more accountable, and following the Sarbanes-Oxley Act, self-regulated peer reviews at accounting firms were replaced by independent inspections conducted by the Public Company Accounting and Oversight Board. But that applies only to the US.

Here in the Caribbean, characterised by the smallness of our economies and countries and the nature and size of business units, it is no surprise that the accounting profession is dominated by sole practitioners or partnerships of no more than a handful of persons. There is limited scope for second reviews, peer reviews and quality control or in-house capability to deal with complex technical or ethical issues. And with only four major accounting firms in the world – down from eight a couple of decades ago – real choice even for the big companies is seriously limited for purchasers of audit services. Yet self-regulation is regarded as sacrosanct.

All national legislation provides for a self-regulated profession in which the accountants make or adopt their own technical, professional and ethical rules and oversee and discipline – or fail to discipline – individual members and firms where their conduct has brought the accounting profession into disrepute. It is perhaps no surprise then that one of the objectives of the ICAC is the preservation of the self-regulatory nature of the profession. The profession forgets at its peril that in many cases the failures surface soon after the auditors for those companies have given them a clean bill of health.

Education
It would seem that the Caribbean Institute has abandoned one of its founding objectives, and that is the creation of a standard regional accounting examination, administered initially by one of the international accounting bodies. At the time that decision was taken there was considerably greater disparity in corporate and tax legislation and relevant textbooks were unavailable. Such restrictions have been reduced.

There has been much by way of reform if not harmonization in corporate law and our countries, with the exception of The Bahamas are all signatories to what is popularly referred to as the Caricom Double Taxation Treaty. There is now an excellent text by Dr Claude Denbow on taxation in the Commonwealth, and the region’s law schools have a considerable amount of material on corporate law.

As new legislation is enacted in the region to give effect to the Revised Treaty of Chaguaramas, as the profession is held to be part of the fight against money-laundering, and as our professionals if not our artisans move freely around the Caribbean, the dream of a Caribbean professional accounting qualification that begins with a degree programme from our regional universities should be revived.

The region’s lawyers and doctors have done it. There seems no reason for accountants to hold on to the coat-tails of international accounting bodies principally from the UK to shape our accounting education in the second decade of the 21st century.

Ethics and insurance
Accountants have a duty not only to act ethically, but also competently. Shareholders, investors, tax authorities and other users of the financial statements rely heavily on the yearly financial statements of a company, as they can use this information to make informed decisions about investment and taxation – two issues of major public importance.

The journals of the major accounting bodies reflect an alarming increase in the number of complaints lodged against accountants and auditors. That must be a fraction of the actual incidence of this phenomenon. The public is largely unaware of the finer points of professional ethics, and accountants are loathe to report on their colleagues since they may be as equally culpable. And even if a complaint is lodged, the rules for addressing it are too often unclear and allow for such complaint to be heard only by accountants.

The danger is that self-investigation can become self-protection.
Finally our accountants ought to place on their agenda another problem facing the public in the region, and that is that the bulk of the professional accounting practitioners have no professional indemnity insurance. The regional or national bodies do not require it and the insurance industry is hesitant to offer it. So the client who receives sub-standard advice or shoddy work from his accountant is often left with practically no recourse but to end the relationship. That is no remedy.

Hopefully even as the Caribbean accountants enjoy Guyana’s hospitality and grapple with arcane concepts of IFRSs, the financial crisis and modernising corporate legislation, they will reflect on their overriding duty to the public and the need to restore public confidence in the profession.

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Clico and the related crisis: Confusion continues

Sunday, March 8th, 2009

Introduction
It has been an incredibly hot week in Guyana. In fact so hot that the President who was directly or indirectly involved with every single financial decision made in the public sector for the past sixteen years decided it was just too hot and took off for a change of climate engagement. He asked his Finance Minister Dr Ashni Singh who has carried statutory responsibility for the operation of the Insurance Act and therefore supervision of Clico for more than two years as well as of the National Insurance Scheme, the biggest single potential loser in the Clico debacle, to make a statement to the National Assembly.

Clearly stung by the revelations of what may prove to be a major loss to the country there has been heightened activity by the government. Even as lower-level letter writers were at work, the government called into their corner big guns like Messrs Yesu Persaud and Clifford Reis for a panel discussion with the Minister of Finance. We heard again from the Bank of Guyana not on whether it has continued to track and assess “every bit of information being provided on the issue as it develops” but to “dispel the misrepresentations” by persons whom the Bank did not name. We heard as well from Ms Maria Van Beek, the Commissioner of Insurance/Judicial Manager of Clico, witnessed a press conference by the directors and management of Hand-in-Hand Trust, TV interviews with economist Ramon Gaskin and TUC President Gillian Burton and disturbing but not surprising fears expressed by insurance broker Mr Bishwa Panday and leaders of the teachers’ union. By the end of the week it was clear that there was little confidence in everything said by the government and the regulator in relation to Clico. Having done next to little so far, the Minister of Finance rather than the Judicial Manager is impressively rushing papers to The Bahamas to prove our debt. We all hope it is not too late.

Red herring
The Bank of Guyana and the big guns were called out mainly to speak about the strength of the banking system, as if that was the issue. There are currently many questions about the banking system but not about its strength. Yes, different persons in varying degrees and sometimes with varying justification question many things, such as the role of the non-bank cambios in the underground economy, the absence of any meaningful interest or effective efforts to stamp out money laundering, the interest rate policies and the conservative approach inherent in banking, and the increasingly troubling failure of the Bank of Guyana and the government to bring the New Building Society under the Financial Institutions Act. But the strength of the banking system has not been an issue to academics or depositors who place increasing sums with the sector, which must surely be a big test. Raising it was a pure red herring.

Experience has taught that the public is more sensible than it is given credit for. It knows that failures do not arise only in weak systems, with Globe Trust being a good case in point. It knows how toxic assets can contaminate good ones akin to Gresham’s law and money. It is concerned that the NBS has just invested some $1.5 B in the Berbice Bridge, hardly on the grounds of an investment but more as a bail-out using poor people’s money. It would still be sceptical about the optimism of the Board of HIHT to withstand a near billion dollar loss in Stanford and wonder whether the Bank of Guyana was too soft in allowing such a concentration of assets. None of these issues was raised by the moderator of the panel or by the Bank of Guyana. It is wrong to believe that because the public does not have access and opportunities it is voiceless or does not understand.

Revelation
Much of what was said by our men of learning had little impact. What really had the country and the Minister of Finance going was a statement by the Prime Minister of The Bahamas that “there appears to be no record available at this time” of Clico (Guyana)’s investment in Clico (Bahamas). That is contrary to everything accepted by all including the company’s auditors Deloitte and Touche and the Commissioner of Insurance. In fact the Minister of Finance confidently told the press that there was “a plethora of correspondence, including wire transfers of substantial amounts, dating as far back as 2004” supporting the investment.

I have looked at the 2006 and 2007 financial statements of Clico (Bahamas) and these seem to support the qualified statement by the PM. In the books of the Bahamian company, note 12 (2007) and note 10 (2006) show the following (in Bahamian dollars which is equivalent to US dollars):

20090308_table1

And note 22 (2007) shows that the figure of $212,723 at December 31, 2007 is made up of amounts owing to Barbados, Suriname and CL Financial Limited which is the parent company. Nothing is shown as owing to Guyana. Over the three years 2005-2007 the only year shown with a balance with Guyana is 2006 where the amount was stated at $275,317.

Transactions with Guyana over the same years are shown as follows:

20090308_table2

The Guyana books showed investments at 31 December 2007 in Clico Bahamas of $5.95B and accrued investment income of $329M. Can it be that the balance owed by the Bahamas company to the Guyana company is shown somewhere else in the accounts? That is possible, but given that the accounts are both audited and in both cases by the same auditing firm − but by different offices − it is hard to understand why the Minister chose the route of the plethora of documentation rather than having the Judicial Manager call in the auditors for an explanation, to be followed by the paperwork. After all, the auditors would respond quickly, bringing their audit working papers files, anxious to avoid the implications of what seems on the face of the financial statements to be a major discrepancy which routine audit procedures should have revealed. Yes the paperwork is necessary, but surely the persons who have given their stamp of approval on the accounts would be a good place to start.

Different strokes…
One of the very striking features of the still far-from-over saga is how the two countries have treated the matter at the regulatory and more so at the political level. The Prime Minister of The Bahamas made an early and clear statement to their Parliament on the whole issue including offering advice to affected persons. Our President has chosen to make several statements including one before he departed these shores repeating his assurances about meeting all valid claims against Clico. From reports of a meeting Mr Panday had with Ms Van Beek and the information conveyed to the teachers, it does not appear that Clico is relying on those assurances.

There is also some discrepancy about the timing of Mr Jagdeo’s contacts with his counterpart in The Bahamas with the latter saying that it was after the announcement of the move to liquidate the Bahamas company that President Jagdeo called him. But what is more significant is Mr Jagdeo’s revelation that he had proposed as (part) settlement of the debt by Clico (Bahamas) to Clico (Guyana) to take over the Florida real estate in which the Bahamian funds were invested through one of its subsidiaries. It is not clear whether his intention is that our politically-controlled Privatisation Unit would then sell the asset, but surely our President, who is never hesitant to pronounce on matters legal, ought to have realised that that was not possible as a potentially fraudulent preference. The suggestion by a columnist in another newspaper that our President say nothing further in this matter has a lot of merit and was reflected in the call by the Finance Minister to “ensure that the court appointed process is allowed time to exhaust all avenues to protect the assets of CLICO Guyana.” Regrettably there is too much at stake for the public to wait on the necessarily cautious and deliberate court process.

Huge costs
Liquidation costs are enormous and are a first call on the proceeds of any sale of company assets. Many of the assets of the Bahamas company are pledged to secure debts other than deposits, and we therefore need to prepare ourselves for a substantial loss by Clico (Guyana) of its investment in the Bahamian company, assuming that there is such an investment. This then raises the question about Mr Jagdeo’s assurances which the Commissioner of Insurance through GINA initially reaffirmed, ie that all polices held in CLICO (Guyana) will be protected. This of course, whatever form it takes, will have to come from the taxpayers.

The Commissioner as Judicial Manager has to act independently and professionally. She has been instructed by the court to return promptly to them with a plan and no court will accept such vague assurances as those given by President Jagdeo and later repeated by her. She should not be unmindful that medical service providers have refused to extend further credit to the company while holders of short-term policies are already looking elsewhere for their coverage. In repeating the President’s assurance about guarantee, Ms Van Beek will recognise that this cannot be open-ended. If we care about our constitution and the Fiscal Management and Accountability Act, any such guarantee has to be given by Parliament.

In this regard, it seems a fair assessment that the President has not been sufficiently informed of the liabilities which his assurances that “all claims” will be met are interpreted to guarantee. The motion submitted by the PNCR calls on the government to take all necessary steps “to guarantee the savings, pensions and investments of all CLICO (Guyana) investors including the National Insurance Scheme (NIS), depositors, policyholders and contributors.” That would cost the government billions of dollars even if Clico’s actual and contingent assets are taken over. In Trinidad and Tobago Mr Lawrence Duprey had to give up huge chunks of assets in exchange for the government’s assumption of liabilities. Assuming we take over the liabilities, what do we get in return and how? It seems that Clico (Guyana)’s main assets – other than the Bahamas investment, are the loan to Caribbean Resources Limited ($1B), shares in the Berbice Bridge Company with a book value of less than $80M and any remaining bonds in the Berbice Bridge Company.

Conclusion
The President in his typical style has threatened prosecution against the directors and management of Clico if fraud were found. The President may not be aware, as disclosed by Business Page of February 8, that there is only one Guyanese director who is also the CEO who less than ten weeks ago he lavishly praised and made a director of his revamped GuySuCo Board. We are now paying the price for our failure to take governance seriously, not only in what I have referred to as public interest companies but in all public and state-owned companies.

Next week I will continue looking at the implications of this debacle but for now, please if we are thinking of selling off any of the policies to other companies, remember that there will have to be actuarial valuations done. From what I have seen we have not even begun to deal with this problem.

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Stanford 20/20 smoke and mirrors and an update on Clico

Sunday, February 22nd, 2009

Introduction
The columns of Business Page have reported on far more financial scandals than it would have liked. Although it was soon overtaken as the biggest corporate scandal ever, Enron was covered in a series in February 2002 and remembered in a piece one year later to mark its anniversary. Parmalat too with a hole of billions on its balance sheet and Nick Leeson who brought down the 233-year-old Barings Bank, the Queen’s bank, were accorded their fair share of space. More recently it was Bernard Madoff of the US and B. Ramalinga Raju of Satyam Computer Ltd of India to add to the list of corporate fraudsters. Each fraud has had its own consequences, with Enron taking down with it Arthur Andersen, one of the world’s most respected accounting firms, as well as the investments of its employees’ pension scheme.

For the most part however the direct consequences have been felt by employees, creditors and shareholders, including pension schemes. And they have all had some common ingredients − a tale of lies, deception, smoke and mirrors, sleeping accountants and poor governance and weak regulators, all fed by frenzied greed in the name of capitalism. Each, however, took place in larger economies that could absorb a moderate level of stress and setbacks.

‘Sticky Wicket’
On the other hand, the fall from grace of cricket icon Sir Allen Stanford is in a different ballpark altogether. After the government, the Stanford group is/was the largest employer in its home base Antigua. It has its own cricket ground – named appropriately Sticky Wicket − with swimming pool, lighting and facilities that rival the government-owned stadium and the record-making Antigua Recreation Ground. It operates the Bank of Antigua which has a significant share of the retail banking in that country. It owns some of the choicest pieces of real estate on the island. It was, prior to its fall, planning to develop an area called Shell Beach and nearby Maiden Island, towards the end of the airport runway, with a marina, shopping and entertainment complex.

Stanford’s towering image, cosy relationship, influence and hold over Antigua simply cannot be under-estimated. The island’s Prime Minister, Baldwin Spencer, never a friend of Stanford, admitted that the charges brought by the SEC against Mr Stanford and two of his associates could have “catastrophic” consequences. He urged the public not to panic. It was like telling persons in a rainstorm not to take protective action – and such advice was quietly ignored by depositors who queued up to withdraw their money from the Stanford-owned Bank of Antigua. Seizing the political opportunity to crush Lester Bird, he has called general elections which he is certain to win.

Threat
There is also a wider, regional threat to the Eastern Caribbean Dollar – one of the most stable currencies in the world and which is managed by the Eastern Caribbean Central Bank, the monetary authority for eight OECS island economies including Antigua. The bank in a statement reportedly handed to people queuing to get their money said its “liquidity position is sound.” It was careful to note however that that the bank’s ability to meet customer requirements applied “under normal circumstances” and that if individuals persisted in rushing to the bank in a panic, they would precipitate a collapse. The consequences of massive withdrawals and conversion into and flight of foreign currency is going to test the stability of the EC dollar over the coming weeks.

But the image Mr Stanford cultivated was even bigger than the assets or his plans. For example, the helicopter in which he landed at Lord’s to announce his “20/20 for 20 million” deal with the England and Wales Cricket Board was not, as the gold-plated Stanford name and logo emblem on its body indicated, corporate property but one rented for the day. Nor was the $20 million jackpot in the treasure chest shown to the world at the launch real money – it was at most about US$100,000 standing atop wads and wads of paper. It was one big con. The press, fascinated by the Texan billionaire, was too dazzled by the dollars to see the game at work and to ask questions.

Dazzled by wealth and….
Stanford was flamboyant, ambitious and most importantly for the gullible, including most of the region, fabulously rich. But contrary to his tale of a family heritage and inheritance associated with Stanford University, Stanford’s real wealth had its source in the early 1980s when he and his father James Stanford bought distressed properties in Texas during the oil industry bust and the S&L crisis, rehabilitated them and sold them at huge profits when the market got better.

But Texas was too big for the man who had visions of grandeur and royalty. He wanted to be king and chose first Montserrat to base his operations before moving to Antigua where he became a real force during the rule of the Bird family, the father-and-son dynasty that held power for more than 40 years. It was during that period that Stanford helped the Birds turn Antigua into a tax haven and soon made him into a billionaire. With his personal wealth estimated at more than US$2 billion, he was bigger than the economy of Antigua and so Stanford could get whatever Stanford wanted. He demanded and received the trappings of royalty that Texas could not give him – a knighthood without the need to bow in front of the Queen. In fact that knighthood was granted to him by the Birds. He ran his financial empire from the island’s airport office park which was the most iconic landmark to greet any visitor to the island. While his empire extended to Latin America his colossal status derived from his tryst with West Indian cricket of which he was seen as the saviour following years of the most pathetic management by a succession of the most pathetic Board of Directors ever to have ruled the game anywhere in the world. With the glitter of millions, he redefined West Indian cricket into a game of fast paced entertainment, money and image, particularly appealing to the lucrative television market.

Criminal charges likely
The details of Stanford’s fall are still unfolding but what seems to have emerged so far is that the company was selling investors high-yielding certificates of deposit on the basis they were safe and liquid investments. According to the US Securities and Exchange Commission (SEC) Stanford’s investment portfolio was an opaque “black box,” including holdings in illiquid real estate and private equity. Following investigations that had been going on since last summer, the SEC has filed charges against three entities, Antigua-based Stanford International Bank, and its affiliated Houston-based investment advisers, Stanford Group Company and Stanford Capital Management.

Unlike Kenneth Lay or Madoff or Raju, Stanford has not been charged with any criminal offence – at least not yet. The action brought against Stanford is a civil action although the word fraud has been used by the SEC involving somewhere between $8 and $9.2 billion. It has been reported that the FBI is carrying out its own investigations but that it does not want to lay charges until it has been able to find sufficient evidence to secure a conviction. Should it move too early it will have set in train a schedule that would force criminal investigators to charge, indict and construct a trial within a tight time-frame. Whether it is criminal or civil fraud is the kind of fine distinction that does not interest depositors and investors who have been rushing to all locations where Stanford operates demanding the return of their money.

Impact
It has been reported that some of our cricketers have invested money in Stanford while the Ministry of Finance has confirmed that one major institutional investor, which Business Page suspects is either a commercial bank or an insurance company, has placed funds with the Stanford group. The Ministry has told the press that it is “monitoring the situation” although quite what this means in the light of its handling of the Clico issue is hardly reassuring. We must not forget that there are thousands of Guyanese living in Antigua and it is a fair guess that many of them would have had their savings in Stanford’s bank. If the government is truly monitoring the situation it should immediately send a high-level representative to Antigua to represent the interest of those persons.

At some time we will have to confront the threats to small countries by rich investors and oligarchs who can bribe, cajole and threaten to get what they want. The view that these people are here to save us must by now be surely mistaken. So too is the view that we are insulated from the world economic crisis. Our own politicians need to stop feeding us with their own form of garbage.

Clico update
Chairman of the National Insurance Scheme has told the press, more than a month after the news of the failure of Clico Investment Bank in Trinidad and Tobago that he is uncertain about the extent of the exposure of the NIS to the local Clico company. That is amazing and dangerous when in the same breath he estimates that the exposure can be as much as $6 billion.

Business Page has for two weeks been trying to obtain confirmation from various members of the NIS Investment Committee of the value of the exposure and has written to the acting General Manager of the Scheme seeking confirmation. By arrangement the Commissioner of Insurance has also been written to with a list of several questions the answers to which would form the basis of next week’s Business Page. If Dr Luncheon is right and the exposure is around $6 billion, then potentially we could have some really serious problems since the Scheme’s viability will depend on the continued success of Clico Guyana. The consequences of a failure are simply too frightening to contemplate.

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