The previous administration certainly seems to have believed that Clico could be saved. The People's National Movement administration made $5 billion available to Clico: an emergency cash injection of $1.9 billion shortly after the January 30, 2009 Memorandum of Understanding between the Ministry of Finance and the CL Financial group and an additional $3.1 billion in bonds in three tranches that was placed on the insurance company's balance sheet. The bonds and the cash injection have been accounted for mainly as preference shares.
The primary purpose of the $5 billion in taxpayers funds that was pumped into Clico, which is a private company, was to save the financial system given the systemic risk that the official bankruptcy of Clico would have caused to the country. The need to preserve the country's entire financial system–the $75 billion in the deposit accounts of the country's commercial banks and the $35 billion held in mutual funds–was the reason that the former Minister of Finance, Karen Tesheira, and the Governor of the Central Bank, Ewart Williams, went out of their way to provide the public, including the Clico and British American policyholders, with the assurances and the guarantees that their money would be safe.
Had those two officials not given those commitments, there would have been panic among the 250,000 policyholders of Clico, which includes many credit unions that in turn have hundreds of thousands of members. That panic would have affected every financial institution in this country and would have led to massive capital flight and a virtual freezing up of the local economy. There would have been long, long queues of customers lining up outside all of the country's financial institutions in order to secure their savings and their investments.
Put simply, if the 25,000 holders of short-term investment products, who hold among them over $12 billion in Clico, were told on January 30, 2009 that the Ministry of Finance and the Central Bank were not going to intervene to guarantee their funds, this country would have been a different place. It is to the country's credit that the assurances provided by the Governor and the Minister had the immediate impact of ending the panic and restoring a great measure of policyholder and investor confidence in the local economy. Those who argue that the Government should not have intervened to bailout the company are either naive or live in some sort of alternate reality to the one experienced by most of the rest of us.
Many policyholders reacted very negatively when they understood how Mr Dookeran was proposing to deal with the Clico crisis in the September 8 budget–and how they would have been impacted. The fact that Mr Dookeran, in his budget speech, announced without any consultation that he was stopping the interest on the short-term investment products held by Clico policyholders and told those policyholders would receive their lumpsums over a 20-year period.
Not only did he go out of his way to criticise the Central Bank, the very institution which had been the bulwark of the intervention to save Clico, Mr Dookeran's statements on Clico would have done more to scare policyholders than the events of January 30, 2009, when the Governor and the former Minister announced the collapse of Clico. That's because the news of Clico's collapse was given in one sentence and the assurance that their monies would be safe was given in the sentence immediately after. It was the Robitussin approach to public relations–this tastes awful, but it works.
But, in his budget speech, the news that Mr Dookeran gave tasted awful and was destined to fail as it would have left the policyholders in a much worse off position in the long run. Call that the anti-Robitussin approach or the antussin for short. The Government will soon be required to decide whether it will proceed with the Dookeran Plan or if it would be prepared to ditch the plan that the Minister of Finance seems to place great faith in and which he has described as the only option available to the Government.
When Cabinet sits in deliberation of a solution to this problem, it should first seek to ensure that it is fully briefed on all aspects of this issue and that it has in its possession all of the relevant material necessary to make a positive decision on this matter, which brings to bear all of the imagination and ingenuity possible. One of the main issues that the Cabinet will have to face is whether Clico can be saved, given the beating that the brand has taken in the last two years–first from the collapse and then from the Government likening it to a Ponzi scheme. Would it not be better to divide the Clico portfolio into traditional and non-traditional and sell traditional portfolio, with its 225,000 policyholders, to one of the large regional insurers?