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The Fidelity report should be released immediately

In yesterday’s Sunday Stabroek `Fidelity report still to be tabled in Parliament’ you report Office of the President Spokesman Mr. Kwame McKoy as declining to say whether Parliament had received the report. Mr. McKoy then added that the report would be tabled in due course, adding that “there are other pressing things before the house”, suggesting that “the Auditor General’s report would likely have to wait in line.”

Does the Office of the President (OP) rather than the Speaker and the Clerk of the National Assembly decide whether it has other pressing matters and does OP believe the Assembly works like a taxi rank where you have to join a queue?

Mr McKoy should reserve such crass absurdity, presumption and arrogance for his television show rather than try to insult the intelligence of the more right thinking Guyanese. Whatever Mr. McKoy and the Office of the President may want us to think, many Guyanese regard the report as bearing on the conduct of both public and private sector officials possibly involving corruption and the loss of substantial revenue. Its publication therefore is long overdue and should be released immediately.

It makes me angry to think that my hard-earned tax dollars are used to pay people of McKoy’s calibre and makes me wonder how many more McKoys reside in the Office of the President.

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Staggering increase in external debt

Bad news
The country’s stock of external public and publicly guaranteed debt rose by 20.3 per cent to US$804 million from the end of September 2007 to the end of September 2008. This dramatic increase has been reported in a quarterly report by the Bank of Guyana for the nine months ended September 30, 2008. As a consequence, external debt service costs increased by 10.5 per cent to US$11.5 million, reflecting new debt payment schedules primarily for multilateral creditors. These were among a number of interesting issues raised in a most commendable effort by the central bank, and the Governor, Mr Lawrence Williams and his team deserve kudos for what appears to be a first for the bank.

Otherwise the report makes for a most depressing report on the management of the economy by President Bharrat Jagdeo and his Finance Minister Dr Ashni Singh, of whom so much was expected when he first was appointed a minister after the 2006 elections. By almost every measure the economy in the three months July to September 2008 performed worse than it did in the same quarter in 2007.

There was lower output in all the country’s major commodities during the third quarter of 2008 compared with the same period in 2007. Sugar fell by 3.6%, rice by 1.6% and poultry by 12%, while in forestry products, diamond and fishing the story was the same. Someone counted the eggs and came up with a 64% increase in the country’s production of eggs while there was modest growth in the mining sector, including the foreign owned bauxite companies blessed with generous concessions which the government has refused to disclose.

More bad news
If the overall performance of the manufacturing sector is depressing, the non-performance of segments of the sector must be a cause for serious concern. The production of paints and alcoholic beverages increased by 1.7 per cent and 6.3 per cent, respectively, whereas there were declines in the production of pharmaceuticals by 2.5 per cent and non-alcoholic beverages by 33 per cent. Our pharmaceutical company is another beneficiary of concessions and valuable contracts to supply Indian manufactured drugs to the government.

And if non-alcoholic beverages include Coke, Pepsi and I-cee, is it an error or did we in the third quarter produce only two bottles when three months earlier we were producing three? Where are we going and what does it say that a senior official of one of those beverage companies is a top member of the increasingly useless National Competitiveness Council?

Inflation
The Bank of Guyana, sourcing its information from the Bureau of Statistics reported that the inflation rate “during the third quarter of 2008 grew by 7.8 percent compared with 13.9 percent for the corresponding period in 2007.” There must be some error here, however, since the inflation during the quarter could not be 7.8% and was probably the rate for the nine months. The food basket maintained by Ram & McRae for the quarter reflected an increase of 8.2% over the three months but for the year the firm’s basket of food showed an increase of 33%, similar to the increase in Trinidad and Tobago. Conveniently, the Bank of Guyana concludes, without offering the kind of analysis and evidence expected from such a body, that the level of inflation in Guyana was driven by higher international fuel and commodity prices.

What is troubling is that the report indicates that price data for the third quarter were not available. Yet we will be expected to accept without question inflation figures pronounced by Dr Singh when he presents another of his big budgets that would not only include all of the third quarter but the entire year! It is hardly surprising therefore that leading economists and the public have ceased to give any credence to the numbers provided by the government, particularly on inflation and GDP, two politically sensitive variables.

Wages and employment
The Bank of Guyana clearly forgot that these are key issues in the economy since they give them a complete pass, meaning no mention. Expectedly, it did devote much attention to the financial sector reporting that the foreign exchange market continued to grow during the review period. The bank seems to forget as well the role and scale of the underground and parallel economy, and as our newspapers show, the role of drug money in the economy. It has decided, again without solid information, that sales of foreign currency “were related to higher import costs.”

Almost half of the transactions by value in the foreign exchange market were accounted for by the cambios with the bank itself purchasing some US$376 million, comprising mainly purchases of US$212 million from GuySuCo and the Guyana Gold Board. Despite the perceived strong links between the non-bank cambios and the underground economy the report does not reflect any cause for concern on the part of the bank in its supervisory role over these entities, most of which are unincorporated businesses not requiring independent audit of their books.

The drugs trade
At least as readers of the daily newspapers, the bank must be aware of the drug trade with its own oligarchy. And so too must be the one-man Financial Intelligence Unit, located within the Ministry of Finance, that is supposed to prevent money-laundering. The report indicates that sales by the non-bank cambios represented 8% of total currency sales. Even Lewis Carroll would have hesitated before writing this figure. This column has criticised the law regulating the non-bank cambios, noting that they have outlived their initial purpose and called for their abolition. In a remarkable sign of impotence and or lack of will, the response has been that it will drive the business back onto the streets. This seems to suggest that instead of running the country on the basis of laws, we are at best closing our eyes and ears to reality, operating on fear of stepping on the toes of the powerful.

Despite the bank’s poor record of supervision of the cambio sub-sector the report devotes several pages on the remittance business, advising of the steps being taken to bring it under its control. The report notes the significant increase in the inflow of remittances during the past six years, increasing from US$3.4 million in 2002 to US$224.4 million in 2007. In the first half of 2008, net flows of remittances increased by 6.3 per cent, or US$6.6 million to US$111.8 million compared to half year 2007. Interestingly, Caricom countries now rank only behind the United States of America as the dominant countries from which Guyanese receive remittances.

Tax, borrow and spend
The report emphasises that the overall surplus of the public sector contracted during the review period, resulting from relatively higher expenditure by the central government since receipts from corporations and tax revenues increased slightly. The tax and spend approach that has characterised President Jagdeo’s style of financial management seems to have been taken to new levels by Dr Singh. With him at the helm of the Finance Ministry, it is now tax, borrow and spend. Since moneys borrowed have to be repaid later, no government, elected or otherwise, should be allowed to borrow away the future of a country. There should be a cap on how much a government is permitted to borrow, even if it is to stabilise excess liquidity in the financial system as the report indicates.

The report which was created in PDF format on December 29, 2008 for publication on the bank’s website “predicted” that in the fourth quarter, the economy would continue its growth path, particularly in the mining, construction and services sectors, and that the agriculture sector which had faced “minor setbacks in the third quarter” would register modest growth. Clearly it could not be referring to sugar where the drama became even more surreal. In a cleverly worded disclaimer for the (mis)management of the economy, the report notes that the efficacy of the bank’s policies will depend on the stance of central government fiscal policy. And we all are aware of the history of that policy.

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What is the usefulness of the President’s overseas visits?

It is almost impossible to count the number of times the President goes on overseas visits. He is by far the most travelled President/Prime Minister in the region even as our country remains only above Haiti as the poorest in Caricom. The latest overseas visit is reported in your January 12, 2009 edition which carries a release by the Government Information Agency (GINA) that President Bharrat Jagdeo is on a visit to Libya, Qatar and Greece that will last one week. He is accompanied by four other persons, two ministers, the largely unknown George Hallaq, Presidential envoy to the Middle East and Greece and the religious leader close to the government and some time civil society activist Fazeel Ferouz, President of the Central Islamic Organisation of Guyana.

Weighed down by the yoke of flooding, high cost of living, ministers who in the absence of the President become even more unproductive, lawlessness and punitive taxation, Guyanese have a right to know the reasons, timing and the usefulness to them of such visits. Is it to meet with Guyanese nationals in those countries, to expand trade and investments or to seek diplomatic support for some major international initiative Guyana is launching? If it is trade, why not take a private sector representative or is that hat being worn by Mr Ferouz?

And we all know that when the President returns home, he makes no proper report as any responsible manager, let alone a country President would, but more often than not simply calls a press conference to discuss trite domestic issues which his ministers are paid to address, and little else.

And of course we must not forget cost. My information is that each overseas visit the President makes costs thousands of US dollars and somewhat less for ministers. How much is this visit going to cost taxpayers in total and would that money not be better spent on the poor and the flooded out in Guyana or on the numerous problems that drive Guyanese from the country?

This seems to be a perfectly legitimate question for our reporters who turn up like sheep at the President’s post-visit press conference to ask. Indeed it would be useful to know how much was spent on overseas travel by the President, his ministers and their entourages during 2008. Perhaps the Accountant General can provide us with this information, failing which I would like to see the Public Accounts Committee demand the information.

Taking full advantage of our system of electocracy, the government seems all too ready to do as it wants, when it is confident that it controls the instruments of disclosure, accounting, accountability and audit so that the public remains powerless and ignorant.

I hope that when next the government asks the inane question where the money will come from to pay living public sector wages, reasonable pensions to our senior citizens and better flood control measures, we will have several answers ready.

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Israeli action in Gaza is a war crime

Haiti, the Congo, Afghanistan, Somalia, Zimbabwe, Indonesia − there are many countries and societies that suffer interminably and almost silently as the world powers press on expanding their military and economic might on a global scale. The deliberate bombing of women, children and men with powerful rockets and artillery fire is an atrocity and a war crime. The actions of the Israelis in Gaza have so outraged the world that even the normally tongue-tied Security Council of the United Nations has had to criticize Israel’s relentless assault and leading members of the Jewish community in London, usually passionate defenders of the state of Israel, have expressed their abhorrence at the wanton killings and atrocities of the invasion.

Israel is a state with influence, with powerful friends and with clout in the international community. The actions it complains of against a Palestinian faction, Hamas, cannot be condoned, but Israel’s response is disproportionate and barbaric, modelled on the most obnoxious examples of human cruelty, the genocide of native Americans, the Atlantic slave trade and the Nazi holocaust of the Second World War.

The heavy and merciless blowing up of children, women and men cries out for condemnation and world action to stop the unfolding slaughter. James Petras, American academic, wrote the following on the nightmare unfolding in Gaza:

“Moving directly from its totalitarian vision to its military blueprint to the savaging of Palestinian population centers, the Jewish state destroyed the principal university with over 18,000 students (mostly women), mosques, pharmacies, electrical and water lines, power stations, fishing villages, fishing boats and the little fishing port that provided a meager supply of fish for the starving population. They destroyed roads, transport facilities, food warehouses, science buildings, small factories, shops and apartments. They destroyed a women’s dormitory at the university. In the words of the Israel leader: ‘…because everything is connected to everything…’ it is necessary to destroy each and every facet of life, which allows humans to exist with some dignity and independence.”

Israel’s defenders are reduced to bringing up a quasi-religious argument that seeks to somehow present nuclear armed Israel as a victim in the Middle East. A cursory glance at the facts and the Israeli military industrial complex with a seven billion dollar annual budget says otherwise.

There are also the massive support tentacles of AIPAC – the high-powered lobby group and the greatest supporter and benefactor of the Israeli state and policy – with ties to boardrooms, media, the USA Congress and the Pentagon. Any objective observer, after considering these facts, would hopefully develop a more clear-eyed assessment of the manner in which the Jewish state behaves in the Middle East.

What are the reasons for this latest incursion? There are several theories but one is very straightforward: the continuation of a policy of expansion under the guise of the survival of the Jewish state. Most of Gaza’s populations are survivors of 1948 when 13,000 Palestinians were murdered and hundreds of towns were erased and people driven from their homes in the area. History records that in 1967 Israel, to cite one source, “seized the remaining 22 per cent of Palestine including East Jerusalem, the West Bank and Gaza, and continues to hold them in violation of United Nations resolutions.”

A second probable reason for the Gaza invasion is the Jewish state’s apprehension about the possible new direction of the incoming US president and the fact that the economic morass in the United States might lead to a fall-off in economic support for Israel.

The US military and state provide Israel with billions of dollars annually, by far the largest recipient of US foreign aid in the world.
The third reason is revenge for the defeat of the Israeli military at the hands of Hezbollah in their last incursion into Lebanon.

The fourth reason for the incursion is the forthcoming Israeli elections and its main contenders. Defence Minister Ehud Barak (the once and would-be prime minister) − his eye fixed on February elections – is employing mass murder as his party’s latest vote-getting appeal.

The western media hardly report protests of Jews in Israel, North America and Europe against the slaughter in Gaza. One of the foremost critics of the Jewish state is Noam Chomsky, himself a Jew. Other Jews inside and outside of Israel have condemned the incursion into Gaza. Naomi Klein, the internationally acclaimed writer and activist, has recently argued that the best strategy to “end the increasingly bloody occupation is for Israel to become the target of the kind of global movement that put an end to apartheid in South Africa.” While she admits this will be a difficult task, she sees it as perhaps the only way that these massacres will end. And the massacres in Gaza have in fact provoked a rise in anti-Zionist activism by Jewish women and men who believe that the apartheid practised by the Israeli state is a betrayal of all that Jews have historically stood for.

Yours faithfully,

Andaiye, David Hinds, Rupert Roopnaraine, Karen de Souza, Wazir Mohamed, Denis Canterbury, Alissa Trotz, Nigel Westmaas, Eusi Kwayana, Chris Ram, Abbyssinian Carto, Moses Bhagwan

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Truth Made-off leaving trail of cooked books

Introduction
Over the years this column has reported on its fair share of scandals in the financial world, often in the biggest this and biggest that. Today we report on two such biggest – one from, you would have guessed, New York and the other India. The ingredients that make up these frauds are the usual suspects – persons too clever for their own good; greed; an unsuspecting public; poor oversight and accountants sleeping on the job. The historical economist and author Charles Kindleberger expressed it in slightly more elegant language, writing that “swindling is demand-determined, following Keynes’s law that demand determines its own supply, rather than Say’s law that supply creates its own demand. In a boom, fortunes are made, individuals wax greedy, and swindlers come forward to exploit that greed.”

Whatever it is, the vehicle used in the Madoff scandal is one that came to be known as a Ponzi scheme, a swindle offering unusually high returns, with early investors paid off with money from later investors. The scheme got its name from the Italian-born American resident who promised clients a 50% profit within 45 days, or 100% profit within 90 days.

Madoff
While Ponzi was a known itinerant crook who served time on more than one occasion, Bernard Madoff, was a star of Wall Street, former chairman of the Nasdaq Stock Market and founder of Bernard L Madoff Investment Securities LLC, which had operated successfully for over four decades. And to support Kindleberger’s theory, the victims of what may turn out to be a US$50 billion swindle were not the small-town residents buying postal coupons, but top names in banking, show business, the intellectual class and many on the list of the wealthy. HSBC said its losses were about one billion US dollars while the Royal Bank of Scotland estimates its losses at US$600 million.

Investigators estimate that it will take more than two years to complete their work, but it is unlikely that they will ever come up with even reasonably precise figures. It is the nature of a Ponzi scheme that early investors do benefit, quickly receiving their initial capital from subsequent investors.

What must surely annoy is that once again there is failure of regulatory oversight. Last month, SEC Chairman Christopher Cox expressed grave concern at the “multiple failures over at least a decade to thoroughly investigate these allegations [at Madoff] or at any point to seek formal authority to pursue them,” ordering belatedly an internal review into the agency’s failure. And it is the same SEC that facilitated a three-employee accounting firm to audit Madoff on an annual basis. Brokerage firms like Madoff Securities are required to be audited by firms that were registered with the Public Company Accounting Oversight Board created after Enron to help prevent frauds.

Amazingly, the SEC allowed a waiver, which it extended on numerous occasions, to the audit requirement in respect of privately held brokerage firms. It is not surprising therefore that the auditors Friehling & Horowitz failed to detect the large Ponzi scheme run by Mr Madoff. Ironically, in its latest extension of the rule, issued December 12, 2006, the SEC said it had determined that allowing such firms not to register was “consistent with the public interest and the protection of investors.” Well, well, well.

Now to India
India was not too long ago held up as the country where the Beatles would go to seek spiritual renewal. The country lost its innocence with the Indira Gandhi emergency of 1975, but still the myth of innocence prevails with former Australian cricket captain writing in the aftermath of the Mumbai bombing in November that India had been “robbed of its innocence.”

Now in a twist of irony, one of its top information technology companies that have led the way in the in-sourcing credited with the country’s economic boom, Satyam Computer Services Ltd, has found itself embroiled in a scandal dubbed by commentators as “India’s Enron.” The word ‘Satyam’ in Sanskrit means ‘truth.’ Last week the company’s founder and chairman, B. Ramalinga Raju, resigned amid revelations of widespread accounting fraud in the company.

Mera Naam Raju
The resignation came in a five-page letter to the company’s board in which Mr Raju apologised to the shareholders, taking personal and sole responsibility for the fraud involving bogus accounting over several years, including inflating profits by more than tenfold between July and September of last year. As if making a concession the soft-spoken Raju with trademark paternal charisma, said he was prepared to face the law.

Raju was like a corporate deity in India, not only for having built a $2 billion IT empire bringing in foreign currency, but also for launching the Emergency Management and Research Institute, a national, not-for-profit 911-like emergency-response service funded by $50 million of his and his family’s money. Three months ago his company received the Golden Peacock award from a group of Indian directors for excellence in corporate governance.

PricewaterhouseCoopers
Juxtaposed against Satyam or Mr Raju’s personal accounting misdeeds, such benevolence raises doubts about human nature and the philanthropy with which we associate businesspersons. In his letter Mr Raju disclosed that Satyam had inflated its operating profit for the three months ended September 30, 2008 to 6.49 billion rupees ($136 million) from 610 million rupees reported previously, while revenue was inflated to $565 million from $443 million. It had reported an operating margin of 24 per cent which was actually 3 per cent. On the asset side, Satyam’s balance sheet as of September 30 had a non-existent cash balance of over $1 billion (remember Parmalat?); nonexistent accrued interest of $79 million; an understated liability of $258 million and an overstated debtor position of $103 million.

Several investors in Satyam were considering suing PricewaterhouseCoopers LLC, the company’s auditors, which like all the top auditing firms benefited from the fall of Enron’s auditors, Arthur Andersen. The investors say the auditors are supposed to check on the accounts and that they rely on the auditor’s report. In a careful meaningless statement PWC said that they had worked “in accordance with applicable auditing standards and were supported by appropriate audit evidence.” That statement really says nothing since it is no more than a repetition of the standard words used in any audit report.

Creative explanation
While the firm was right to explain that their obligations for client confidentiality precluded the possibility of commenting on the alleged irregularities, how do they expect the public to have any confidence in a profession where top auditing firms repeatedly fail to detect massive frauds year after year? Like Raju, Pricewaterhouse’s assurance that it “will fully meet its obligations to cooperate with the regulators and others,” seems neither a concession nor an option.

Raju’s explanation was a bit more interesting and philosophical, even if far too defensive. His letter which will go down as one of history’s most creative and longest resignations states in part that what had begun as a small gap between real and reported profits continued to grow over the years, like “riding a tiger, not knowing how to get off without being eaten.”

It is probably too early to assess the impact of the scandal described by PC Gupta, the federal minister for company affairs as a “shameful act” while Jagdish Malkani, country head at TAIB Capital Corp described it as “a monumental scandal [that] is terrible for the Indian IT industry.”

Some things, however, are fairly certain. There will be calls for more oversight and regulation of public companies, which happened in the aftermath of Enron and the other Dotcom failures. Indeed Mr Gupta has already said that government would take coordinated action with the Securities and Exchange Board of India. Meanwhile and more immediately, there are two major risks making India very uncomfortable – the likelihood that the Satyam is not unique in creative accounting and the same thing is happening in other public companies. That would scare away foreign investors. Equally serious is the potential disruption of services to the lucrative US outsourcing market. The timing could not be worse. As the Obama administration responds to the highest unemployment rate in the US for decades, tempted by protectionist instincts, outsourcing must be high on the agenda.

Satyam was already facing a World Bank ban for improper financial dealings with a top bank official. Along with the World Bank, Satyam’s clients include General Electric Co, General Motors Corp, Nissan Motor Co, Applied Materials Inc, Caterpillar Inc, Cisco Systems Inc. and Sony Corp. Will the other Indian IT firms be chosen to take up any slack or will these customers go elsewhere?

Conclusion
The almost co-incidental revelations of Madoff and Satyam have no doubt come about because a bear market drives the chickens home to roost while no one cares about corporate governance in a bull market. In Guyana here in the nether world – neither bull nor bear – we never seem to care. The scandals show that those who appear as good guys may be putting on a front. Madoff is described on his company’s website as having “a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm’s hallmark.” Raju was the personification of piety and generosity.