The economic policy of increased taxation that, the A Partnership for National Unity/Alliance For Change (APNU/AFC) Government is engaging in, as a move to increase the revenue base of the country, would at this recessionary period of our economic growth, only lead to further stagnation and economic depression.
Instead, the Government should take a page from the United States (US), among other countries, during its times of recession, and engage in ‘pump priming’ to stimulate economic growth.
Not to be misconstrued, pump priming, as the name suggests is derived from the operation of older pumps whose valves had to be primed with liquid in order to function efficiently. However, the terminology was utilised by US Presidents Hoover and Roosevelt to describe the need for government polices geared towards lifting their economy from the Great Depression.
It was also utilised in the financial crisis of 2007/2008 to reduce interest rates, increase government spending, particularly in the areas of infrastructure, in addition to dolling out tax rebates to the masses.
Pump priming is grounded in the Keynesian economic theory, which states that “government intervention within the economy, aimed at increasing aggregate demand, can result in a positive shift within the economy. This is based on the cyclic nature of money within an economy, in which one person’s spending directly relates to another person’s earnings, and that increase in earnings leads to a subsequent increase in spending.”
The subsequent increase in spending would then lead to increased profitability within the private sector – which is stagnant in Guyana at the moment – providing the necessary impetus for accelerated economic growth.
With respect to Guyana’s current economic standing, the mid-year economic report from the Ministry of Finance highlighted that for the first half of 2016, Guyana registered an overall GDP growth of just two per cent. Prompting Finance Minister Winston Jordan to revise downward his projections for the country’s annual economic growth from five per cent to four per cent, respectively.
The only industry that is responsible for this registered level of growth is mining which has, in the last couple of months, registered increased production within the area of gold. The other industries according to the report are in the negative as far as production and growth are concerned.
The government has increased public taxes in the form of licence fees of which there are now 140 increased cases. There is also the removal of tax exemptions – traditionally used to attract Foreign Direct Investment (FDI) – for investors, as well as removing tax exemptions from all capital equipment in the major productive sectors such as agriculture, forestry and mining, even though most of these sectors, with the exception of mining, registered negative growth. A clear indication that they need to be helped, and not burdened.
The spin-off effects of these implementations would invariably contribute to the already colossal unemployment rate of 25 per cent, reduction in the levels of production in the manufacturing sectors, in addition to further decelerating the growth of the economy because consumers would not have disposable income to spend.
In cases like this, when the economy has slowed, the unemployment levels are up and consumer spending is down due to businesses not making substantial profits, the government from an economic perspective is supposed to ‘prime’ the economy by decreasing taxes across the field, and increasing government spending, particularly in infrastructure.
This in turn would give consumers more disposable income, while government spending – on infrastructural projects such as the Amaila Falls Hydro project – would create jobs. In the case of the Hydro project, cheaper electricity would make foreign investment more attractive as rates become competitive comparative to other countries.
This would invariably lead to a reduction in the unemployment levels on two fronts, the infrastructural aspect and with the setting up of manufacturing sectors via attracted FDI.
Government’s policy of increased taxation is best used when inflation is too high, above six per cent, as a tool to maintain the purchasing power of the currency and generate a broader tax revenue base since a high period of inflation would suggest that there is more money within the system than there is commodities to purchase.
Guyana’s inflation rate was recorded at 0.40 per cent in June of 2016. Essentially, a balance must be maintained between the increasing of taxes, to offset deficits, and the amount of money consumers have at their disposal.
Even though it confirmed the uniethnic bases of the major political parties, the USAID-commissioned Report studiously avoided referring to the issue of “power sharing”. Rather, it spoke of the implementation of previous constitutional reforms: “These can help balance the power of the executive, address the winner-takes-all nature of the political and electoral systems, and devolve power to local government.”
But how does this end the problematic of the legitimacy of governments in a deeply divided racial/ethnic society? In Guyana, the institution of executive power sharing has now seemingly been shelved by its old proponents in the People’s National Congress (PNC) and the Alliance For Change (AFC) even though there is now consensus on its true raison d’etre: the racial/ethnic nature of the parties’ support, which had been lurking unacknowledged under surface all along.
The PNC proposed the power-sharing model for Guyana a decade ago but had always danced around its rationale. If, as it claimed, it represented the all of the groups in Guyana, then the present majoritarian system was unobjectionable, since it was simply a matter of presenting a programme that attracted enough votes to constitute a majority to form the Executive in which all groups would be represented.
“Power sharing” as articulated by the PNC originated in a situation existing in a number of European countries such as The Netherlands and Belgium where religious/ethnic divisions produced entrenched voting patterns.The Executive or Cabinet was shared by all the parties in Parliament and in Parliament there were frank discussions of the interests of the specifically named groups being addressed through bargaining and eventual consensus. The overall approach was given the name “consociational democracy” by one theorist in the 1960’s. Then suddenly, it was moved from a descriptive to a prescriptive status by beleaguered politicians in several divided societies.
A half a century later we have quite a wealth of experience with the transplantation of the consociational model of governance in several non-European societies. One of the earliest clients was Lebanon, which after WWII was divided between Christian and Moslems. One of the weakness of the model – the presumption of immutable groups producing immutable electoral outcomes – was soon challenged when the Muslim minority soon became a majority. The Christians refused to accept the necessity for alterations not only of the distribution of Ministries but more trenchantly, of the quotas that had been instituted in various valued areas of national life. A civil war ensued that has not been ended four decades later.
The model was also applied early on in Malaysia in a governing coalition that included parties of its three major ethnic groups. After riots broke out between these ethnic groups in 1969, quotas were instituted for national participation in business and education. Here, learning from Lebanon, the application was more salutary.
In Africa, where countries inherited arbitrarily drawn colonial borders encompassing large number of ethnic groups, the endemic ethnic hostilities also elicited calls for Executive “power sharing”. However, absent the nationalist outlook, in those countries where it was tried even for one term such as Kenya after riots in 2007 and in Zimbabwe in 2008, it was abandoned. Power sharing meant only sharing the of the national patrimony. This would have necessitated the introduction of quotas which could never be agreed on.
While the present Government has on occasion claimed it possessed the necessary qualifications to be considered a “government of national unity”, this claim falls flat when it acknowledges accomplished this through the participation of the AFC which was supposed to bring in 11 per cent Indian Guyanese votes. But what it actually did do was to implicitly concede that power sharing in Guyana will have to be accomplished by ensuring the representatives of substantial blocks of the major radial/ethnic blocks are in the “grand coalition”.
This implies two prerequisites in Guyana, the inclusion of the People’s Progressive Party and the introduction of quotas. Is this what killed “power sharing”?
The report produced on behalf of the United States Agency for International Development (USAID) titled, “Democracy, Human Rights, and Governance Assessment of Guyana”, is valuable for several reasons: the least not being it was produced by a source seen as “friendly” to the present Government. Friends are allowed to be candid in their assessments and the subjects are expected to take suggestions in good stead.
One observation related to the accusation by the Government that a statement in late July to a New York group by Opposition Leader Bharrat Jagdeo constituted “race baiting”. What Jagdeo actually said was “There is an assault on our democracy. There is an assault on people of Indian origin. There is an assault on supporters of the PPP. What we thought would never return to Guyana in just one short year has returned with full force, and even worse in some regards than the Burnham era.”
Honing in on the section that referred to “an assault on people of Indian origin”, a statement issued through the offices of the Prime Minister and Presidency “condemn(ed), in the strongest possible terms, the irresponsible, hateful race baiting and malicious fabrications and falsehoods uttered by Opposition Leader Mr Bharrat Jagdeo.” In the following days, a sharp debate has erupted on the claims and counterclaims that, unfortunately, followed the lines of cleavage where race and politics coincide in Guyana.
However, the USAID report, the data for which was compiled towards the end of last year – at least six months before the Opposition Leader made his statement – pointed out in reference to discrimination, “…there is perceived and real ethnic exclusion from the political processes and social discrimination based on race, gender, socio-economics, and sexual orientation. There is also de facto discrimination of indigenous people and those who live in the periphery in terms of access to social services and economic development.” It also said, “Too few resources are used for public good. Rural and hinterland communities are disproportionately affected.”
Since the report took pains to confirm what had long been denied publicly – which is that the two major parties are ethnically based, it is difficult to understand the Government’s denunciation of Mr Jagdeo for highlighting the concerns of his constituency. A few weeks later, President David Granger, who is both the leader of the PNC and APNU, addressed a gathering of African Guyanese at the “African Forum” and referring to the PPP Administration, bluntly said: “There is evidence that there was discrimination.” Claiming that “we no longer have to face the song-and-dance people”, he explicitly acknowledged that African Guyanese must work together to ensure the enjoyment of economic, social, cultural, civil and political rights through their full and equal participation in all aspects of society.
No one should denounce these statements as “racist” or as “race baiting” as they reflect the reality of politics being practised in a polity in which the concerns of the ethnic constituencies must be addressed. While the report went on to suggest a raft of short and medium-term measures to address the above and other political challenges in Guyana, they all are centred on constitutional changes that will not be easy to agree on in the short or medium terms as we explained in yesterday’s editorial “State of the State”.
What we would suggest is the Administration implement immediately the “Ethnic Impact Statement” proposal it promised in its Manifesto. What this means is before any policy or initiative is launched, the Government should issue a statement on its possible impact on the several ethnic communities. For instance, if the Police and GDF are to embark on a recruitment drive or if the People’s Militia is to be resuscitated, statements should be issued ahead of time explaining whether and why there might be discrepancies in ethnic composition.
To proceed otherwise is to invite charges of “ethnic discrimination”. And most likely, counter charges of “race baiting”?
Guyana has to be one of the most studied and analysed countries in the world on a per capita basis, not necessarily by scholars operating on academic premises, but by other countries, which, of course is always in furtherance of one or another of their national interests.
One of the most consistent in the latter category has been the US, which through its “United States Agency for International Development (USAID)” just released a report that pronounced, in effect, on the state of the Guyanese state. Without irony it proposed what interventions the US ought to be making here, presumably to “improve” that state, through implementation of “Democracy, Human Rights and Governance” (DRG).
The report harks back to the beginning of our modern party system when the PPP split into two factions giving birth to the PNC. It did not mention the role the CIA played in the denouement of that split or the US’ interest then in such a presumably insignificant country: to “prevent the spread of communism” via the PPP. It did point out that in the present, US interests are firstly to prevent the flow of drugs from Guyana, which is strategically positioned in South America to perform that role. And secondly, that our now confirmed oil reserves bumped up our strategic profile more than a notch.
Fundamentally the report concedes that our state is moribund for a number of reasons. While the government, through the Finance Minister insists that our economy is “growing” the report states quite flatly that it is in fact “declining” because of the falling prices for most of our export commodities.
Politically, it pronounces openly about what Guyanese had always known, but what their leaders were bashful about acknowledging: to wit, that the support of the two major parties is ethnically based and they refuse to deal directly with the implications of that reality.
The report suggests that the APNU/AFC coalition is secure to the 2020 elections, but did not elaborate on the reason for the thinking. Most local analysts have pointed to the degutting of the Cummingsburg Accord, especially as it related to the reduction of the promised role for the PM, having placed severe strains on the coalition.
The Report’s conclusion means that the authors see the leaders of the AFC as being willing to ignore the discontent expressed by their supporters in the press. Recently, one of those supporters, former AFC MP Verasammy Ramayah quit as Region 6 REO because, as he stated, of the refusal of the AFC leadership to back his drive to root out corruption in his region.
But interestingly, the Report takes one side in the open difference of opinion and position between the AFC and APNU on a key demand of the former’s as it relates to constitutional reform. The Report is insistent that the government must move swiftly to initiate constitutional changes such as tempering the powers of the presidency and over-centralisation of power, which were proposed during the campaign. It stated: “These can help balance the power of the executive, address the winner-takes-all nature of the political and electoral systems, and devolve power to local government.”
Prime Minister Nagamootoo has been insistent that the powers of the President must be reduced and has promised the Report of the Steering Committee on Constitutional Reform will be submitted soon to a broad-based Committee that will include the PPP.
President David Granger, however, has gone on record as stating that while he supports Constitutional Change, he believes that the process of consultations with communities and the citizenry must be broader based.
In the run-up to the last two elections, the PPP had been quite sceptical of the work by the US through USAID’s “Leadership and Democracy” (LEAD) Programme, which they claim was geared more towards assisting the now governing parties. Their participation is crucial going forward and we hope they will comment on it shortly.
The Commission of Inquiry (CoI) report into the fire at the Hadfield Street Drop-in Centre last month, which claimed the lives of two children, was handed in earlier this week. The report concluded that the incident was a tragedy waiting to happen.
For many this came as no surprise, as for quite some time now, several stakeholders have been raising various concerns about the facility regarding its safety and the level of care it provides for children placed there.
Previously, sections of the media have sought to highlight the many problems plaguing the facility but to no avail. In fact the authorities had always sought to downplay the reports and present a picture that all was well at the facility. In any modern society, there would have been very strong actions recommended against those who were found to be lacking in their response to the tragedy.
It is quite clear that at all levels, including even at the levels of the Minister of Social Protection and the Director of the Childcare Protection Agency (CPA), very little concern was shown towards ensuring those placed in the State’s care were given the kind of protection they deserve.
Minister Volda Lawrence has been in that position for well over a year now and at least should have put certain policy mechanisms in place aimed at ensuring what obtained previously changed for the better. It is quite unfortunate that it had to take another fire and the loss of the lives of two children to cause the authorities to wake up from their slumber.
It should be noted that there was a similar fire a few years back at the facility; and even though no one died, many of the children were left traumatised. One is therefore left to wonder what changes were made, if any, since then, to ensure that our children are well protected from such tragedies.
The findings of the recent inquiry conducted by Retired Colonel Windee Algernon found that the children/staffer ratio was not adhered to and that on the morning of the fire, there were not enough staff on duty to meet the needs of children. Additionally, the house service supervisor, while she had the authority to call out more staff, failed to do so.
The CoI also found that there were written guidelines for the management of crisis situations, including fires; however, the house manager and other senior staff seemed unfamiliar with them. And so when the fire occurred, there was confusion and panic, resulting in the tragedy.
Of note too is that the inquiry found that the fire was caused by a defective electrical outlet fitted with exposed wires on the eastern wall of the girls’ dormitory. This, the report said, played a role in the ignition of the fire by subsequent heat transfer. It should be mentioned that the authorities had also concluded that the 2010 fire at the facility was also as a result of an electrical problem.
The fire department at the time had made some recommendations that would have minimised the possibility of a similar situation occurring. It is still not known what sort of corrective work was done to fix the electrical problems which seem to be plaguing the facility since that time. How did such a situation occur a second time?
Along with the findings, the CoI made some recommendations, including that the Social Protection Ministry and the CPA continue to focus on overhauling child protection, cutting redtape and improving the skills and knowledge of social workers so that they could adequately protect children in the State’s care.
It was also recommended that the emergency evacuation plans be developed and practiced at all childcare facilities, and that in-house training, including rehearsals, be conducted for staff in crises management and childcare centres.
It is hoped that these recommendations will be acted upon immediately by the relevant authorities. The issue of child care cannot be taken lightly. In the meantime, we are still waiting to see what sort of action will be taken against those who are found to be responsible.
The Caribbean Secondary Education Certificate (CSEC) results are out and noteworthy there were outstanding performances this year. There is no doubt that we need to celebrate our outstanding performers. These students evidently had to have spent countless hours studying and preparing for these examinations. However, while we celebrate the top performers, the overall results show unquestionably that with the lack of meaningful performances in Mathematics – more so with the decline of pass rates in the subject area this year – there needs to be strategic planning by the Education Ministry for there to be improved performances at these examinations. The Education Ministry on Wednesday announced that there was a decline this year in Mathematics, with a pass rate of 38.37 per cent when compared to the pass rate of 45.07 per cent recorded in 2015.
Overall, there was an increase in the number of candidates who wrote the CSEC examination in 2016. The Education Ministry reported that a total of 12,809 candidates wrote the examination, of which 35 per cent wrote the exams privately. Laudably, Grade One to Three passes in English Language (A) recorded a significant improvement of over 10 per cent from last year’s performance. In 2016 there was a pass rate of 59.3 per cent in English A as compared to 49.36 per cent in 2015. The Ministry also reported that the overall pass rate in the general and technical proficiencies for Grades One to Three this year was 63.39 per cent compared to 62.72 per cent in 2015. A total of 35 subjects were written by Guyanese candidates and an analysis of the results indicated exceptional performances in 15 subjects, where the Grades One to Three passes exceeded 75 per cent, while satisfactory performances were recorded in the other 18 subjects with Grades One to Three passes exceeding 50 per cent. But again this year, the science subjects recorded disproportional performances. While there was significant improvement in Biology and Physics, Integrated Science declined and unsatisfactory performances were recorded in Chemistry.
The 2016 results come at a time when there is a Commission of Inquiry (CoI) into the Education Ministry. As alluded by Permanent Secretary (PS) of the Education Ministry, Delma Nedd, the Ministry is yet to launch a pilot project, which was generated under former Minister Priya Manickchand in 2014, specifically targeting Mathematics in secondary schools. As a matter of fact, the plan was expected to monitor performances of students from the entrance of secondary school, right through to CSEC. According to the PS, the Ministry is awaiting the CoI report before proceeding and that this project may be launched “sometime” next year.
The question is whether the Education Ministry is serious about this announcement. A number of CoI’s have been conducted since this new Administration took office and the public is yet to see any significant result or actions from those inquiries. So in the meantime, is the Education Ministry willing to accept underperformance by our students until the “CoI” report is out? Nedd herself at the announcement of the CSEC results admitted that the Education Ministry is not satisfied with the performance in Mathematics. Instead of waiting for the CoI report, the Ministry should examine that pilot project to determine its effectiveness and strategies to address the Mathematics curriculum.
As a collective institution, the Ministry has to also examine the various pedagogical approaches in order to support the improvement of the entire education sector and more specifically, the performance of students in Mathematics. The need for a qualified cadre of Mathematics teachers has been highlighted in the CSEC results over the years. Focus should be placed on how to improve our teachers’ skills and give them the necessary tools they need to improve those skills. The preparation for these examinations does not commence at secondary school level but rather from the beginning of a student’s educational life.
The parties now in Government – the Alliance For Change (AFC) and the A Partnership for National Unity (APNU) – campaigned heavily on the plank of “constitutional change” and in fact was one of the items high on their Manifesto’s agenda. It declared unequivocally:
“The APNU/AFC recognises that the Constitution, in its current form, does not serve the best interest of Guyana or its people. Within three months of taking up office, the APNU/AFC will appoint a Commission to amend the Constitution with the full participation of the people. The new Constitution will put the necessary checks and balances in place to consolidate our ethos of liberal democracy. Freedom of speech, reduction of the power of the President and the Bill of Rights will be enshrined in the document.”
Many persons, who felt there were structural political issues that led to objected-to behaviour by the PPP in their twenty-three years in office, voted for the APNU/AFC because they believed such issues would be dealt with in the promised constitutional changes. However, rather than a “Commission to amend the Constitution” being launched, a “STEERING Committee on Constitutional Reform”, under the Chairmanship of Nigel Hughes, was in fact constituted after the elections. It appeared that the government was now going to proceed with the promised changed in a two-step manoeuvre.
The Steering Committee took recommendations from the people, and in April of this year, more than a year after the elections, finally delivered its final report to the Prime Minister, in charge of “governance”. They had requested (and received) an extension of their time frame so as to secure the “widest consultations possible”. Prominent recommendations included reduction of the powers of the President, further devolution of power from the centre and revamping the electoral system. Upon receipt of the Report, the PM promised that a broad based Constitutional Committee, which should include “the PPP and other stakeholders”, would consider the submitted recommendations, and the reforms they would initiate.
Two months later however, it appeared that (under the kindest possible interpretation), there was an evident volte face on this issue had been deemed so pressing. As was discussed in this space then, “President David Granger appeared to throw the entire process into a tailspin when he averred that he did not want a “boardroom constitutional reform”. This appears to be a direct refutation of the process whereby the Steering Committee produced its recommendations. This was made very clear when the President concluded: “I want people in their communities to meet and express their views. I don’t want a group of people sitting down on a room saying what must be done.”
Another two months have passed and it is clear that the worst fears are being realised since there has been no mention of a body constituted to conduct the new requirements of “countrywide consultations”. In the meantime, the government has continued launching initiatives that have caused a wide swath of their own supporters to fear a replication of the same “excesses” due to structural political ambiguities they found unacceptable in the PPP’s regime.
It is interesting that the Prime Minister, who is from the AFC wing of the coalition, has continued to insist that he believes expeditious constitutional change is absolutely necessary – especially as it relates to reduction of the powers of the Presidency. It is clear that there has been a divergence of position between the partners in the coalition on the issue of constitutional change. This is rather unfortunate. The first series of changes to the “Burnhamite” 1980 Constitution occurred in 2000 only after massive protests by the PNC as part of a menu of measures agreed to by the PPP. The PPP had already initiated the process of change based on their prior criticism of the PNC’s pre-1992 actions but political contradictions in the system overtook them by 1997.
Tragedy would be repeating itself as a farce if it would take protests to force constitutional change after all the promises.
Neoliberalism, the 20th century construct that advances the proliferation of capitalism over the measured policies and social provisions of the State, is for the most part the ideology that influences how we as a country define the way we trade, conduct business, strategise our growth and establish our foreign policy.
This ideology, the West’s answer to socialism, was foisted on developing countries by international bodies, such as the Intentional Monetary Fund (IMF) among others, as a precondition for the struggling economies to receive funding, as was the case with Guyana during Hoyte’s Administration in the 1990’s. The funding, however, came with austerity measures that the donor countries would have to implement. Measures such as trade liberalisation that saw the reduction of tariffs and non-tariff barriers, the removal of foreign exchange restrictions and the removal of import monopolies, in addition to a host of other measures aimed at promulgating neoliberalism.
The neoliberalist ideology is premised on quantifying human interactions from a Capitalist perspective. As Monbiot asserts “it redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that “the market” delivers benefits that could never be achieved by planning…Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers.”
It is against this backdrop that the recent upheaval – when information came to the fore – of Guyana’s manufacturing sector not being able to effectively compete against the flurry of imports lining our market shelves has to be analysed.
While there are many additional militating factors that can be argued for the apparent disparity of imports against local produce, paramount among them was an ideology that we were forced to adopt, essentially relinquishing ourrequisite control over the types of products lining our shelves.
Burnham, who many agree did more harm than he did good, was on to something when he banned the importation of certain staple commodities in favour of utilising local alternatives. He was in essence incorporating import substitution as a model that would see the utilisation of local produce, the aim of which was to develop and possibly export,as a value added product. However, his execution of this idea was tyrannical, hence it never succeeded.
Ironically, when Guyana incorporated IMF’s austerity measures within its framework for growth, it had to relinquish import substitution as a model in favour of trade liberalisation.
There is no questioning the benefits that countries accrued from liberalising trade, but the ideology was always stacked in favour of those countries that were already industrialised and wealthy, as opposed to poor and developing countries that were primarily subsistent agricultural economies, like Guyana for example.
As many scholars would rightly posit, neoliberalism was premised on allowing those who were entrusted with wealth the opportunity to maintain it through polices that allowed for unfair competition. How else could a poor country with no industrial prowess, hence no streamlined value added manufacturing sector compete, efficiently, on a global scale, with industrialised countries be explained.
What this predicament highlights is the need for developing countries to be unified. And is therefore, a subsequent justification for the Caribbean Community (Caricom) Single Market and Economy (CSME) to be fully implemented.
As a unified single market economy, apart from being able to be heard more effectively on the international stage, local markets would become more resilient and efficient in competing against foreign imports because of the comparative advantage that the different countries would benefit from once unified.
Neoliberalism, by its nature economists posit, has played a major role in a remarkable variety of crises. Crises such as the global financial recession of 2008, in addition the offshoring of wealth and power, a classic example of which would be the Panama Papers scandal. They also posit that it is responsible for the concentration of the world’s wealth into five per cent of the global population and it will continue with the proliferation of globalisation.
It therefore begs that question, isn’t it time for us to adopt a different ideology that would fix the disequilibrium between the haves and the have not’s?
The recent confirmation by the Bank of Guyana Governor, Dr Gobind Ganga, that Guyana policy holders, who invested their monies in the Colonial Life Insurance Company Limited (CLICO) Guyana – a conglomerate insurance company that collapsed in 2009 – have begun to receive their monies and that the process has been ongoing is surely a welcomed remark.
Even though he noted that payments will be made in a tiered system and some policy holders may have to wait, the fact that every effort is being made to ensure that policy holders are being paid, has brought a sliver of hope to those persons who thought that the monies they invested would be lost.
Governments throughout the entire Caribbean, in addition to countries further afield, suffered at some point or the other, either directly or from the “contagion” effect, with the collapse of the CLICO, which is the subsidiary of the CL Financial (CLF). CLF is a multibillion-dollar company established in over 30 countries, with over 60 subsidiaries spanning the Caribbean, Florida, Europe, the Middle East and Asia. While it’s primary focus is on insurance, CLF is also diversified in the areas of financial services, real estate development, manufacturing, agriculture and forestry, retail and distribution, energy, media and communications, among other areas.
Because of its sheer magnitude, many were of the belief that, CLICO being a subsidiary of CFL, it was ‘too big to fail.’ However, the global financial recession of 2008 exposed some serious deficiencies in the armor of CFL. Deficiencies such as the ‘overly aggressive’ and ‘risky business model’ used by the CFL that invariably led to the collapse of CLICO, which had been established in several Caribbean countries inclusive of Trinidad, The Bahamas and Guyana to name a few.
According to the American International Journal of Contemporary Research “CLICO was the primary source of deposits that were used to finance CLF’s expansion through investments and acquisitions held in the name of other entities in the group. Some of these enterprises were wholly owned and managed by CLF, others were simply investments in which CLF did not participate in management, and some were a mixture of both. In some cases CLF borrowed from financial institutions to invest, and in most cases, it used CLICO, CIB, BA, and CMMB as the conduit to purchase investments or borrowed from them to do so. In short, CLICO became the guarantor for many of CLF’s assets most of which were heavily pledged and, therefore, limited in terms of the potential proceeds from asset sales.”
With the collapse of CLICO in Trinidad, the Government had no choice but to offer a bailout package to CFL, since that company was contributing significantly towards the GDP of that country. CLF then agreed to take steps to correct the financial condition of CLICO and its other subsidiaries by selling its shareholdings and assets in multiple companies to satisfy the statutory fund requirements for CLICO.
The American International Journal of Contemporary Research posits that “the corporate governance structure of the conglomerate CLF has to be factored into the analysis of CLICO’s collapse because although the business model was high risk and dangerously flawed, the regulators were not blameless. The evidence indicated that the ‘soft touch approach to regulation’ which was essentially based on moral suasion while aligned to the philosophy of the market mechanism had led to the excesses that caused the crisis.”
The corporate collapse of CLICO also highlighted the critical need for legislation and regulation to keep pace with the rapidly evolving operations of financial institutions. It was against this backdrop that many of the Caribbean countries have instituted legislative amendments to inter alia, their Insurance Act, the supervising authorities within their financial systems, among many other amendments aimed primarily to strengthen the financial sector.
The business model used by CFL led economists, scholars and governments alike to question its validity and legitimacy within the financial sector and it has been an occasioning factor for much of the legislative and supervisory amendments mandated by governing and international (Caribbean Financial Action Task Force) bodies throughout the Caribbean to ensure that the debilitating repercussions that the collapse of such as large interwoven organisation had, would not happen in the future.