To­day's Ed­i­to­r­i­al

To­day's meet­ing of Cli­co pol­i­cy­hold­ers and in­vestors at Cen­tre Point Mall in Ch­agua­nas is like­ly to be a heat­ed one. It's no se­cret that the plan float­ed by Min­is­ter of Fi­nance Win­ston Dook­er­an to man­age the fi­nan­cial cri­sis at the failed fi­nance and in­sur­ance com­pa­ny has come in for stiff re­sis­tance and vo­cal con­dem­na­tion from the group now de­scrib­ing it­self as the Cli­co Pol­i­cy­hold­er's group. This ag­gre­ga­tion of in­vestor in­ter­ests is a com­ing to­geth­er of sev­er­al groups and the merged mem­ber­ship is the strongest in­di­ca­tor that every­one with mon­ey in Cli­co is now see­ing the prob­lems that they face as a com­mon cause to be set­tled col­lec­tive­ly. That's like­ly to make things a bit eas­i­er for Min­is­ter Dook­er­an, but not by much. The gov­ern­ment's pro­pos­al to pay off de­pos­i­tors and in­vestors with less than $75,000 in the com­pa­ny out­right and to set­tle the Gov­ern­ment's pay­ment oblig­a­tions to in­vestors with larg­er sums in tranch­es of five per cent over 20 years has led to right­eous out­rage with those pol­i­cy­hold­ers and in­vestors.

The in­vestors num­ber no less than 25,000 and col­lec­tive­ly have debts to­talling an es­ti­mat­ed $12 bil­lion. Cru­cial to the is­sue is the pre­vi­ous ad­min­is­tra­tion's com­mit­ment to ho­n­our not just the sums in­vest­ed in the col­lapsed fi­nan­cial en­ter­pris­es of Cli­co but al­so the terms and con­di­tions of those arrange­ments be­tween the com­pa­ny, now un­der Cen­tral Bank man­age­ment, and its cus­tomers. The Min­is­ter has al­so drawn some un­for­tu­nate con­clu­sions from the sit­u­a­tion that he in­her­it­ed, sug­gest­ing that the in­vestors in par­tic­u­lar had tak­en a risk and that this out­come was com­men­su­rate with the scale of the "gam­ble" that in­vestors would have tak­en in their quest for high­er re­turns. This is sur­pris­ing, com­ing from a re­spect­ed econ­o­mist like Min­is­ter Dook­er­an, who is cer­tain­ly ca­pa­ble of un­der­stand­ing the dif­fer­ence be­tween tra­di­tion­al high re­turn, high risk in­vest­ment op­por­tu­ni­ties and low­er risk, low­er re­turn de­posit-based in­vest­ments like an­nu­ities which are an im­por­tant el­e­ment of any coun­try's fi­nan­cial sec­tor.

Cli­co's EF­PA, for in­stance, is an an­nu­ity plan which is sup­posed to be se­cured by statu­to­ry funds and open to an­nu­al scruti­ny and re­view by the Cen­tral Bank. This fund rep­re­sents a clear ex­am­ple of a sit­u­a­tion that could on­ly arise out of two sce­nar­ios, in­suf­fi­cient over­sight by the Cen­tral Bank or out­right ly­ing by those re­port­ing on the Com­pa­ny's oblig­a­tions–a clear case of fi­nan­cial fraud. It is al­so clear that there is much more in the Cli­co mor­tar than may have been pub­licly dis­closed so far about the com­pa­ny's op­er­a­tions and as­set mix. On Thurs­day, Gov­ern­ment Sen­a­tor Patrick Wat­son de­clared Cli­co in­sol­vent to the point of bank­rupt­cy. Clear­ly, there is need for much more dis­clo­sure, more dis­cus­sion and more back­ground, of the re­al­i­ty of Cli­co as the Cen­tral Bank un­der­stands it to­day, with the dis­ap­point­ed in­vestors and pol­i­cy­hold­ers of the com­pa­ny.

There's a dizzy­ing gulf be­tween even a re­duc­tion in in­ter­est on in­vest­ed prin­ci­pal and a de­c­la­ra­tion that in­vestors will need to take a 35 to 40 per cent dis­count on their cap­i­tal (the sum that lo­cal fi­nance hous­es are like­ly to of­fer) to trade the gov­ern­ment's pro­posed is­sue of ze­ro coupon bonds on the lo­cal mon­ey mar­ket. For re­tired peo­ple seek­ing to lever­age their life sav­ings in the most vul­ner­a­ble arc of their ca­reers that's a drop that's pre­cip­i­tous. Ear­li­er Cen­tral Bank as­sur­ances to in­vestors and pol­i­cy­hold­ers that the cap­i­tal and terms of busi­ness with the com­pa­ny would be ho­n­oured, promised con­ti­nu­ity and sta­bil­i­ty in the fi­nan­cial sec­tor. The Cen­tral Bank did not pull the fi­nan­cial plug on Cli­co then, and that re­as­sured in­vestors and pre­vent­ed a cat­a­stroph­ic run on the fal­ter­ing com­pa­ny's as­sets with neg­a­tive con­se­quences for the en­tire lo­cal fi­nan­cial sys­tem. Along with ad­di­tion­al in­for­ma­tion, the Fi­nance Min­is­ter needs to step for­ward with a plan that re­turns that lev­el of sta­bil­i­ty to the man­age­ment of Cli­co and the fi­nan­cial sec­tor and he must ex­plain the rea­sons for in­sti­tut­ing this rad­i­cal shift in the fund dis­burse­ment process at Cli­co.