Afra Ray­mond

The Leader of the Op­po­si­tion, Bas­deo Pan­day, re­cent­ly laid a mo­tion in our Par­lia­ment seek­ing for Hin­du Cred­it Union (HCU) de­pos­i­tors to be grant­ed a "bailout" of the kind giv­en to those who had in­vest­ed with the failed CL Fi­nan­cial Group. On Oc­to­ber 30, the Min­is­ter of Fi­nance made a ma­jor state­ment to the Par­lia­ment, seek­ing to de­fend the Gov­ern­ment's ac­tions in the cas­es of these two failed fi­nan­cial in­sti­tu­tions. In terms of race, pol­i­tics and fi­nance that state­ment by the min­is­ter de­serves our most sober con­sid­er­a­tion.

Be­fore go­ing fur­ther, I need to make two things clear.

First­ly, I am not in­ter­ven­ing on be­half of Har­ry Harnar­ine or the HCU. I am not a sup­port­er of that cause. Not at all. Sec­ond­ly, I do not sup­port the bailout of ei­ther group: CL Fi­nan­cial or HCU. The idea that state re­sources should be de­ployed to as­sist in­vestors who have lost mon­ey is a dan­ger­ous one. As a mat­ter of prin­ci­ple, the con­cept of moral haz­ard has re­al weight in eco­nom­ic be­hav­iour. The idea that in­vestors can be res­cued with­out pay­ing the con­se­quences of their choic­es is in­im­i­cal to prop­er de­vel­op­ment. As I have stat­ed in my pre­vi­ous ar­ti­cles on this bailout, the record of the Gov­ern­ment–in terms of sep­a­rat­ing the in­ter­ests of de­pos­i­tors, pol­i­cy­hold­ers and share­hold­ers–is tur­bid.

The min­is­ter's ra­tio­nale was set out in two limbs. The first be­ing that the HCU deal­ings were not straight­for­ward. In­deed, one news­pa­per car­ried the head­line: De­vi­ous HCU. And, sec­ond­ly, that the CL Fi­nan­cial deal­ings were marked by "tan­gi­ble co-op­er­a­tion." This bailout is an ex­treme­ly se­ri­ous act be­ing car­ried out by the Gov­ern­ment in breach of the fun­da­men­tal prin­ci­ple and we de­serve noth­ing but the truth. There are deep con­tra­dic­tions on every sin­gle point cit­ed by the min­is­ter to sup­port the ac­tions tak­en.

Here is what the min­is­ter is re­port­ed to have said, to­geth­er with the con­tra­dic­tions:

1. Am­ple col­lat­er­al: The min­is­ter is re­port­ed to have said that HCU failed to of­fer am­ple col­lat­er­al to the State. The Cen­tral Bank Gov­er­nor is re­port­ed to have said, on April 7, that all of CL Fi­nan­cial's as­sets were oth­er­wise com­mit­ted. This was re­port­ed at: http://guardian.co.tt/busi­ness/busi­ness/2009/04/08/govt-left-emp­ty-hand­ed-cl-fi­nan­cial-bailout.

2. The Ernst & Young re­port. The min­is­ter is al­so quot­ed as say­ing that: "The au­di­tors' as­sess­ment was that the Hin­du Cred­it Union was fac­ing not a liq­uid­i­ty prob­lem, but a sol­ven­cy prob­lem and all its as­sets were over­es­ti­mat­ed in val­ue and en­cum­bered." As a ra­tio­nale for the Gov­ern­ment's ac­tions, that is com­plete­ly at odds with the April 7 state­ment of the Gov­er­nor. In fact, we were told that the CL Fi­nan­cial Group and var­i­ous of its parts were be­ing ex­am­ined by Ernst & Young and Bob Lindquist, the renowned foren­sic ac­coun­tants. To date, no re­sults of those ac­coun­tants' work has been re­leased. We are be­ing told that the CL Fi­nan­cial chiefs showed "tan­gi­ble co-op­er­a­tion" in their deal­ings, so where are the au­dits?

Why has the 2008 au­dit of the CL Fi­nan­cial by Price­Wa­ter­house­C­oop­ers not been pub­lished?

3."What is the Gov­ern­ment to do? You deal­ing with...the ma­jor play­ers, and they are not lev­el­ling with you." That was the min­is­ter's state­ment about HCU, made in ap­par­ent ex­as­per­a­tion. As I wrote in my col­umn, Who is Who and What is What, pub­lished here on April 30: "At the be­gin­ning of this process we were led to be­lieve that CL Fi­nan­cial was be­ing pro-ac­tive and co­op­er­a­tive in their deal­ings with the State.?In­deed, the gov­er­nor even made this point di­rect­ly in his pre­pared re­marks at the Jan­u­ary 30 press con­fer­ence. I would like to ac­knowl­edge the high lev­el of co-op­er­a­tion that we have re­ceived from Mr Duprey." Since then, CLF has now been ex­posed as pay­ing div­i­dends af­ter re­quest­ing the State bailout, chal­leng­ing the in­junc­tion ob­tained by the State over their as­sets with a pow­er­ful le­gal team and, to top it all, pledg­ing the same as­sets twice. ?The Gov­er­nor spoke on April 23: "If you ask me whether CL Fi­nan­cial did every­thing that was ho­n­ourable and be­yond re­proach, the an­swer is no. The an­swer is no!"? Ob­vi­ous­ly, some­one is not lev­el­ling with us.

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So the Gov­ern­ment bails out pol­i­cy­hold­ers and de­pos­i­tors of the CL Fi­nan­cial Group. That is wide­ly wel­comed, ex­cept for a few ob­jec­tors, like my­self. It seems clear to me that the in­ter­est of the CL Fi­nan­cial share­hold­ers have been pro­mot­ed in pref­er­ence to those of the tax­pay­er. I am sub­ject to cor­rec­tion, but if that is so, it would be a mon­u­men­tal mis­al­lo­ca­tion of pub­lic funds and a huge act cor­rup­tion. The terms of the bailout are now be­ing de­lib­er­ate­ly con­cealed from pub­lic view, al­though it is at our ex­pense and sup­pos­ed­ly be­ing car­ried out for the ben­e­fit of the pub­lic. That se­cre­cy is tox­ic to no­tions of trans­paren­cy, ac­count­abil­i­ty and moder­ni­ty. I will re­turn to that se­cre­cy is­sue.

Suf­fice to say that the terms of the bailout, the sub­se­quent rev­e­la­tions and the con­ceal­ment of the sec­ond mem­o­ran­dum of un­der­stand­ing have com­bined with the min­is­ter's con­tra­dic­to­ry state­ment to yield a very un­healthy se­ries of prece­dents. The un­spo­ken ques­tion at this mo­ment is: who is next? Last week's BG View ed­i­to­r­i­al high­light­ed some per­ti­nent con­cerns as to the health of pri­vate pen­sion plans and the strength of the reg­u­la­to­ry process. No one knows if CL Fi­nan­cial is just the first in a chain re­ac­tion or sim­ply a "one-off." The burn­ing ques­tion is: if there is an­oth­er col­lapse of a large in­vest­ment house, will they al­so be bailed-out? And, if yes: on what terms?

n Afra Ray­mond is a char­tered sur­vey­or.

This se­ries on the CL Fi­nan­cial bailout

can be viewed or read­ers'

com­ments made at: www.afraray­mond.com.