Several months ago, I wrote about some issues to do with the credibility of government and governing (search 'credit ratings', for example, and see Do Good Things Come To Those Who Wait? Economists Talk About Issues?). Much of that concern comes right back and hits me in the eye when I listen to what government spokespersons, mainly the Finance Minister/PM have been saying recently about things economic. I wont spend many words on them, because it appears to reflect much indecision, which has been costly, but just note the to-ing and fro-ing in four particular areas There's a reason to not spend too much time on the details of the Estimates that are now being thrashed over in Parliament, not least because they are estimates (and I know how to do that and it's more art at best than science), but also if the overall picture is a mess and unclear then what clarity can one get from the details that make that up? But looking at the problem areas where clear paths seem to have come and go like day and night.
Asset sales: First it was the plan to sell shares in BNB and ICBL to fund rebuilding/renovation of the QEH. Then it was talking about raising the governemtn ownership of BNB so that it could again become a 'national' bank. Then back we come to planning sell BNB and ICBL shares to fund QEH improvements. Is your head spinning yet. The Exorcist was a horrible movie.
Ratings downgrades and warnings and international borrowing: When Standard and Poor's made its downgrade of Barbados last November, one of the comments from the central bank governor was that Barbados was 'not going the route of borrowing on the international market, choosing to use less expensive sources of funding', and therefore concern about a worsening view from credit ratings agencies could be lessened. But here we are hearing from the Finance Minister yesterday that Barbados will go to the market to raise US$ 200 million at the maturity in June of a US$100 million bond. So, what was not a concern in the mind of the central bank governor may now be a concern as Barbados tests the international borrowing waters. But guess what? Several months ago concerns about high budget deficits and possible sovereign defaults was very muted, Since then, we have had the debacle of Dubai and very recently the greasy pole of Greece's financial and fiscal problems, and renewed talk that so-called solid sovereign borrowers like the UK and USA may see the loss of their AAA rating. Let's see what a welcome there is at the doorway for Barbados. If you want to think about happy ever after in the market place, remember The Beatles song, Oh-bla-di, Oh-bla-da, with 'Life goes on, bra. Lala, how the life goes on'.
CLICO/CL Financial: This is really something that may become a horror movie before our eyes. An unbelievable amount of time has been lost or wasted dealing badly with the affairs of this entity, and with about as much transparency as you get by looking through a wool blanket. During the Estimates debate the FM/PM told Parliament that the proposed sale of CLICO International Life has proven to be very difficult (see Advocate, March 16, page 3). I'm not really going to who has seen the Memorandum of Understanding between CLICO Holdings (Barbados) and the Ministry of Finance. If Parliament has not seen it then we have serious governance issues.
Supervision of nonbank financial institutions: The icing on the cake comes with the belated announcement/decision by the Supervisor of Insurance that CLICO and British American Insurance must now cease and desist from writing new policies and both be put under judicial management (see Nation report). Should have been done a year or so ago. You have a hole and don't know how deep it is and where it will hit water and you keep digging?
Macquarie, MEIF 2 & NCP Group: 'long term' can't fix overpaying
-
*Now Capitalized Prudently*A decade ago this entry chronicling the
incredible chase for the UK’s NCP Group’s car parks by private equity was
published. Ma...
7 years ago
14 comments:
Nothing happens before the time is right.
Dennis
In addition to my above comment, there are two old Bajan sayings,
"rush the brush and you throw away the paint" and "taking your time is not laziness".
That is very appropiate for this situation.
@Carson C. Cadogan,
I cannot accept the view that all things done (or not done) with much delay can be seen as good. There are lots of adages that have to do with procrastination, such as 'time and tide wait for no man', or 'why do today what you can put off till tomorrow'. One has to look at what evidence there is that a situation is being assessed well, and that the reasons for inaction are really appropriate. The other point is that if politicians make commitments then what is holding them back from fulfulling those. Reversing a commitment and reversing it again smacks of confusion, not mere uncertainty and bad timing. I say that with an eye too to a tourism strategy that seems to have the gestation time of an elephant baby. I would think that the Minister just for good form would update on why it is still not born.
LIB,
My understanding is that the government was attempting an orderly sale of Clico Life as a going concern. This would be an attempt to safeguard the interests of policyholders and employees. The reason given for considering judicial management now (according to the Nation article) is to facilitate a forced restructuring of the annuity policies that will mature mainly in 2012. I take this to mean that the maturity date of the annuities will be changed. This restructuring is intended to increase the chances of selling the company as a going concern.
Are you suggesting that it would have been better to place the company under judicial management from the beginning, and sell off its assets to repay policyholders and debtors?
@Brutus, my view is that stopping new policies from being written was a decision that should have been taken much sooner. On judicial management, I do not see that as synonymous with selling off the assets, but goes to who manages the entities, and I believe that the situation warranted taking management out of the hands of the existing officials and having court appointed administrators in place. How, they go/would have gone forward is/was another step.
@LIB,
If your view is that "the situation warranted taking management out of the hands of the existing officials" then this is precisely what the government did. Agreed that we do not know what the MOU says and perhaps there could be more disclosure of some of the details. However I do not know that a court appointed administrator would have been better than the oversight committee if you wanted the company to continue operating. The administrator would surely err on the side of caution and seek the court's permission for most decisions - that would be a very slow process, and what would the court know about running an insurance company?
On whether Clico should have been allowed to write new policies, that would depend on the underlying financial position of the company. There has really been no evidence put in the public domain that would suggest that Clico Life does not have enough assets to cover its liabilities. They did not have enough assets in the statutory fund (but remember that some perfectly fine assets do not qualify for the statutory fund) and they have a liquidity problem that is arguably not totally of their own making.
@Brutus,
I would argue that what the oversight committee has done and the process of an MOU between CLICO and the Ministry of Finance/Government do not meet the same standards as a court appointed administrator. It's a cozy 'back room' deal in my eyes, and I am never comfortable when public money is put at risk for private entities and the public are not fully informed.
We can argue about who created the liquidity problem, but I'm not inclined to look far beyond the officers of the company. There was unacceptable risk taking by the whole entity and we were told that the problems were from that strategy not from the impact of financial market meltdown and global recession.
Brutus,
Your comments are valid and Denís' dont make sense. Our market is too fragile. And Denis needs to read Peter Laurie on the social trust between Barbados government and its people.
Its hard for a Jamaican to understand that because NONE exists in that country.
If the market 'is too fragile' then one cannot let an institution rack up a statutory deficit that amounts to B$200-300 million/3% of GDP. I suggest reading the Sunday Sun of March 21, page 11A (The options for CLICO, BA), and page 33A (Rawdon Adams' comments on CLICO.
'Social trust' between government and people? Hmm. I beg to differ.
@LIB,
What do you suggest is the significance of the statutory deficit? I don't think that saying there is a large statutory deficit in itself says very much.
@Brutus, a large statutory deficit says a lot (especially as it was not made publicly known), as the statutory fund is supposed to give an indication of the institution's solvency. But, the whole matter says a lot about governance at many levels and good financial management, within which context I was taking issue with claims that the 'market is too fragile'. One needs to take good care of fragile things or they will break.
@LIB,
I think you are incorrect in your belief that the statutory fund is supposed to give an indication of solvency. Some reasonably good assets may simply not qualify for the statutory fund or the insurance company may have been slow to transfer assets into the fund. An insurance company may be highly solvent but have a large statutory fund deficit.
I agree with you though that the matter says a lot about governance - and it is absolutely disgraceful for the former prime minister to be claiming that the Supervisor of Insurance did not report to him any specifics of the problems at Clico. Well, did he ask?
@Brutus,
I did say 'supposed' not 'is', and as you rightly point out there may be good assets that would help actual solvency and they are not in the defined statutory fund, but that is how the cake is cut. Conversely, one could be like the banks who had seemingly good assets on their books, which turned out to be near worthless. It's really for the institution to argue its case with the regulator and/or actually have the assets that can be really put against liabilities.
The episode between the former PM and the Insurance Supervisor is very 'soviet' in the don't ask, don't tell mould (or what I don't know wont hurt me mould). I discount that sort of argument us political posturing.
Interesting and good that CLICO International Life took a full page ad in today's papers (March 24) stating that it "categorically denies $300 million dollar deficit", arguing that the figure is now around $110 million (but acknowledging that for FY2008 the deficit was $312 million). They point to coming actuarial valuations for 2009 (due April 30, 2010) and a restructuring plan to be presented to the Supervisor of Insurance by April 15.
Post a Comment