Posts

Posted on

The case for the Marriott Hotel

The government through the instrumentality of President Jagdeo, is about to enter the tourism sector as a major investor. At the same time, the government is getting out of the telecommunication sector, or at least one of its major investments in the sector. Of course these will be done in the name of the people of Guyana, without consultation, logic or justification. Not that President Jagdeo feels any reason or compulsion to consult with the Private Sector Commission, a large segment of the trade union movement, or with the National Assembly. One leader of the PSC had said that he supported everything done by President Jagdeo. One of the trade unionists has placed a halo over him. The many would-be leaders of the PPP/C are silent, perhaps unable to understand the implications of the personality culture and egomania which now shape economic decisions. Or perhaps they quietly relish the thought of leading a country where the people can be bribed with their own taxes; where state property can be disposed to whomsoever the government chooses; and where an opportunity to visit the Office of the President or dine at State House are now legal tender, in exchange for every scrap of transparency, decency, financial probity, the morality of the people and the soul of the nation.

At their most basic, the business decisions of the Jagdeo administration are not difficult to understand. A hydro-electricity power licence and a road contract to Fip Motilall, single sourcing of billions of dollars of drugs for the national health system and in the first instance illegal tax concessions to the Ramroops, land for hotel housing developer Buddy Shivraj all helped to support and enrich friends at the expense of taxpayers. All the aforementioned persons have many things in common, including class and their closeness to the government, and have succeeded partly because of the generosity of the government to them and the relationship they enjoy with its leader. They have no cause for complaint, and on the contrary would wish if things could just remain the same.

They might even be ‘third term-ites.’

Pegasus v Marriott
The problem for Robert Badal and his Pegasus Hotel is that he has been too independent, too courageous and too successful. Worse is that he not only succeeded in spite of the government, but has outmanoeuvred it at every interaction. That is a grievous fault and grievously must he pay for it. The government accuses Mr. Badal of improperly acquiring control of Guyana Stockfeeds Limited while Jagdeo lashes out at the poor service of the Guyana Pegasus and its water quality. But words are not enough to hurt the Pegasus so that sticks and stones must now be called into action, in the name of competition and tourism.

As Business Page recalls it, some years ago the directors of Guyana Stockfeeds Limited announced a rights issue of shares under which new shares were offered proportionately to existing shareholders. Under the terms of the offer, shares not taken up by any of the shareholders could then be offered to the other shareholders. Whatever may have been Mr Badal’s motive, such an arrangement is not unusual in equity transactions, and indeed was a mechanism often used by Banks DIH Limited. At the time of the rights issue, the government was not interested in further involvement in direct private sector investment and did not take up the shares to which it was entitled. Had the government taken up its allocation the shareholding would have remained unchanged. Mr Badal took up the shares and consolidated his control and management of the company.

No one knows whether the government considered the option of taking up the shares which were effectively offered at a discount, and then making a profit by selling them. No one knows too why the government did not honour its own White Paper on privatisation and ensure that 10% of the company’s shares were reserved for its employees. What we do know is that now that those failures have backfired and now that the President’s friends have failed in their bid to buy the Pegasus, it is time to take up the old fire rage and go after Mr Badal. Ironically, the charge led by the President is taken up by NICIL, the company with one of the worst governance records in the country. For more than a decade it has failed to meet its statutory obligations to file annual reports. It is a closed shop, more tightly secured than Stockfeeds can ever hope to be, despite being a taxpayer-owned company. It is a vehicle for siphoning off state assets, selling them and using public money without parliamentary approval. It operates with all the characteristics of a slush fund under the control of a handful of persons with no demonstrated commitment to accountability and the law under which they operate.

P(rivatisation)Unit
But they are powerful and can act with impunity, which perhaps is the subliminal message of their email address – punit! Having failed to file reports annually with the Registrar of Companies for all those years without suffering the statutory sanctions by the Registrar, NICIL and its CEO Winston Brassington and Deputy CEO Marcia Nadir-Sharma were able in one day last September to file and have incorporated the Atlantic Hotel Inc, which to some rings a troubling chord with the Queen’s Atlantic Inc, the company for which NICIL and the government were prepared to change the concessions laws of the country. From all appearances, Atlantic Hotel Inc will be the owner of the proposed Marriott-run Hotel that will challenge Pegasus for clientele. While Mr Jagdeo would wish us to believe that the project is a government-private sector partnership, the incorporator and sole director of AHI is Winston Brassington, the Company Secretary is Marcia Nadir-Sharma who is also its legal officer. The government, it seems, thinks it entirely appropriate for the state to operate like the most secretive private company and sees no contradiction or irony of calling out Mr Badal on governance.

Mr Ramesh Dookhoo, Chairman of the Private Sector Commission, an organisation dedicated to the promotion of the private sector was able in one breath to support the government’s decision to get involved in the tourism sector while calling for more but unspecified information. There was sufficient ambiguity in Mr Dookhoo’s statement to leave everyone guessing without incurring the displeasure of the government, one of the apparent overriding if unstated goals of the PSC.

Poor service
Over the past couple of weeks I have witnessed the poor standard of service by the country’s tour operators and domestic airlines. It is shocking to see how they treat their customers. They accept bookings for flights and then cancel because they do not have enough passengers to make the flight economic. No one visiting Guyana for a few days wants to experience the wait at Timehri while the operator decides whether or not to bother with the flight. If any person wishes to guarantee a flight to Kaieteur, then they had better charter the plane from one of these very service providers who enjoy lucrative space at national facilities financed by the taxpayers of the country.

A decade after the launch of the Tourism Authority visitors and residents alike find it impossible to access basic information on where to go, how to get there, what it will cost and what may be the facilities and amenities that are available. Visitors’ security and safety are vital considerations but it does not seem that this is evident to the government. One cannot but help noticing too that absent from all of the discussion and exchanges about the need for hotels is the Minister of Tourism Manniram Prashad, a long-time friend of the President. Mr Prashad was for several years a director of the Guyana Pegasus and both his political role and well as his experience with the Pegasus would have qualified him to make an informed contribution.

Irrational and illogical
But when decisions are taken on grounds that are as irrational and illogical as they are in the case of Amaila and the new hotel, standard policy formulation and experience become irrelevant and counter-productive to the motives that drive the decisions in the first place. No longer is there a natural role and obligation on the government to provide the infrastructure for the development of the sector, and for the private sector to invest in hardware, jobs and services, and to pay taxes to fund development. It is, like the case of the withdrawal of government ads from the Stabroek News, act first and justify later. The cheerleading band stands at the ready – all set to go. By the time the falsity of the reason is exposed, it is no longer important, and in any case, new and perhaps more sinister motives will have driven more blatantly irrational actions that arouse more but fleeting interest. And so the cycle goes on, despite changes, as in the case of the PSC.

In the days leading up to the Cricket World Cup the government successfully pushed the private sector into hotel property development. The efforts were so successful that there in now over-capacity in the sector. That makes the case for new plant hard to sell, so the President wants to figuratively knock down what exists and invent reasons for a special class of hotel. It seems logical that if such a need existed, the private sector would have responded. They have the flexibility and the profit motive. They know that in tourism the product that is sold is first the country. If someone tells you he is going on holiday s/he tells you the country of destination, not the hotel. Let us first sell Guyana and its rich eco-tourism potential in our many falls and waterways, our mountains and valleys, our flora and fauna. Put money and imagination into the Tourism Authority and the soft infrastructure in the sector. Those will be strong incentives for the private sector to invest in new plant.

Conclusion
Let us recall that the President justified the introduction of casinos as the need to attract tourists. Let him now tell us how many new tourists actually visit Guyana because of the casino and how many are Guyanese who hold foreign passports. But no, we have moved on and the spurious reasons are now irrelevant. It may not be too late for the Economic Services Sector Committee to request that the government present its case for its investment in the hotel.

Mr Dookhoo probably wants the government to present the nation with a financial justification for the [mis]/use of taxpayers’ money for the financial adventures of the President. If so, he needs to be more direct. But the PSC needs to ask a more fundamental question: what is the government’s policy with respect to entering into direct competition with businesses generally and Guyanese businesses in particular. Today it is hotels, tomorrow it is telecommunication, the next day it is agro-industry, etc. The environment becomes increasingly uncertain.

Posted on

Amendments to NBS Act forced through the National Assembly – conclusion

Today I conclude my examination of the amendments to the New Building Society Limited Act passed by the National Assembly two Thursdays ago despite the arguments from the opposition members and the pleas from the members of the Society for consultations to take place. With the government’s overall majority in the National Assembly, passage became a formality.

In terms of building societies, Guyana is a unique animal. It does not have a generic Building Society Act like the UK, Jamaica and Trinidad. This country’s sole building society enjoys a huge monopoly and because the NBS is a creature of parliament, the government exerts over it an unchallenged and powerful influence. The government can amend the NBS Act at will, without any consultation with the members or the directorate of the Society. On the occasion of the NBS Amendment Bill 2010, the government indecently ignored the members and is proceeding to implement unilateral changes to the laws under which the members of the Society are forced to operate. It is hard to see how the changes will enhance governance and transparency in the Society, but we will wait and see.

I will continue my clause-by-clause examination of the amendments before looking at some of the general principles governing building societies’ legislation.

Clause 6
Several members have pointed out on more than occasion that the Society has been in breach of section 7 of the act which in its proviso restricts the amount of borrowings outstanding, whether by way of deposit or loan, to two-thirds of the amounts lent on mortgage. What the amendment does is allow for the two-thirds to be varied by the Bank of Guyana, conceivably to more than 100%. That would be reckless and against all the principles of financial structuring of a building society. Perhaps the architects of the amendment were more concerned about correcting a misunderstanding that has persisted over decades, and in the process, it seems that the object of the original provision was lost.

A building society has to ensure that of its total assets, there must be sufficient liquidity to enable it to meet its liabilities as they fall due. If a disproportionate amount is kept in mortgages and other long-term assets, it would be in danger of being unable to liquidate a sufficient amount to meet demands as they fell due. A building society is not like a limited liability company where there is a share capital which can only be withdrawn in narrow circumstances.

New Buildings Society
A fine balance therefore has to be maintained between short-term and long-term assets depending on the range and scale of the society’s business and the character and composition of its assets and liabilities. The UK legislation seeks to draw the line by providing that the assets held by the society to enable it to meet its liabilities as they arise should not exceed 33⅓% of its total assets and must be composed of assets of an authorised character, and no others (emphasis mine).

Unfortunately, in its haste to pass legislation, these fundamental considerations were completely overlooked. In the longer term, this could have serious repercussions for the NBS.

Clause 9
When I first saw the proposed amendment (a) to amend section 11 of the act, I thought it was either an editing or drafting mistake. Section 11 of the original act vested in the Board the management and affairs of the business of the Society. Deleting the word “management” and replacing it with the word “policies,” we have the position that the policies of the Society are vested in the board. That is as absurd as it gets, but clearly Minister Irfaan Ali did recognise that policies are not vested but are formulated by the Board and that yes, the management is vested in them for which proper discharge they are responsible. He would have saved us the comical justification if only he had familiarized himself with the corresponding provision in the Companies Act, 1991.

Section 59 of that act holds the director responsible for directing the management of the business and affairs of the company. Section 96 of the act imposes on the company’s directors, obligations to act honestly and in good faith with a view to the best interest of the company and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

The NBS is a financial institution and one would expect its directors to have higher standards of obligations than those of the directors of the run-of-the-mill company. Sadly, the danger is that with existing mechanisms in place, the Society will have to wait a very long time before it is served by independent-minded directors.

Clause 10
This clause virtually abolishes the right of members to requisition a special meeting in the Society. Ever since the formation of the NBS in 1940, 10% of the membership or 50 members, whichever is less, could have requisitioned a special meeting, stating the object for which the meeting is being requisitioned. Under the amendment, such a meeting can only be called by 10% of the entire membership, currently estimated at 100,000 members, which means it would require 10,000 members to sign a requisition for such a meeting.

The government side made much of the fact that the size of the membership has grown since 1940 and the change is therefore justified by circumstances. They also argued that 10% is the percentage required for the requisitioning of a special meeting under the Companies Act. Such arguments are not only wrong but also ignore the importance of minority protection. Let us deal with the first argument. In the UK where some building societies have as many as a million members, 100 members can requisition a special meeting.

The Minister of Finance in arguing the case referred to section 135 of the Companies Act 1991 and was correct as far as the 10% was concerned. He did not, however, point out that in the case of the Companies Act it is 10% of the share capital. This is so fundamental that the Minister should have been more forthcoming with the facts. It is wrong and disingenuous to compare the Companies Act – which is explicitly excluded from application to the NBS – with the NBS Act. A more reasonable comparison would have been with the Co-operative Society Act Cap.88:01 since the NBS is a mutual, co-operative society formed under statute. Under the Co-operative Society Act twenty-five persons may requisition a special meeting.

Clause 14: Repeal of section 19 of the Principal Act
One of the most infamous amendments was the deletion of section 19 of the principal act which allowed 100 persons to apply to the minister to appoint an accountant or actuary to inspect the books or an inspector to examine into and report on the affairs of the Society. That right is now being completely removed. No one argued that because the NBS would now come under the Bank of Guyana the provision was superfluous. But since they were drawing comparisons with the Companies Act, they may have wished to consider that Section 496 of the Companies Act allows for an application by one person for the appointment of an Inspector. Or that section 506 allows for a single shareholder or debenture holder, or the Registrar to apply to the court for an investigation order.

Sections 496 and 506 apply to all companies including those financial institutions supervised by the Bank of Guyana under the Financial Institutions Act, so there really was no justification for the removal of section 19.

Clause 20: exclusion from taxes, reserve requirements
By virtue of clause 20, the NBS will not be subject to a reserve requirement. My understanding is that the basis for this exemption is that such a requirement would have carried up the cost of funds, an argument equally applicable to all financial institutions. Again I think this is short sighted and ill informed, since the reserve requirement helps to meet any suspected run on the financial institution and is the next best security for depositors. While exemptions from taxes are justified in the case of mutual entities, to give the NBS such carte blanche exemption from the reserve requirement applicable to deposit-taking financial institutions is to court bad management.

Conclusion
There was a need for the NBS Act to be modernised and amended and to enhance governance in the NBS. The existing rules which allow the directors to entrench themselves by the abuse of proxies, no age/term limits for directors, pensions paid to directors, and general corporate governance weaknesses would be considered inappropriate and unacceptable in the 21st century and dangerous in a financial institution. But these ills are not addressed. More importantly, it was necessary to silence the minority.

Posted on

Amendments to NBS Act forced through the National Assembly

Introduction
That the Government used its majority in the National Assembly to push through major amendments to the New Building Society Act was not surprising. That Messrs Winston Murray and Khemraj Ramjattan so persuasively argued the case for the PPP/C to reflect on the implications of a piece of legislation was commendable.

That a debate on a technical bill could descend into real gutter remarks was I am told, not unusual. What was disappointing and regrettable was the attitude of those on the government side, the little or no research reflected in their presentations and their failure to understand, or total disregard of, the co-operative nature of the NBS or what corporate governance means.

That the Governor of the central bank and one of his staff were in the Chamber suggests that they were invited by the Government. None of the directors of the NBS including its CEO made any appearance during the entire four or so hours it took before the vote.

Yet, even in the absence of an invitation, it would have been both necessary and helpful for the directors to attend the debate on what is, to date, one of the most fundamental changes to the Act under which they operate.

Their non-attendance did not surprise, as the directors have consistently belittled the contribution and views of their own members. They did not seem to be interested in the views of the legislators either.

Harlots and hypocrites
The exchanges in the National Assembly were peppered with negatives like “harlot”, “bullies”, “instigators” and “hypocrites” instead of capital adequacy, loan provisioning, corporate governance and minority protection. Those who referred to the Companies Act to support their case were at the same time economical about the provisions of the Act which they selectively chose some sections from while ignoring others. Their response to the suggestion that good governance, as does the Companies Act, seeks to protect the interest of the minority was that “the will of the majority must prevail.”

The self-styled NBS Concerned Members used almost every possible means and opportunity to engage the decision-makers and to advise caution. Once I received a copy of the Bill, I tried calling the Chairman of the Board Dr. Nanda Gopaul. His secretary wanted to know the reason for the call. I explained to her that I was calling on behalf of the members of the NBS and wanted to speak with him urgently on the proposed amendments. I never heard from her again. My attempt to contact by telephone former Chairman Moen McDoom, S.C. was similarly ignored while PPP/C General Secretary Donald Ramotar treated our correspondence with equal discourtesy.

The Secretary/Director of the NBS refused to meet with Cyril Walker and me when we took a requisition to him signed by scores of members for the calling of a special meeting. We tried to lobby the parliamentarians as they went into the National Assembly. Prime Minister Sam Hinds said we were too late. He seemed unaware of the fact that at the time of the debate, the Bill had not yet been published in the Official Gazette, as is required under the Standing Orders. Notwithstanding that this may not be part of the parliamentary procedures, I believe that the Speaker should have taken a stand on that basis.

Bullies and cowards
I also believe that the Speaker should have intervened when Minister Nadir who was labouring to make a constructive and informed contribution to the debate took the opportunity to attack “the accountant, attorney-at-law and social commentator” for trying to bully the NBS’s board. In an aside, the learned Attorney General typically rejoined “not social commentator, instigator”.

Many would say that it is they who were the bullies and cowards for attacking without naming a person knowing that the person could not reply there. It was a disgusting demonstration of the abuse of power which has come to characterise our national politics.
It did not strike the government benches as odd that they took offence at the factual identification of Drs. Prem Misir and Gobind Ganga, and Mr. Paul Bhim as directors of the Bank of Guyana but applauded when members of the NBS were repeatedly being described as “bullies’ and a “tiny minority”.

The party prevails
During the break one member of the ruling party volunteered to Mr. Walker and me that he recognised the validity of some of the opposition concerns and would recommend that the Bill be taken to a Select Committee. And one leading member of the government admitted that the amendments as drafted might be inappropriate to a building society. But when the time came to stand up and be counted, those views were forgotten.

The fact that members had used legal and proper means to have the amendments considered at a meeting of the NBS, and the strong and constructive arguments by the opposition, mattered for nothing.

So in the end, subject to presidential assent and publication in the Official Gazette the bill that brings the New Building Society under the Financial Institutions Act will also remove several rights which members of the Society have enjoyed for seventy years.
There may be some complications. What the members did by their requisition was to ask that there be prior consultation on proposed changes which fundamentally reduce their rights as members.

Effectively, they are asking that if there are to be changes to the rules under which they joined the NBS in the first place, and if the goal post on the field on which they have been playing, are to be moved, then at least they should be consulted.
Would the President now try to pre-empt the holding of the meeting by assenting to and publishing the Act, giving the directors an excuse that the requisition has been overtaken by events? And if he does, the Concerned Members would have to consider their own response.

The Bill
In their requisition the members drew to the attention of the Board that they have always advocated bringing the Society under the supervisory control of the Bank of Guyana. In welcoming this proposal they also noted that they supported the amendments introduced by at least twelve of the clauses in the Bill.

They did however express “serious concerns” with certain other proposals which they highlighted and discussed in their requisition. Here are some of the more significant concerns.

Clause 5 (2)
The members noted that having regard to the nature of the Society’s business, great care ought to be taken in the wholesale application of all the provisions and guidelines of the FIA. The Financial Institutions Act 1995 was designed for banking and other financial business, not co-operatives, credit unions and similar organisations. In Jamaica for example, while the Bank of Jamaica regulates all financial institutions including cooperative societies and building societies, in the case of building societies, they do so under specific legislation. The same is also true of Trinidad and Tobago.

Jamaica recognises the special and unique characteristics of building societies and has separate primary and subsidiary legislation governing such societies. So that in that country, there is The Building Societies Act, 1897 which was last amended in 2004 and there are The Bank of Jamaica (Building Societies) Regulations, 1995 (amended 2005) and The Building Societies (Licences) Regulations, 1995.

This is also true of Trinidad and Tobago and the UK where there is a Buildings Society Act under which building societies are formed and regulated.

We different
The approach taken in Guyana is to treat the NBS as an entrenched monopoly. Does this mean that if another group wanted to set up a building society it must do so by asking for it to be set up by legislation? Corporate law has moved away from charter companies and there is a generic companies act that sets out the legal framework for the incorporation of companies.

Members are concerned that there had been no statement from the directors on whether they had been consulted by the government and on the impact on the Society of the FIA and its several Supervision Guidelines. Members expressed the view that the operations of the NBS could adversely affect the Society. In this regard the Board may have wished to consult with the Bank of Guyana and the other entities subject to Supervision Guideline No 5 – Loan Portfolio Review, Classification, Provisioning and Other related Requirements as to its effect. And Supervision Guideline No 4 – Capital Adequacy Ratio would be similarly relevant.

It does not appear that transitional arrangements allowed in the new clause 7 A apply to loan provisioning and this could impact on the Society’s mode of operations and results for the current and future years.

To be continued

Posted on

The 2008 Auditor General Report: No change – conclusion

Introduction
When this series began several weeks ago – this is its fifth and final column, – its focus was a review of the report on the Public Accounts of Guyana, the ministries, departments and regions for 2008. It could not however ignore news about the work of the Public Accounts Committee (the PAC) or the acrimonious exchange between the current chairperson of the Public Accounts Committee and the Minister of Finance Dr. Ashni Singh.

One of the principal functions of the PAC is the oversight of the Audit Office and the review of that office’s annual reports: reports that are always late, are often incomplete and consistently raise more questions than answers. The Committee is one of, if not the only committee of the National Assembly that is chaired by the parliamentary opposition although the PPP/C has a majority on the Committee. Since 2006, five of its members are from the PPP/C, three from the PNCR and one from the AFC. Unfortunately, it is rare that all the opposition MPs attend the same meeting so the government almost invariably enjoys an overwhelming majority at the meetings.

Earlier this week the current chairperson of the Committee, Ms. Volda Lawrence found herself the object of the Finance Minister’s tongue-lashing after she was quoted in a report in the Kaieteur News complaining about the late tabling of the Treasury Memorandum on the reports for the years 2004 and 2005. Apparently the document had been lodged with the Parliament Office which Ms. Lawrence could, but did not verify. Recognising that this was one of the few occasions since his appointment on which the Ministry of Finance met the deadline for any of its parliamentary or statutory obligations, Dr. Ashni Singh went to town on the hapless Ms. Lawrence.

Backlog
Dr. Singh should not have been so harsh – in her capacity as chairperson of the PAC, Ms. Lawrence does no harm to the reputation of his Ministry and government for proper financial management. To be fair, she inherited a backlog problem and as we recall from last week, the PAC did not complete its review and issue its report on the 2002 and 2003 accounts until January 2008. Forget for a moment that it took another ten months before the Ministry of Finance issued its Treasury Memorandum. But timeliness is not its only problem for the PAC. It is evident from its own reports and the responses it evinces from the Finance Secretary that the effectiveness of the PAC and the quality of its reports are not what they used to be.

Not one of the nine members of the Committee has any training or experience in accounting or auditing and incredibly its three advisers are persons whose work it oversees – the Auditor General [ag.], (Mr. Deodat Sharma), the Finance Secretary (Mr. Neermal Rekha), and the Accountant General [ag.] Mr. George Abrams.

Standard governance procedures permit committees access to independent professional advice such as attorneys at law, engineers and accountants. But at the highest level in the land, that is not considered a good idea. For example, there is no evidence that the PAC ever thought of approaching the Ministry of Legal Affairs on any legal issues such as the practice with regard to presidential control of the lottery funds or the non-establishment of the Public Procurement Commission.

Meaningful advice
To the extent that the Committee notes the recurring practice about the lottery funds, it accepts the weak statement from the Ministry of Finance that it is awaiting a policy decision on the matter. Who from, the Minister of Finance or Cabinet, and why does it take more than ten years for such a decision to be made? The obvious fact that the interpretation of the Constitution and the financial statute is a matter for a legal opinion and, if necessary, a ruling by the court, seems to have escaped the PAC. In the process, the President is allowed to continue this practice more than ten years after it was first challenged as unconstitutional and unlawful by then Auditor General Anand Goolsarran. Failure to seek a position on this has permitted the spending of more than $2.5 billion without constitutional authority or parliamentary approval.

The work of the PAC is not an easy one. It is tedious, time-consuming and technical. It effectively oversees the receipt, expenditure and accounting for billions of dollars annually. Its members should be aware of and understand the financial provisions of the Constitution, key legislation such as the Fiscal Management and Accountability Act, the Procurement Act, the Audit Act and the revenue laws. Its secretarial support is mainly administrative help from the Parliament Office and the minutes of the Committee reflect procedures and proceedings that seem archaic.

Attendance failure
The demands on the members of the PAC are sometimes quite formidable. In the second fortnight of June 2004, the Committee met on six occasions, rushing to catch-up with its own backlog even as it is criticised by one of its “advisers” for being responsible for the delays in the accounting cycle. Its difficulties are made no easier by its politicisation, the absence of access to relevant expertise and having as its three advisers – rather than as resource persons – some of the very persons responsible for the poor level of financial management in the country.

Several years ago, Mr. Stanley Ming PNC member of the PAC, had lamented the committee’s ineffectiveness and apparently had stopped attending meetings of the Committee as a mark of protest. But attendance is a wider problem. The attendance record of the members of the Committee at the ten meetings held between June 14 and to July 26, 2004 was as follows:

Cyril Belgrave – 8; Indra Chandarpal – 8; Pauline Sukhai, Komal Chand and Winston Murray – 6 each; Volda Lawrence – 5; Lance Carberry – 3; Donald Ramotar – 2 and Stanley Ming – 0. This works out at an attendance of 60% for the PPP and 28% for the PNC, numbers that eloquently speak for themselves and about the Committee. The minutes of the PAC including the attendance of its members are available but are never publicized. Perhaps those who boast of the effectiveness of the PAC will pause to consider how seriously its members take their obligations in their financial oversight function. It was not unusual in 2004 for attendance to be three, with six of the persons absent, either with or without excuse or occasionally “with leave.” That the PNCR has allowed this situation to develop and worsen is an indictment of that party and an explanation and apology are owed to the public.

Benefit of foresight
One of the advantages of the delays in the work of the PAC ought to be the benefit of foresight since the PAC can test the responses and assurances by the Government on the findings of earlier years against findings on similar matters contained in the reports of the later years.

They do not do this. If they realised the seriousness of this they would probably have asked for at least a part-time accountant or former members of the staff of the Audit Office who could be recruited to provide support for their work.

The audit reports on the accounts for 2003 signed by Mr. Anand Goolsarran and for 2004 signed by Mr. Deodat Sharma tell a story of increasing defects. The 2003 gave a qualified opinion in respect of each of ten accounts and disclaimed or denied an opinion in respect of the Deposit Account held by the Accountant General and outstanding advances made under the Act (sic), presumably the Fiscal Management and Accountability Act, and the Statement of Current Assets and Liabilities of the Government.

For 2004, the report was qualified in respect of seven accounts and an opinion denied in six, including the public debt and the statement of contingent liabilities. This represents deterioration, not an improvement, but nothing in the report of the PAC or the Treasury Memorandum suggests that this point was recognised. What the PAC should have called for in their 2003 report was a time-bound framework to arrest the situation. It failed to do so and so the Treasury Memorandum overlooks these as well. The 2004 report of the Audit Office at paragraph 103 Financial Report on Extra-Budgetary Funds tell us that no funds were created in 2004 but wrongly omits to give an account of the closing balances. The report of the PAC simply records that paragraph 103 was considered but nothing else is said about it.

Weak commitment
Of a more general nature, if the Committee wanted to test the commitment and undertaking given in the 2002/2003 Treasury Memorandum by the Government, all they had to do was turn to the 2008 report in respect of the cash and bank balances. The 2003 and 2004 audit reports recounted major and dangerous failings on accounting for dormant and inactive bank accounts holding billions of dollars of public money; b) failure to reconcile these accounts; and c) statements which are not submitted for audit. Such bank accounts hold tens of billions but have not been reconciled in some cases for more than a decade.

On the question of those very accounts, in 2008 there remained special accounts at the Bank of Guyana with balances of $35.051 billion, up from $21.388 billion in 2003 and $13.552 billion in 2004. The only comment on this by the Auditor General is that “the Head of Budget Agency indicated that these matters are being addressed by the Ministry of Finance.” The banality from the Finance Secretary in the 2004-2005 Treasury Memorandum is to say what the balance on the bank statement means as opposed to what the amounts shown on the cash book mean. Even a housewife knows that but the $35 billion seems to be of no import to the Finance Secretary.

On the issue of the Public Debt, the Treasury Memorandum prepared by one of the advisers simply states that the Auditor General, another adviser, was wrong, without saying what the right figure should be. The PAC does not ask why several entities that have not had an audit for decades or which are not properly constituted continue to receive annual subventions, or why the report of the Ethnic Relations Commission does not contain audited financial statements, or why the Minister of Finance has not been tabling annual reports for NICIL and others. The Treasury Memorandum is similarly silent.

While the PAC and the National Assembly may be comfortable with accepting these absurdities on political grounds, the people of Guyana should demand some kind of respect from those who gouge them with unjustified rates and amounts of taxation.

Conclusion
Throughout the Treasury Memoranda is the absence of cross-references either to the reports of the Auditor General or the Public Accounts Committee and a casualness bordering on contempt which reached its zenith in 2004-2005. The 2004-2005 memorandum ought to be rejected as an insult to the nation. It has succeeded in dealing in fifty-seven paragraphs, many of them containing one-liners, with the shortcomings identified in three thousand paragraphs in the 2004 and 2005 reports by the Auditor General.

Yet, the PAC offers commendations to their advisers, at least one of whom treats it with disdain, another who has failed to deliver on his obligations and another whose office continues to shortchange the nation with under-quality work.

There is clearly a crisis in public financial management in Guyana. Those problems cannot all be identified in a handful of newspaper columns. Public financial management has escaped the attention of the accounting as well as the internal audit bodies. The entire financial management system and its oversight require some kind of review. There needs to be a serious self-examination by the PAC, a genuine commitment by the government to public accountability, a president who respects the constitution and a public and press that are prepared to go beyond sensational headlines.

Next week BP will address the proposed amendments to the NBS Act and the government’s efforts to stifle debate in that entity.

Posted on

The challenge to Minister Singh and the Stats Bureau was for a rational explanation of the dramatic turnaround in the fourth quarter of 2009

I refer to my letter of July 4, 2010 in which I addressed the issues raised by Mr. Rajendra Rampersaud in a letter dated June 28, 2010 on the April 2010 Country Report by the Economist Intelligence Unit (EIU). In my letter I indicated that I would subsequently address the reaction of the Minister of Finance Dr. Ashni Singh to the same EIU Report. I now do so.

Let me first disclose my own long-standing relationship with the Minister who I first came to know shortly after he had completed his outstanding education at Queen’s College. He was too young to be registered as a student with the ACCA and his relatives approached me in my capacity as ACCA International Council Representative to intercede with the ACCA on his behalf for special dispensation. My efforts succeeded. When he qualified he asked me to recommend him for membership, a formality which I readily accepted. Our firm’s boardroom still proudly displays a photograph in which he features with Partner Robert McRae when the firm was awarded a recognition with an international body.

I was the only accountant to publicly acclaim his appointment as a Minister, something not even our national accounting body did. For a long time after that, I had, at his request, shared with him, both orally and in writing, my thoughts on issues of interest to his Ministry and our country. There was one request to which I could not accede and that apparently ended what had developed into what seemed to be a very healthy relationship with Ram & McRae and with me.

But notwithstanding his increasingly personal attacks against me the details of my exchanges with him shall remain private even as he makes the unfounded accusation of me as “a self-confessed partisan politician” (GINA release June 26, 2010), and as part of a “tiny cabal” disparaging every transformative Guyana project (MoF Press statement April 20, 2010).

Now to his attack on the EIU whose recent reports on Guyana Dr. Singh claims “paint a misinformed, distorted, warped, and totally inaccurate picture of economic developments in Guyana”, and was “misled and misinformed by one or two political aspirants and spokespersons who pose as independent correspondents and commentators.”

That aside, let us look at some of the issues the EIU April 2010 report on Guyana raised:

1. That Guyana’s operating environment is “characterised by poor infrastructural facilities, high taxes, rampant crime and corruption.” The evidence on each of these is so obvious and compelling that neither Dr. Singh nor the private sector disputes any of them. Surely they are aware of, if not actually suffer from, the daily blackouts despite the unjustifiably huge sums spent on GPL, the failure to keep the promise of tax reform while imposing VAT at an incorrect, inflated rate on several products and services not previously subject to any consumption tax. Lest they say yes, but what about the items that were subject to consumption tax at higher than 16%, I ask how then did the revenue neutral VAT and Excise Taxes produce excess revenues of 48%, much of it wasted in corruption and nepotism on a scale unprecedented in Guyana? As to the EIU’s statement about “rampant crime and corruption” nothing further needs to be said, as the minister well knows.

2. That “following severe contractions in production in the first three quarters of the year, to attain real GDP growth in 2009 would have required an incredibly strong growth rate in the October-December quarter …… Moreover, with import compression thought to have made a major contribution, the government’s GDP growth estimate for 2009 masks the weakness of the real economy.”

Why the ministerial vitriol and bombast in response to this? In 2008, half year growth was 3.8 per cent while in 2009 there was a decline of 1.4%, a cumulative turnaround of negative 5.2%. Full year growth in 2008 was 3.1%, representing a decline in the second half of the year, in stark contrast with 2009 when a decline over nine months was transformed into a huge positive not in six, but in three months. The Bank of Guyana data show that the poor performance continued into the third quarter, so the challenge to Dr. Singh and his independent but voiceless professionals in the Stats Bureau was for a rational explanation of the dramatic turnaround in the fourth quarter of 2009. That is all.

3. That there was “little evidence of what was driving growth during the second half.” Dr. Singh offers in response growth in rice, sugar and gold but does not tell us how sectors that account in total for 17% of GDP can account for a turnaround of 3.8% in six months over 100% of the economy.

He adds that “the [official] numbers are sourced from the sectors themselves and can be verified directly with those sectors,” and that it “is nothing short of absurd and dishonest to call into question these numbers.” It is Dr. Singh who is being absurd and dishonest by conflating production numbers into GDP figures. GDP is a value not a quantity and a 3% increase in production does not automatically translate into a 3% increase in value. Prices will simply be another variable in the GDP equation.

4. Dr. Singh’s anger becomes uncontrollable when the EIU report quotes from a 2009 Business Outlook Survey by Ram & McRae in which 60% of the respondents reported no confidence in the economy. The survey is described as “politically motivated, highly flawed, and designed to distort the facts and present a negative picture of Guyana under the current administration”, and the principal of the firm, (i.e. me) as “a self-confessed partisan politician”.

Dr. Singh has never, as far as I am aware, sought from any of the partners of the firm the methodology or software it uses in the Survey and did not have a problem with the Surveys in 2006 and 2007 when reported confidence in the economy was high. Those findings were then welcome and widely publicized in the state media. Nor was I “a self-confessed partisan politician” when I was asked by him and the President for assistance on certain matters; when his party asked for tax ideas on their 2006 Manifesto; or when I was visited at home by a high priced Presidential Advisor for consultations on a range of issues.

5. Further, Dr. Singh should be careful in impugning anyone’s integrity, professional or otherwise. His own situation where the wife of the Minister of Finance is the de facto head of the Audit Office is unique, a violation of all the tenets of professional independence, and an embarrassment to this country; he was complicit in the untruth perpetrated in the National Assembly over the $4 billion paid to GUYSUCO in 2009, participating in, and contributing to the devaluation of that august body; and complicit too about the error in the VAT rate that instead of consumers paying $12.1 billion in VAT in 2007, they actually paid $21.3 billion, that is more than 75% more! He was, we recall, also centrally involved in the unlawful concessions given to the Ramroop group. These occurrences and circumstances all speak for themselves, and require no elaboration from me.

But I will show faith in Dr. Singh and look forward to a higher standard of integrity and competence from him in, among other things: ensuring that public moneys are paid into the Consolidated Fund and not the Office of the President or special accounts; ensuring a strong, independent Audit Office; publishing of the mid-year report within the statutory deadline set in the Fiscal Management and Accountability Act; tabling in the National Assembly annual reports of state entities required by the Public Corporations Act; ensuring that NICIL, the Board of which he is Chairman, begins to operate within the law and its own constituent documents, including having its accounts audited and filed as the law requires; granting concessions under the Income Tax (In Aid of Industry) Act on an objective basis rather than on political grounds; and taking a stand on the high level of corruption that has engulfed public finance in the country.

I know he possesses the integrity to rise to the occasion. I am less confident about his courage. But hopefully he will reflect on the oath which he took on being appointed, and will recognise that more than at any time, Guyana needs from its Finance Minister this level of integrity and courage. While he struggles with these challenges, I also suggest the temperance and language befitting his position.