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Dennis Jones is a Jamaican-born international economist, who has lived most of the time in the UK and USA, and latterly in Guinea, west Africa. He moved back to the Caribbean in 2007. This blog contains his observations on life on this small eastern Caribbean island, as well as views on life and issues on a broader landscape, especially the Caribbean and Africa.

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Monday, February 16, 2009

Who's Fooling Who?

What is really going on?

Today's Advocate does something extraordinary. It draws a number of red herrings out across the path and plays at what could be mistaken for some partisan propaganda, throwing out a good dose of brickbats against any comment or criticism of a major financial company.
  • It warns that 'Barbadians must guard against indulging in rumours and baseless allegations...'
  • It talks about 'against background of ongoing hysteria over circumstances involving a prominent Trinidad-based financial institution, which has a subsidiary in Barbados, there has been a noticeable fall off in shares in the local Stock Exchange'.
  • It calls on 'everyone to recognise that if mischievous rumours and wild speculation continue, not only would harm be done to the image of the investors' chosen institution, but other companies could suffer as members of this island's small corporate community'.
I am not easily scared by events in financial markets and I like to check statements.

Who is being hysterical? What is the evidence for this? I do not see lines at any bank offices. I do not see people trying to put their hands of foreign currency and shed the local currency. I do not see or hear of other signs of financial panic, such as people hoarding goods. I do hear questions about the actions and statements of public officials, and that should not be discouraged, because lack of credibility is a major reason for failed measures.

What are the rumours and baseless speculation? Just last Friday, the Governor of the Central Bank of Trinidad and Tobago, Ewart Williams, was describing CLICO's financial position [CLICO's shortfall of TT$10 billion] as "much worse than we envisaged", essentially echoing the words of regulators in developed countries several months earlier (see Trinidad Guardian report). Essentially, he also flagged the last solid data (audited accounts) for the company are for 2007--well over a year old--and that its surpluses for three years appear to have turned into substantial deficits in 2007 and 2008. So, is sharing the concern of a central bank governor working with rumours and baseless speculation? Moreover, there is evidence that the Trinidad authorities dropped the ball in terms of their oversight of the financial group, and are now hastily trying to fill gaps in legislation to allow for better oversight, so expecting the public to have faith and patience is a big ask.

Since the news broke of financial trouble with the Trinidad arm of CL Financial, the central bank in Barbados has placed a B$10 million deposit with it and made available a line of credit: these actions suggest some possible serious financial problem, so local concern has a base and is not fed solely by rumours.

The matter of inter-linkages in CLICO is important and not well understood or well explained, but it has been said by local public officials that the group had a 'risky business model' involving global deals that moved money out of CLICO.

What has been the fall off in the Stock Exchange? In the same issue, in Business Monday, I look at the 'Stock Market Report' dated February 13, 2009. Of 24 shares quoted, only 12 have had transactions in 2009, and 8 of these since end-January (when the CLICO problems surfaced)! There appeared to be only trading going on in Goddard Enterprises last Friday. (If one looks at the 'odd lot' market, it is similar story, with 18 companies showing transactions in 2009, and fifteen of these since end January, only Goddard trading last Friday.) Tell us what the fall off has been, in market that is essentially moribund.

So, if Bajans are worried it is not due to hysteria or baseless allegations and rumours. If one works just with the 'well-informed' statements of local and regional government and public finance officials, there are causes for concern.

Telling people 'Hands off CLICO' is a statement that really requires some in-depth assessment. It is especially troubling as the CLICO group is a multi-national, private enterprise that is now getting substantial financial support from regional governments and central banks. Therefore, a major private business has now become very public. Warning the general public to 'keep off', so to speak is a very odd position for a newspaper to take. Very odd indeed. To not treat CLICO (whichever part we mean) as a political football, means not kicking things related to it around as if they are tin cans on the street and can be ignored.

1 comment:

Let me speak said...

The credibility of the editorial disappeared the moment the writer made reference to the fall off in trading on the stock exchange. That immediately told me the writer obviously has no idea what trading is like or has been like on this stock exchange not just for 2009 but for the last 3 years. There were many days in 2008 when the exchange opened with not a single trade on the main exchange.

But you are sooooooo correct I was shocked to see the headline editorial and in the Advocate of all papers.

Without realising it the editorial has itself added to the speculation. It forces me to ask, What's so special about Clico that I should back off and not ask questions? Because as you rightly pointed that's all I have been witnessing - the public asking lots and lots of questions to which no answers are being provided.