Clico, contagion, containment and concealment

If a loss of public moneys should occur and, at the time of that loss, a Minister or official has caused or contributed to that loss through misconduct or through deliberate or serious disregard of reasonable standards of care, that Minister or official shall be personally liable to the Government for the amount of the loss.

This is a direct quote from section 49 of the Fiscal Management and Accountability Act which President Jagdeo signed into law in late December 2003. The Clico affair and related matters may be a good time to draw attention to the provision which has never been tested at the higher levels. When the dust settles, the taxpayers, NIS contributors and beneficiaries, members of pension and medical schemes and depositors in Clico and potentially in Hand-in-Hand Trust (HIHT) and the New Building Society could lose collectively several billions from the fall-out in the financial sector.

Other consequences will be equally severe, if not always as direct. Jobs will have to go. Moreover, with perhaps billions invested in Stanford Investment Bank (Stanford) by the HIHT and other so far unidentified pension schemes and individuals, their losses and their income stream − all in US dollars – will be gone. With the assertion that our economy is ring-fenced having proved naively misleading, and claims by Clico, the President, the Minister of Finance and the Commissioner of Insurance − all acknowledged as very bright persons − having proved to have been misguided at best and been guilty of misrepresentations at worst, there is a loss of confidence not only in the judgment and competence of our economic managers, but also in the independence and ability of the regulators to protect the public interest.

Last Wednesday, Ms Maria van Beek, the Commissioner of Insurance, presented a petition to the court seeking an order that Clico be wound up or alternatively, that a Judicial Manager be appointed. One day later, Ms van Beek was granted her wish by Chief Justice Ian Chang in an order returnable tomorrow, Monday, appointing her as Judicial Manager of the entity which she has supervised for more than five years. Instead of immediately issuing a statement advising affected persons – numbering tens of thousands – of the implications that flow from the order, Ms van Beek proceeded to the Office of the President for a press conference, where along with the Minister of Finance Dr Ashni Singh and the Governor of the Bank of Guyana (the Bank) Mr Lawrence Williams, she sat silently as the President made excuse after excuse for the failure of Clico and gave vague statements about protecting pensioners without once using the G word – guarantee − which is what people, worried about their savings, pensions, medical schemes and jobs most need.

Blame The Bahamas
President Jagdeo, who is not the responsible Minister, told the nation that it was the collapse of Clico Bahamas that triggered the action by the commissioner. Yet that is not what the commissioner said in an affidavit sworn to the court one day earlier. She said it was the business model and investment policies pursued by the company. The President, seeking to protect Ms van Beek and by extension his Minister of Finance, told the nation that the commissioner had told Clico more than one year ago that they should have regularised their investment position. So, did the commissioner write the company and then sit back as they breached the law even further? The problem with the President’s style of intervention is that at best, he does not check the accuracy and implications of the statements he makes and increasingly often, he is wrong. There is no need to remind anyone of the damage caused by such lack of respect for accuracy as we saw in the saga of tax concessions necessitating an amendment in the law to facilitate Queens Atlantic Investment Inc’s tax concessions.

In matters financial details are important and so is judgment, particularly when it involves self-serving statements. When the President assured the nation on February 5 that Clico’s assets were sufficient to meet its liabilities he was repeating a company line without having read the December 31, 2007 analysis showing that 81% of the company’s assets was invested in related parties, all of which were under various degrees of threat (SN February 7 and Business Page Feb 8 reported on this analysis). In fact as Minister-Extraordinaire he should have known that the 2008 figures had shown some deterioration, suggesting that the commissioner’s call was ineffective and/or ignored. Both he and the Minister of Finance should have wondered how a company that issued “insurance policies” with premiums running into billions of dollars only needed a statutory fund of under fifty million dollars.

Disregard for reasonable care
The disregard for reasonable care does not end with them. The nation would have expected the Commissioner of Insurance and the Bank of Guyana to recognise that those policies were investment products dressed up as insurance. It is hard to believe that such a major issue would have escaped the attention of the Bank with illustrious directors of the calibre of Drs Gobin Ganga, Prem Misir and Cyril Solomon.

Given the poor oversight exercised by the regulators in general and the Commissioner of Insurance in particular, the court would have been reluctant to appoint Ms Van Beek to manage the operations of Clico under its supervision. Her demonstrable failures to act expose her inappropriateness for such a job, or even to have been the lead regulator for an industry which also required legal expertise. The problem for the court is that the law appears to have given it little choice. Yes, the court could have made a winding up order on the ground that Clico is insolvent, and use the more practical test of “inability to pay one’s debt on demand” that may very well have been the case. But the Insurance Act makes it a bit more difficult for the court by requiring a determination of the value of a troubled company’s assets and liabilities, never an easy task even for accountants. The President compounded the difficulty by volunteering that he hoped that the entire sum from The Bahamas company would be recovered even as he failed to address the billion dollar debt owed by CRL, the Guyana forestry product subsidiary of the troubled CL Financial which has guaranteed the debt.

Once the court chose not to go with the winding-up option – though this may still happen at some time – section 68 of the act gave it no choice but to appoint the commissioner as the Judicial Manager. Apart from the fact that her past supervision of Clico inspires little confidence, and her inattention to detail was embarrassingly exposed when she wrongly identified the name of Clico in her petition, what then becomes of her statutory role and function as Commissioner of Insurance over Clico and the rest of the industry, including Fidelity, which would ordinarily require full-time attention? Additionally, there appears to be a conflict between her two roles which the court would have to consider given that the court itself is not equipped to make business judgments.

The poor NIS could stand to lose six billion dollars in investments in Clico which may not have been made in compliance with the NIS Act. This is no small change. It is the equivalent of more than 20% of earnings accumulated over forty years by the Scheme and about one year’s benefits payment. To check on the propriety of the investments, I wrote Minister of Finance Dr Ashni Singh a letter on February 24, pointing out that the NIS Act only allows the NIS to invest in securities approved of by the Co-operative Finance Administration (COFA) established under the Co-operative Financial Institutions. I pointed out that he is not only the Chairman of COFA but as Minister, appoints the Board of COFA. The Minister of course also appoints the Board of the NIS. I asked him the following questions:

1. The names of the persons he appointed to COFA currently serving as members of the administration, and the commencement and termination dates of their appointments.

2. The securities which COFA approved for purposes of investment.

3. Whether the NIS had sought and received approval for any investments other than those determined by the administration and if so, the securities which have been so approved.

4. Whether the administration during his tenure as Minister has ever taken the opportunity under section 4 of the act for its Chairman or Secretary to attend any meeting of the National Insurance Board, and in particular the meeting at which any decision was made by the board for any special investments.

I am awaiting his response. But if it were owing to the Minister’s “misconduct or through deliberate or serious disregard of reasonable standards of care” COFA did not approve of NIS investing in Clico the Minister would have some serious questions to answer, not to Business Page but to the nation.

To make matters worse for the NIS, Clico was allowed, even while Commissioner van Beek, the Minister of Finance, the President and the Bank of Guyana were “monitoring” the imperilled insurance company, to divest itself of $1.5 billion dollars of bonds in the Berbice Bridge Company Inc. The Board of the NIS, all the members of which are either ducking or hiding, needs to explain to the nation whether the terms of their $6 billion investment in Clico were breached by the sale of the bonds and whether the Scheme feels that its investment is any safer now.

The New Building Society
More than ten years after privately as a director of NBS and publicly as a columnist, I advocated that the country’s only building society with more than one hundred thousand persons’ savings and loans involved be brought under the supervision of the Bank of Guyana, the Bank exercises no jurisdiction over the NBS. During that time the government has drastically increased the lending limits while relaxing the conditions and security required to back the loans made. One only has to consider the Savings and Loans crisis in the US in the late eighties to appreciate the possible consequences of such laxity. But there is more to worry about. The board has also become increasingly politicized with its current Chairman being Head of the Public Service in the Office of the President and the decision about the new Head Office involving hundreds of millions of dollars being made against technical professional advice. Quietly, the NBS has been joined in the failed attempt to prevent the demise of Clico. The NBS has bought over $1.5 billion dollars of bonds in the Berbice Bridge Company Inc from Clico, and it is unlikely that this would have happened without the official agreement and sanction of the Office of the President in which both the Chairman of the NIS and the Chairman and one director of the NBS are based, or the Ministry of Finance which has to approve investment in securities issued by the Berbice Bridge Company.

The danger is obvious. The NBS with assets in excess of $30 billion is unsupervised and unregulated but subject to powerful political influences. If the bridge company which is proving the sceptics right about the hugely optimistic traffic projections, and the board, which is chaired by the Clico CEO, cannot meet its financial obligations to bondholders, $1.8 billion of the funds of the NBS – representing about 40% of its reserves – would be at risk. That is real money which added to the Head Office being constructed at a cost of approximately $800 million could pose real trouble for the society.

Once again the recurring players are the President, the Minister of Finance and the Bank of Guyana, the last-named of which has failed to assume any jurisdiction as it should have. Of course this in no way exonerates the Chairman and directors of the NBS from their fiduciary obligations.

Hand-in-Hand Trust
The President also referred at the press conference to the investments made in Stanford by the Hand-in-Hand Trust, which holds depositors’ funds and manages some of the country’s largest pension schemes. He said that in the case of the HIHT, “total current exposure” to the Stanford Group amounts to $827 million or US$4 million, in addition to $297 million or US$1.5 million invested on behalf of pension funds. He then went on to confuse the nation by referring to the direct exposure which he said represented 9 per cent of the total assets of HIHT.” Whether it is 9% or closer to 10% is less important than the fact that this is not how one measures exposure. With the head of the Bank of Guyana and the Minister of Finance sitting in at the press conference as his technical advisors, the President as an economist should know that the measure should have been total exposure of the company – direct and indirect – relative not against total assets which do not belong to the company but only to equity which does. In other words he was downplaying the problem in more than one way.

The question has also been raised whether it was permissible for the HIHT, regulated by the Bank of Guyana under the Financial Institutions Act, to place so much of its funds in a single investment – what lay persons would refer to as putting too many eggs in one basket, but which the more technically-minded Bank of Guyana would call asset concentration. In the case of the failed Globe Trust, the Bank of Guyana received more than a mild criticism from then Chief Justice Carl Singh for its poor oversight. It must now hope that by some miracle the investment by HIHT in Stanford will be recovered. If that does not happen, then the Bank can expect not only a strong rebuke but perhaps even a lawsuit.

Faced with a financial crisis, the first step is containment. Instead we had concealment with the consequence that it has widened and enlarged now including, with potential negative and costly consequences, the National Insurance Scheme, the New Building Society, pension schemes and savings accounts of hundreds of thousands. Confidence is also crucial but this comes only from the competence, judgement and independence of our leaders and regulators. None of these qualities has been adequately demonstrated in this instance by the President, the Minister of Finance, the Commissioner of Insurance, the Bank of Guyana, the National Insurance Scheme and the New Building Society.

The rest of the financial sector and perhaps with one exception the insurance sector all appear very solid. Every effort must be made not to contaminate them and to restore confidence in the entire system. I believe that the National Assembly needs to take an active role in this.

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

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.

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.

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.

Most of major issues were avoided

Dr Misir avoided most of the major issues raised by me in the exchange of letters I have had with him over the past couple of weeks, while my hint to him that he should be guided by Eleanor Roosevelt’s classic quote about ideas, events and people appears to have escaped him in his letter of February 17 (‘Excessive nitpicking,’ SN).

Dr Misir and his fellow team member Mr Kwame McCoy in particular, seem fascinated by my politics. Fortunately or unfortunately, I have no tale to tell of personal heroism, revolutionary activism or political association to whet the appetite of Dr Misir and his “huge team of… significant players,” all serving a political cause paid for by taxpayers which would make the Value-For-Money practitioner recoil in horror and despair. For the information of Dr Misir and Mr McCoy my major contact with the PNC of the PPP’s critical support days was having been part of the group including Lou Bone, Eddie Dewar, Valerie Holder, Clairmont Kirton and Freddie Kissoon whom Burnham had decreed should get no work from the state. At no time during the PNC regime was I ever employed by or received any work from the state. Indeed, during that period I was close to the WPA, NAACIE and FITUG – hardly associations that would appeal to the PNC. There were people, some now feeding at the trough of the PPP government, who were strongly pro-PNC or anti-PPP then. But those are personal choices for which each must be respectively responsible. I offer no judgmental view of them.

Since Dr Misir seems determined to avoid or devalue any discussion such as his citing Ms Gail Texeira’s “observations” in a newspaper article as his constitutional authority on the propriety of presidential actions; or using the excuse of the accomplice and joint offender (the Ministry of Finance) as justification for the misuse of the Lotto Funds by the President and improper accounting therefor by the Ministry of Finance; and since Dr Misir seems more interested in personalities than in facts, issues and shortcomings affecting our society, I consider that any further engagement or exchange with him will serve no useful purpose and will be an imposition on readers.

If, however, Dr Misir would like some real and serious discussion on such issues as the constitutional right to information, a long term economic strategy for the country, electocracy versus democracy, politicisation of the public sector and campaign financing reform, I am sure there are many who would like to engage him. The ball is now in his court – but then he claims to be a batsman, not a tennis player.

Insurance Commissioner should be addressing the public on Clico

Ms. Maria van Beek expressed surprise (SN letter of February 14, 2009) at what she describes as Business Page’s unspecified “assertions and suppositions” (February 8, 2009) on the role of her Office in the Clico issue. She claims that I did not seek her comments on it. She is wrong on both counts.

What did Business Page say about her Office? That it has been silent on the Clico issue (fact then and now); that it is very important for her Office to ask the right questions and to get hard information from the company (vital then, more so now); that the responsibility for supervising Clico’s operations falls entirely under the Commissioner of Insurance (is she disputing that?); that her Office should have been far more proactive than it has been in this matter (is that not a given?) and that the Office of the Commissioner of Insurance simply does not have the resources to properly regulate the sector (fact, just visit her room at the Privatisation Unit in Barrack Street).

But let us set the records straight. When I returned to Guyana on Friday, February 6th, to begin our firm’s preparation for the Budget 2009, I drove straight to Ms. van Beek’s office hoping to meet her in connection with Clico. She was not in office but her secretary spoke to her in my presence. She did not however call me until days later, after the column on Clico had appeared. To say therefore that I did not seek her comments is misleading for someone who regulates an industry subject to the principle of “utmost good faith”. I even had to do some special arm-twisting to get a copy of the 2007 annual report of Clico for which I had to pay her Office $5,400, at the prohibitive charge of $100 per photocopied page.

Almost as if there is nothing unusual about the Clico issue, Ms. van Beek expressed satisfaction that insurance companies have been addressed in BP, adding that she hoped that “this examination of an insurance company’s financials is one of many more to come.” There is no room for banality when $7.5 billion of people’s money in Clico is invested in related parties owned by the CL Financial Group, Clico’s parent which is facing serious liquidity and other difficulties. But yes, Ms. van Beek, just send me the financials and I will review them. Her office should be doing the same and providing informed periodic reports for the benefit of the public.

Too many public bodies are more concerned with protecting their image than in carrying out their mandate. Now that the Governor of the Central Bank of Trinidad and Tobago is claiming that the situation with the Trinidad group is more serious than first thought, Ms. van Beek should be addressing the public on the substantive issue instead of making small and wrong points about Business Page.

I appreciate Ms. van Beek’s offer of assistance and will be writing her for information to do a follow-up to the February 8 article.

Putting some sense in the 2009 Budget

The National Assembly has the most unenviable task of making sense of the 2009 Budget presented last Monday in the National Assembly. The Minister of Finance apparently saw its greatest virtue as being the “biggest budget ever.” Not only is a boast on size from a Minister of Dr Singh’s stature interesting, but if size is the only thing that commends this budget, then there must be serious concern about its wisdom. Size only tells us how much of our money the government will be spending and where the money is coming from. It does not tell us how well the money is being spent and surely that is at least as important.

I understand that MPs, constituted as the Committee of Supply for purposes of Budget consideration, can at this stage, raise “any question relating to the line item being considered and all others relevant to the provided profile for capital items, description provided for each line item, etc.” They need to use that right to the hilt. In terms of ideas and direction, this Budget is by far the worst ever constructed under the Economic Recovery Programme, and even before. It perhaps reflects the involuntary departure from the Ministry of Finance of Mr Winston Jordan who long held the position of Budget Advisor and who was replaced by Ms Sonia Roopnauth, parachuted into the ministry, along with a Deputy Minister of Finance whose role and utility is hardly well communicated.

More resources for the Audit Office
Expenditure has been climbing inexorably over the years which Dr Singh sees, incredibly, as a virtue. The perpetual late availability of the annual report of the Audit Office on the annual public accounts is often of little more than curiosity interest. That adds to the responsibility on the committee to thoroughly review the entire Budget, even at the risk of being accused of stalling. They owe it to the nation.

By the time the year is over, with accurate accounting, we will likely see the highest deficit ever recorded by this country. If all goes to form we can expect that the audit report on the finances allocated in the 2009 Budget will not be available until some time in 2011, the year of the next general election. We can expect as well that the report will be subject to the usual defects expected from an office short of critical resources and accustomed to failure to meet statutory obligations. One of the urgent and most significant recommendations of the committee therefore is the provision of increased sums to finance a functioning Audit Office.

As usual, most of the big players know that because of weak supervisory oversight on spending, they have tremendous latitude on how they account and spend. There is still lots of money outside there that is not properly accounted for on the income or expenditure side of the accounts. That is the case with the Lotto funds and now NICIL headed by Mr Winston Brassington, involving over the years billions of dollars. Those are unconstitutional and unlawful acts. The committee must come down on this. Since a Budget deals with available resources and their application, the estimates (budget) as presented are not correct in that they leave out substantial resources. They should be referred to the Minister for amendment.

There is no known case in recent memory where any Budget figure was changed after debate. Additionally, a significant part of the Budget is based largely on the system of incremental budgeting − take last year and add x %. That is not budgeting but arithmetic. In other words if we spent $100 dollars last year we look at inflation and then do a top-up to arrive at the current year. If we assume even a modest 10% in fat, wastage and inefficiencies, a clinical surgery of that fat without going yet into “lean and clean” could cut the budget by $12 billion – allowing a reduction of several forms of taxation including the VAT.

Zero-based budgeting
No change will come about without a new approach and nothing ever will. But blame me for being an optimist. I think it can be done, even beginning in 2009. Dr Singh was keen to tell us again about his government’s plans for the constitutionally independent Office of the Auditor General. What he should be telling us is how he intends to improve and modernise the system of budgeting of government finances. As an academic and accountant the Minister would be very familiar with the system of zero-based budgeting (ZBB).

He would know that properly applied, zero-based budgeting is particularly useful in the public sector and that the UK government in its 2007 Comprehensive Spending Review carried out a set of zero-based reviews of baseline expenditure in government departments to assess the effectiveness of government spending and its long-term objectives. ZBB starts from the premise that no costs or activities should be factored into the plans for the coming budget period, just because they figured in the costs or activities for the current or previous periods. Rather, everything that is to be included in the budget must be considered and justified. In effect, start by saying the budget is zero and then add the cost of those things considered necessary.

The key benefit of ZBB is that it focuses attention on the actual resources that are required in order to produce an output or outcome, rather than the percentage increase or decrease compared to the previous year. Under ZBB, budgeting is no longer a number-crunching process of spreadsheets, but an exercise involving the budget agency and the spenders in an analytical and decision-making process. The stupidity of the government’s rhetorical question, where is the money going to come from if this or that tax is cut, is based on a lack of appreciation of ZBB and the whole budget matrix, a criticism I never thought I would make under this Minister’s stewardship.

Bloated government
ZBB is not rocket science. Admittedly our budget is distorted by political considerations like having to find ministries and placements for all those party loyalists and those willing to go on the elections slate, hardly a relevant factor for ZBB. Do we really need a Ministry of Sport with a Minister and a Parliamentary Secretary, when we have a Director of Sport and a National Sports Commission? Do we need two former ministers to advise the current Minister of Local Government which cannot deliver local government elections? And does the President need and use all those advisers in the Office of the President?

The committee looking at the line items in the Budget should ask for full particulars of the terms of employment of all advisers to the President and his ministers. Under ZBB there would have had to be good reasons to for their continuation.

Think what happens when you cut a ministry: savings on ministerial salaries and perks including chauffeur, guards, duty concessions, allowances, secretaries, public relations persons and property expenses. Even with the smallest ministry this can easily add up to hundreds of millions.

ZBB particularly lends itself to discretionary spending such as this and that activity, and showing overseas travel, etc. The committee should ask for details of the 2008 expenditure and 2009 projected expenditure on local and overseas travel by the President, ministers and other public officials. Almost on every occasion I travel I see some politician or other travelling first class. The committee should not be prepared to accept glib answers but only hard evidence on the amount and details of money spent for the President and his ministers’ overseas travel in 2008 and their specific spending plans for 2009.

Too many dollars, too little sense
The committee should ask about the $2.5 billion being spent on GECOM in 2009 – more than the amount spent on agriculture – and consider whether we are getting value for money. The Ministry of Foreign Affairs is getting $3.2 billion and cannot put a representative in the UK where even a government supporter has lamented we do not have a representative and miss many, many meetings. What contribution does former Home Affairs Minister Mr Gajraj’s presence in India bring us that cannot be achieved by contacts between our Ministry of Foreign Affairs and the Indian High Commission?

We need to know why with all this overseas representation the President has to go out of the country sometimes three times per month. Are our representatives not functioning and do the things the President goes to really require the presence of our head of state?

The committee should find out about the money allocated in 2008 for airstrips in Leguan and Wakenaam, for which no work was done. It should ask for information on the Hope Canal on which $3 billion is being spent this year – all from borrowings and on the basis of technical advice of which the public knows nothing. Should the committee not want to ensure that it acts before the money is spent and the problem remains? The committee should scrutinize the capital budget with the greatest of care – some $46 billion dollars are involved.

It should request the audited financial statements of the National Drainage and Irrigation Authority since it came into being in 2006. To give money to people who are derelict in their statutory duty to account is irresponsible. That of course applies to all the Budget agencies and those to whom public monies are given.

I do not expect that everything can be done immediately. But it is time that we move to serious budgeting and not indulge in politics and arithmetic as the 2009 Budget does. The Committee of Supply should request the presence of the Budget Director as it wades through the 2009 Budget. The accounting officer from the relevant ministry or department should be present to answer questions and if Minister Singh is too busy then his apparently under-worked deputy should be present at all the sessions.

Business Page would also like, respectfully of course, to recommend that we move to a system of zero-based budgeting and that we begin by identifying three or four ministries for the exercise in phase one, to begin in 2009. And to recommend as well that all positions paid from the public purse be listed in the Estimates, and not only those which have come through the Public Service Commission. Too much is being hidden.