Category: Letters to the editor

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Two per cent growth in the economy is wishful thinking

In looking to 2010, Business Page predicted that the 2010 Budget speech would make the economy’s decline of the first half year of 2009 into a full year growth. No sooner had I submitted that column than no less a person than the President himself, in his New Year’s message, reported “preliminary indications that the economy registered a positive growth rate of about 2% in 2009.” He was careful not to provide any support for such assessment, restricting his only specific comment to the sugar and bauxite sectors whose performance he described simply as “below expectations.”

But that limited comment is enough to caution even the most casual observer not to take the President’s assessment seriously. In November 2009, reporting a 1.4% decline in the economy for the first half of the year, the Minister of Finance reported a 19.3% half-year decline in sugar, a 6.7% decline in rice and flat performance in mining and quarrying. For the remainder of the year, the Minister expected the performance of rice to deteriorate and for mining and quarrying to do substantially worse than they did in the first half. We know too that bitter industrial relations since June 2009 ensured that sugar’s woes continued and, quite possibly, deteriorated in the second half of the year.

Even GuySuCo’s CEO, in his New Year message seemed keen to forget 2009 even as he expressed some optimism for 2010. If a miracle had in fact taken place and Guysuco had transformed a 19.3% decline in the first half of 2009 to a full year 10% growth, the corporation and the President would surely have noticed it.

The revised outlook for a 2.5% growth in real GDP, including all economic sectors, predicted in November by the Minister of Finance, was premised on the full-year growth (of 10%) in sugar – equivalent to a turnaround of 36% for sugar in the second half of the year! That simply did not take place and no other sector of significance could have made up for the loss. To put the numbers another way, non-sugar growth was expected to come in at 1.5%, so that the economy did substantially better than the Minister of Finance expected less than eight weeks ago.

The President’s assessment of an overall 2% growth seems more a mixture of wishful thinking, political rhetoric and self-vindication for his firewall assurance, than a serious, informed or honest assessment by someone trained in economics. Having done his political work, he has now placed the Minister of Finance, the Bank of Guyana and the Bureau of Statistics under immense pressure to produce numbers to vindicate yet another of his assessments.

They may oblige. It is hard to be confident about the integrity of the statistics coming out of a Stats Bureau that would not publish the monthly Georgetown price data it collects, usually doing so only after the Minister has announced suitably relevant numbers in his half-year report or his Budget speech. And the fiasco of conflicting rates of 2009 first half (un)real GDP growth, reported in the Business Page series (November/December), but which neither the Minister nor the Bank considered worthy of a public explanation, has similarly affected the credibility of both the Bank of Guyana and the Minister of Finance.

It seems to me that in relation to statistics on the economy and financial information coming out of the government, 2010 will be no different from 2009 and before.

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The President should act to prevent further carnage on our roads

Once again a truck/minibus accident takes Guyanese lives, generating widespread calls, once again, for action. All Guyanese would no doubt share the grief of those who have lost their loved ones and are grateful for the lives that were spared.

Today, Monday, a couple of us went to De Edward to see one of those who miraculously survived, an employee of Ram & McRae. He and his parents confirm the reports in the press of the heroic work of the staff of the Mahaicony Hospital, work that deserves recognition from us all, work that is caring and heartening indeed.

Yet the tragedy appears not to have had even the most temporary of effect on the drivers using the road from Georgetown to Rosignol. As we journeyed both ways, I observed and made a note of the registration numbers of the vehicles that passed ours. Of the minibuses, trucks and cars that we encountered only one was anywhere close to the speed limit. I witnessed vehicles overtaking on double yellow lines, driving at a dangerous speed, vehicles without trafficators, and of course the ubiquitous roaming animals.

What I did not see in the entire journey beyond Sparendaam Police Station was a single police officer – traffic or otherwise. That was most disappointing on the day that the press carried a comment from the Commissioner of Police on the accident.

On our way up, I saw not a single warning against speeding and only a handful of notifications of the speed limits, all inconspicuously written.

After the succession of lives lost in road accidents and with no discernible action by the government and the police on issues like better regulation of minibuses, speeding, the granting of licences and certificates of fitness, highway patrols, better signs about speeding and speed limits, drunken driving, etc, it is hard to be optimistic.

Perhaps, however, this most recent accident will shock the authorities into action and something real and effective will be done.

I am not being facetious and am seriously asking the President to postpone his one-colour taxi plan and instead act to prevent further carnage on our roads.

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The audited financial statements and annual reports were used to analyse NBS

I am pleased to see some new names surfacing in the discussion of topical issues. It suggests that there may yet be persons out there prepared to engage seriously in these issues even if sometimes without a sufficient knowledge or understanding of the facts. I therefore consider it useful to address some of the more salient matters raised by Mr Salim Khan in his letter in the Stabroek News of October 6, 2009 ‘Assessments from critics of NBS are counterproductive.’

1. Mr Khan claims I have a peeve about the NBS, having served as a director of the Society. I grant him an unchallenged right to psychoanalyse my writings and personality.

2. Mr Khan recommended that the facts be checked, although there is no evidence that he himself did so. Not only do I always use the audited financial statements and annual reports of the Society for my periodic analysis but before the most recent Business Page, I wrote the Society’s Director Secretary for a copy of the half-year 2009 financials. He is yet to acknowledge my request. Would Mr Khan please help?

3. With NBS being the only Building Society in the country, Mr Khan may wish to tell readers which industry in which country he is referring to in claiming that “NBS’s financial position is as sound as any in the industry.”

4. Can Mr Khan explain what he means in his letter by a “simplistic portfolio of loans” and whether he thinks that the board was wrong to support the members’ motion at the 69th AGM for a Board Loans Sub-Committee?

5. Is Mr Khan aware that commercial banks are subject to two rules on provisioning against doubtful loans – IAS 39 and Bank of Guyana Supervision Guideline 5, the latter of which does not apply to NBS?

6. If Mr Khan would care to read my reviews of the commercial banks’ annual reports posted at chrisram.net, he would immediately realise that their interest spread is a criticism that I invariably make. Having said that, I wonder if Mr Khan knows the following:

a. That unlike the regulated financial and banking businesses, the NBS does not maintain a non-interest bearing statutory deposit with the Bank of Guyana. If they did, it would easily mean on the basis of NBS’s 2008 financial statements setting aside more than $3 billion dollars as non-income earning assets. By not doing so, NBS can earn, at the average rate of interest it earned on mortgages in 2008, income of $275 million not available to the commercial banks.

b. That the NBS is exempt from corporation taxes and consequently for every $100 net income earned by the Society, the commercial banks paying corporation tax at the rate of 45% would have to earn $180.

c. For those commercial banks approved for lending for low income housing, the ceiling is $3 million per loan while in the case of the NBS it is $12 million.

d. That the NBS pays no property tax which on its 2008 net asset position would amount to approximately $40 million annually.

e. That legislatively, NBS with its emphasis on mortgages and prescribed limits, is precluded from the risks of commercial lending faced by the commercial banks.

7. When stacked up against those realities, it is surprising that the NBS does not report higher surpluses than it currently does.

The reason in my view is the result of the inefficiencies of the monopolistic privileges enjoyed by the NBS under statute, politicised, ineffective and self-serving governance and a board and management that lack the range of skills that a modern financial institution needs in a competitive environment.

8. Mr Khan is the only person I know who speaks as a keen observer but who considers directing business to the competition a virtue. As far as I am aware, the only business the NBS ever directed to competing lending institutions was for temporary, bridge financing during the period when the security for loans was being perfected.

Thereafter, the NBS would grant the loan including such amount as to liquidate the bridge-financing.

I trust that I have clarified and addressed Mr Khan’s issues and look forward to his extending me reciprocal courtesies. I trust too that others, including the directors of the NBS, who make similarly uninformed comments and claims, would be guided accordingly.

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Drivers of presidential vehicles behaved inappropriately

Last Sunday afternoon at around 4.30 I was driving west along Carifesta Avenue, when I heard the approaching sounds of a siren and almost instantaneously was overtaken by four speeding presidential vehicles including the one bearing the presidential crest. Having duly pulled up, I then continued on my way when, just before the traffic lights at Camp and Lamaha Streets, I saw one of the cars with its driver’s door open and the driver under a tree chatting with a young lady.

As if that were not bad enough, as I proceeded along Lamaha Street I saw another of the presidential vehicles veer dangerously towards a man who, as I got closer, I recognised as a mechanic I know by the name ‘Cappie.’ A moment later the driver alighted from his vehicle and approached Cappie threateningly. I stopped and warned the driver against assaulting the man whereupon I was told by the driver of the lead vehicle to go my way. I did not until I was satisfied that no direct harm had been done to the man.

Taking the behaviour of the drivers collectively, I could not help but wonder whether these state-owned, expensive vehicles and their staff may have been returning from a fete. One wonders too whether there is a protocol regarding the conduct of the drivers of the presidential vehicles and at the abuses and lawlessness in the name of the President. For those who pay their taxes and abide by the law such behaviour is an affront to good sense, decency and the rule of law.

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Weaknesses in the self-regulation of the accounting industry have been demonstrated

The acceptance by Mr Chandradat Chintamani, FCCA of a place on the board of Demerara Distillers Limited on the last day of 2008 has highlighted the role of individual accountants and the regulator in ensuring that ethical standards in the accounting profession are maintained.

Mr Chintamani is a member of the Council of the Institute of Chartered Accountants of Guyana (ICAG) and the Secretary and point man of its Investigations Committee. That committee took close to five years (April 22, 2004 to December 30, 2008) to adjudicate on a professional complaint against two senior directors of DDL and the company’s auditors over a loan-buy back from troubled Hamilton Bank. The evidence is that the company gained from the transaction US$1.1M or more than G$200M at the then exchange rate of the US to the Guyana dollar. The gist of the complaint was that DDL had failed to account for the gain in its financial statements on which the auditors gave a clean opinion.

As the complainant I provided Mr Chintamani directly with particulars of the buy-back which were not reflected in the company’s financial statements.

What increased the concern over the transaction were the conflicting statements made by two senior officials of the company and their inconsistency with the information provided to Mr Chintamani.

In a letter dated December 1, 2003 the company’s Chairman had stated that “the loan was treated as a creditor and included in current liabilities since it is a line of credit.” For good measure the Chairman added that the net effect of the settlement resulted in no gain or loss to the company.

Two weeks later on December 14, 2003 a different story emerged from an article in the Stabroek News in which then Finance Controller and now General Manager of the company Mr Loris Nathoo reported that “since the transaction happened within the financial year and the loans were short-term the company did not see it necessary to report the matter in its statement” (sic). He was also reported as saying that the 25% discount of US$1.1M reflected “interest and other charges.”

After some considerable silence on the part of the Investigations Committee I received a letter dated December 30, 2008 advising me that “based on documentation examined, the Council [of the ICAG] is convinced that the settlement of the loan with Hamilton Bank Limited was properly accounted for in the financial statements of DDL for the year ended December 31, 2002.” I was therefore confronted with a number of questions:

If according to the company’s Chairman the loan was treated as a creditor (as opposed to loans payable or separate treatment as it is an interest bearing liability) how could the Investigations Committee find that it was properly accounted for?

If the later statement by the Finance Controller is correct and there was no need to report the matter in its financial statements were the Finance Controller and the ICAG referring to two different sets of statements?

Assuming that the ICAG is correct, why did interest payable only increase by $72M from 2002 to 2003 if in fact a gain was set against interest payable in 2002?

Should there not have been a disclosure of a loan transaction involving US$4.673M including the credit being specifically disclosed in note 4 to the financial statements?

Since under the ICAG’s bye-laws the Institute can initiate an investigation without a complaint, what is the burden and standard of proof applied by the Investigations Committee and its own obligations to pursue evidence in relation to any enquiry it carries out?

To resolve these questions I wrote the Secretary of the ICAG on January 19, 2009 asking for a copy of the report done by the Investigations Committee. I have not had a response to my request but learnt unofficially that the report may have been oral which raises some serious questions indeed.

The role of the ICAG as regulator is not only to advance the interest of its members generally but also to ensure the maintenance of high standards of practice and professional conduct by all its members. Vernon Soare, ICAEW Executive Director of Professional Standards on the occasion of the decision of that body to open up its tribunals to the press and the public in 2007 put it this way: “A modern professional body must demonstrate that its processes are objective and in the public interest.”

The conduct of the Investigations Committee and the ICAG in the matter of the complaint against DDL and its auditors clearly did not meet that test but rather demonstrated the serious weaknesses in self-regulation and the failure of the accounting profession in its duty to the public. The reputation of the country is no less determined by the conduct of its politicians than by the integrity of the accounting profession.

From the sequence of events Mr Chintamani must have been engaged in discussions about a seat on DDL’s board even while he bore a duty to participate in an independent investigation into a complaint against leading members of that Board. At a minimum, Mr Chintamani should have disclosed to the Council of the ICAG his impending appointment and the Board of DDL ought to have considered the ethical issue involved in offering a place to Mr Chintamani. The approach to him was improper and distasteful and does a disservice to the entire Board of DDL but in the final analysis it was Mr Chintamani’s duty to refuse. His failure to do so, undermined the investigation and discredits the profession.

Mr Chintamani needs to reconsider his decision and lapse of judgment and do what is necessary to restore some measure of confidence in the profession. The Council of the ICAG must also consider whether in the light of these developments the findings of the Investigations Committee can and should stand. A profession that many see, perhaps unfairly, as part of the tax evasion industry cannot afford to feed any negative perceptions about its leading members and itself.