CEN­TRE STAGE

?The gov­ern­ments of the OECS through the East Caribbean Cur­ren­cy Union (EC­CU) have is­sued a state­ment on their res­cue plan for the Cli­co sub­sidiary, British Amer­i­can In­sur­ance Com­pa­ny (Baico), in or­der to pro­tect pol­i­cy­hold­ers, in­vestors and the sta­bil­i­ty of the fi­nan­cial sys­tem.

The state­ment is forth­right, in­for­ma­tive, writ­ten in ac­ces­si­ble lan­guage, ad­dress­es most of the rel­e­vant ques­tions and, very im­por­tant­ly, es­tab­lish­es a mech­a­nism by which the pub­lic can pro­vide feed­back and ask fur­ther ques­tions. For this, the EC­CU gov­ern­ments must be com­mend­ed. Ac­cord­ing to the state­ment, Baico is "fi­nan­cial­ly in­sol­vent," and the pol­i­cy­hold­ers and in­vestors would re­cov­er on­ly ten cents in the dol­lar of their in­vest­ments if it were liq­ui­dat­ed. The on­ly al­ter­na­tive is for re­or­gan­i­sa­tion as a new in­sur­ance com­pa­ny, with a cap­i­tal in­jec­tion from gov­ern­ments. This is what the gov­ern­ments have de­cid­ed to do: the new en­ti­ty will have its head­quar­ters in the East­ern Caribbean and car­ry on Baico's in­sur­ance busi­ness in the sub-re­gion. Pol­i­cy­hold­ers and an­nu­i­tants have been warned, how­ev­er, that "some loss­es will be in­evitable;" the goal will be to cov­er the prin­ci­pal amounts in­vest­ed "as far as pos­si­ble."

No one can quar­rel with the EC­CU gov­ern­ments' de­ci­sion to not al­low Baico to go in­to liq­ui­da­tion. On the face of it, it is the "least worst" of the al­ter­na­tives. What we need to think about is the mean­ing of the facts that have been dis­closed in the state­ment. What these facts tell us about the state of cor­po­rate gov­er­nance in what was one of Cari­com's largest con­glom­er­ates and "star per­form­ers" in en­gag­ing with glob­al­i­sa­tion. What they tell us about the gaps in reg­u­la­tion and su­per­vi­sion of fi­nan­cial in­sti­tu­tions in in­di­vid­ual coun­try ju­ris­dic­tions, and across Cari­com as a whole. And what they tell us about the costs of these de­fects–in cor­po­rate gov­er­nance and in gov­ern­ment reg­u­la­tion–to gov­ern­ments and to tax­pay­ers.

Ac­cord­ing to the EC­CU state­ment, Baico's to­tal li­a­bil­i­ties in the East­ern Caribbean amount to EC$1,050 mil­lion, of which EC$842 mil­lion is in the form of an­nu­ities or in­vest­ment con­tracts. But Baico's to­tal "de­fi­cien­cy" is EC$775 mil­lion–and this may be an un­der­es­ti­mate, since the as­sets in­clude in­tra-group as­sets held in CL Fi­nan­cial, the par­ent com­pa­ny, whose val­ues are un­cer­tain.

The state­ment that in­vestors would prob­a­bly re­cov­er on­ly ten per cent of their mon­ey if Baico were liq­ui­dat­ed, sug­gests that the EC­CU be­lieves the true de­fi­cien­cy is clos­er to 90 per cent–which is EC$945 mil­lion. To set this in con­text, EC$945 mil­lion is just un­der ten per cent of the com­bined GDP of the sev­en OECS coun­tries that are mem­bers of Cari­com. It amounts to EC$1,565 for every man, woman and child in these sev­en OECS coun­tries. More­over, ac­cord­ing to the EC­CU state­ment, "there is on­ly ap­prox­i­mate­ly EC$30 mil­lion of as­sets set aside (pledged) in the East­ern Caribbean."

If this state­ment means what I think it means, what it is say­ing is that of Baico's $1,050 mil­lion of li­a­bil­i­ties in the East­ern Caribbean, on­ly $30 mil­lion is cov­ered by as­sets held in the East­ern Carib-bean. The re­main­ing bal­ance of EC$975 mil­lion was cov­ered–pre­sum­ably–by as­sets held by Baico out­side of the East­ern Caribbean. Then comes an­oth­er bomb­shell: "An amount of EC$301 mil­lion was tak­en from the branch­es in the East­ern Caribbean to fund cer­tain in­ter-com­pa­ny trans­ac­tions in­clud­ing the pur­chase of prop­er­ty in Flori­da." The EC­CU has tak­en le­gal ac­tion in Flori­da to try and re­cov­er some of this in­vest­ment. �In oth­er words, a large part of the mon­ey in­vest­ed in Baico by peo­ple in the East­ern Caribbean was tak­en out of the sub-re­gion and used for spec­u­la­tive ven­tures else­where, in­clud­ing Flori­da. And the prospects of re­cov­er­ing any sig­nif­i­cant por­tion of this mon­ey are un­cer­tain, to put the best spin on it.

There is on­ly one word that I can think of to char­ac­terise this kind of busi­ness be­hav­iour, and it is not one that I can use in print. Here is an­oth­er rev­e­la­tion: Baico is a Ba­hami­an com­pa­ny op­er­at­ed out of Trinidad, with branch­es in An­guil­la, An­tigua and Bar­bu­da, Do­mini­ca, Montser­rat, Grena­da, St Kitts and Nevis, St Lu­cia, and St Vin­cent and the Grenadines.Baico there­fore–and of course its par­ent, CL Fi­nan­cial–is a quin­tes­sen­tial Cari­com com­pa­ny. But it is sub­ject to no sin­gle Cari­com ju­ris­dic­tion. To the con­trary, Baico ap­pears to have used the ab­sence of such a ju­ris­dic­tion, in con­junc­tion with the loop­holes in in­di­vid­ual coun­try and sub-re­gion­al ju­ris­dic­tions, to en­gage in its ques­tion­able prac­tices. And be­cause of the ab­sence of a sin­gle Cari­com ju­ris­dic­tion, the EC­CU is hav­ing to make a num­ber of ad hoc arrange­ments with oth­er Cari­com coun­tries to sort out the tan­gled web of trans­ac­tions wo­ven by Cli­co/CL Fi­nan­cial: with the Ba­hamas, T&T, and Bar­ba­dos, where an af­fil­i­at­ed Cli­co com­pa­ny sold poli­cies in the OECS. Notwith­stand­ing the can­dour of the EC­CU state­ment, there are some unan­swered ques­tions. One is that the com­mit­ment of tax­pay­ers' mon­ey is not quan­ti­fied. That com­mit­ment is in two parts. The first is the "cap­i­tal in­jec­tion" by EC­CU gov­ern­ments that will be re­quired to put the new Baico back on its feet and, hope­ful­ly, al­low in­vestors to re­cov­er at least a part of their mon­ey at some time in the fu­ture.

The sec­ond part is the Med­ical Claims Sup­port Fund that the EC­CU is to es­tab­lish to help set­tle the claims of Baico in­sur­ance hold­ers, of which there are some 7,700 in the East­ern Caribbean. This is to be fund­ed from the Liq­uid­i­ty Sup­port Fund set up by the EC­CU ear­li­er this year. This sup­port is, on the face of it, nec­es­sary and un­avoid­able, both on com­pas­sion­ate and on sys­temic grounds. And it may well be that it can­not be ac­cu­rate­ly quan­ti­fied at this time.Nonethe­less, what ap­pears to be an open-end­ed com­mit­ment of tax­pay­ers' mon­ey can­not be a source of com­fort. The oth­er ques­tions are stat­ed open­ly by the EC­CU: "Who is re­spon­si­ble for this dif­fi­cult sit­u­a­tion in which we find our­selves?" And "how can this be avoid­ed in the fu­ture?" �The state­ment says that these ques­tions "must be ad­dressed." It promis­es "fur­ther in­ves­ti­ga­tion" and sees the need for "re­gion­al co-op­er­a­tion." But it in­sists that the im­me­di­ate pri­or­i­ty must be to ad­dress the needs of pol­i­cy hold­ers and in­vestors and the sta­bil­i­ty of the fi­nan­cial sys­tem.Fair enough. But there is no gain­say­ing the fact that there has been a mon­u­men­tal fail­ure in the sys­tem of reg­u­la­tion, su­per­vi­sion and over­sight–a sys­tem which the EC­CU it­self is re­spon­si­ble to en­sure is func­tion­ing prop­er­ly.A sim­i­lar reg­u­la­to­ry fail­ure oc­curred in T&T, which al­lowed CL Fi­nan­cial to en­gage since 2004 in ques­tion­able prac­tices–as ad­mit­ted by the Gov­er­nor of that coun­try's Cen­tral Bank and its Min­is­ter of Fi­nance. It rais­es ques­tions about the po­lit­i­cal in­flu­ence wield­ed by the CL Fi­nan­cial/Cli­co con­glom­er­ate–and oth­er large busi­ness en­ti­ties–in these small is­land poli­ties. In­flu­ence that can end up threat­en­ing to desta­bilise the fi­nan­cial sys­tem and cost­ing tax­pay­ers hun­dreds of mil­lions of dol­lars.

An­oth­er ex­am­ple is the col­lapse of the Stan­ford In­ter­na­tion­al Bank, which has tar­nished the re­gion's rep­u­ta­tion and ex­posed the Gov­ern­ment of An­tigua and Bar­bu­da to po­ten­tial­ly cost­ly lit­i­ga­tion from in­ter­na­tion­al in­vestors.

Afra Ray­mond of T&T has been ask­ing per­ti­nent ques­tions in the press call­ing for greater trans­paren­cy on the Cli­co res­cue op­er­a­tion by the Gov­ern­ment of T&T–ap­par­ent­ly with lit­tle suc­cess (www.afraray­mond.com).Ob­servers have been point­ing out that the Cli­co and Stan­ford In­vest­ment de­ba­cles demon­strate, in­ter alia, the need for a seam­less reg­u­la­to­ry struc­ture for the fi­nan­cial ser­vices in­dus­try across the Cari­com space as a whole.Sir Ronald Sanders, a fre­quent writer on this sub­ject (www.sir­ronald­sanders.com), has called for es­tab­lish­ment of sep­a­rate Carib-bean (or OECS) fi­nan­cial ser­vice reg­u­la­tors to deal with the on-shore and off-shore fi­nan­cial sec­tors. And a sin­gle reg­u­la­tor, to be ef­fec­tive, should op­er­ate in a con­text of leg­is­la­tion that makes the Cari­com re­gion a sin­gle fi­nan­cial ser­vice ju­ris­dic­tion. A draft Cari­com Fi­nan­cial Ser­vices Agree­ment has been be­fore the gov­ern­ments for sev­er­al years. It calls for the set­ting up of iden­ti­cal reg­u­la­to­ry re­quire­ments in all sig­na­to­ry state­ments. A doc­u­ment on the agree­ment pub­lished on the Cari­com Web site ends by say­ing: "One (fi­nan­cial in­sti­tu­tion) fail­ure can send shock waves through­out the en­tire re­gion." The state­ment, made in 2006, was prophet­ic. But the draft agree­ment is still lan­guish­ing, un­signed, in the coun­cils of Cari­com.

?Nor­man Gir­van