By Dr Ralph E. Gonsalves
Prime Minister of St Vincent and the Grenadines
This extensive paper, which will be published in several parts, is an edited version of a longer document which formed the basis of a presentation made on August 24, 2012, by Dr Ralph E. Gonsalves, Prime Minister of St Vincent and the Grenadines, at the closing session of “the Fifty-Fifty” Conference of the Sir Arthur Lewis Institute of Social and Economic Studies (SALISES) of the University of the West Indies in Kingston, Jamaica. Among other things, the publication excludes the section on “the Grenada Revolution” (1979 – 1983) which is amply covered in the prime minister’s autobiography entitled The Making of ‘the Comrade’: The Political Journey of Ralph Gonsalves.
This paper contains, too, the essence of Dr Gonsalves’ discussion on the subject “Rethinking Policy to Address Low Growth and High Debt: The Economic Challenges Facing the OECS/Caribbean” on September 04, 2012, at a recently-concluded “High Level Forum” sponsored by the International Monetary Fund, the Caribbean Development Bank, and the Central Banks of CARICOM member-countries at Port-of-Spain, Trinidad and Tobago.
The ideas of Dr Gonsalves, contained in this paper, are well-known to those who have followed his speeches and writings, especially his Budget Addresses, his United Nations Speeches, his Addresses to CARICOM and OCS, national and international gatherings, and his various publications over the past dozen or so years. They constitute what he calls “a compelling narrative” for socio-economic development. He weaves history, philosophy, literature, economics, law, politics, sociology, policy-making, public administration, governance, and more, into his integrated narrative.
Part 4: Response of ECCU/OECS to global crisis
As the global economic crisis ballooned and impacted most severely on the OECS from September 2008, and continuing, both the OECS and the ECCU decided to establish a Joint Task Force of the OECS Authority and the ECCB Monetary Council in order to provide a coordinated response to this ongoing global crisis and to realise whatever possibilities were available for the member-countries. I held the Chairmanship of this Joint Task Force from its inception in January 2009 until June 2012 when I assumed the rotating Chairmanship of the OECS Authority itself. Emerging from the ECCU and executed through the mechanism of the Joint Task Force and its constituent parts is an “Eight-Point Stabilisation and Growth Programme.” This Eight-Point Programme is aimed at transforming the economies of the ECCU/OECS with three main objectives: stabilisation, stimulus, and structural reform.
Dr Ralph E. Gonsalves, Prime Minister of St Vincent and the Grenadines
Points 1, 2, and 3 of the Programme revolve around a Financial Programme, Fiscal Reform, and Debt Management. These are vital in establishing a credibility for the achievement of macro-economic stability. Points 6 and 7 of the Programme are directed at financial sector stability and involves financial safety net programmes, the amalgamation, development and regulation of the insurance sector. Point 4 (Public Sector Investment Programme) and Point 5 (Social Safety Net) are focussed towards sustaining growth and socio-economic development. Under each Point of the Eight-Point Programme are detailed initiatives. Accompanying the Eight-Point Stabilisation and Growth Programme is an Action Plan geared towards stimulating growth in the real, productive economic sectors.
A substantial amount has been achieved in the ECCU/OECS through the workings of the Eight-Point Programme and Action Plan. But there is much more work to be done in the challenging, complex, and contradictory environment. We have noticed advances in the areas of fiscal reform and performance, debt management, restructuring of the indigenous banks, and in insurance, particularly regarding the quest to resolve the problems arising from the collapse of CLICO and BAICO. Interestingly, the overwhelming efforts in these respects are home-grown and carried through by the professionalism and leadership of Caribbean people, mainly from the OECS, most of whom are graduates from the University of the West Indies.
Let us take the examples in insurance and banking. I hold the Chairmanship of the Sub-Committee of the ECCB’s Monetary Council on Insurance. This Sub-Committee is advised by a Technical Core Committee headed by a brilliant, young UWI-trained economist from Grenada, Timothy Antoine. From the outset of the CLICO – BAICO debacle in early 2009, we established at the Monetary Council four principal guidelines towards a resolution that:
(i) This CLICO-BAICO meltdown is a regional problem requiring regional solution.
(ii) The collapse of these two insurance giants must not be permitted to metamorphose into a systemic crisis for the financial structures, with knock-on effects to the wider economy; in short, its economic subversive effect is to be contained.
(iii) The damage and loss to the individual policy-holders and investors in the various insurance instruments ought to be kept to the absolute minimum possible.
(iv) The insurance companies, or components thereof, remain as going concerns, within a vastly improved legislative and administrative framework for regulation and supervision.
Swiftly in the early 2009, the ECCU/OECS took the lead in bringing regional partners together to address the challenges consequent upon the collapse of the insurance companies. The governments of Trinidad and Tobago, Barbados, and the Bahamas were the first ports of call. CLICO (Trinidad) was based in Port of Spain; so, too, was the parent company, C.L. Financial, of which CLICO (Trinidad), CLICO International (Barbados), and BAICO (registered in the Bahamas) were subsidiaries. In any event, all management and back-room operations of BAICO were done in Trinidad. Further, Trinidad and Tobago possessed legal obligations in this debacle and resources to match, for its resolution, in part or in whole. The Caribbean Development Bank, and the Central Banks of Barbados and Trinidad and Tobago were engaged for substantial reason.
On behalf of the ECCU, I secured an initial US $50 million from the Patrick Manning administration in Trinidad and Tobago toward a solution and had it placed in an Insurance Support Fund at the ECCB. In each member-country of the ECCU and the Bahamas, Judicial Managers for BAICO were established by Orders of the High Court of Justice and they set out to work diligently in accordance with their mandates from the Law Courts. Meanwhile, the Government of Trinidad and Tobago, through the regulatory mechanism of its Central Bank devised a “settlement solution” for the policy-holders and investors in the insurance instruments of CLICO (Trinidad). In Barbados, its government pursued, at first, the option of an administrative oversight to provide a resolution to the CLICO International fall-out, but later, in 2011, was forced to proceed by way of Judicial Management.
In the ECCU, the governments under the guidance of the Monetary Council and its Sub-Committee on Insurance, and in appropriate concert with the Judicial Managers of BAICO, proceeded to accomplish the following things, thus far, over the 2009 to 2012 period: Sell-off the property insurance portfolio of BAICO to another insurance company operating in the region; a Medical Support Fund was established to accommodate claims from policy-holders with medical insurance; a Sales-Purchase Agreement was signed with the regional insurance company, Sagicor Limited, for the purchase of the traditional life portfolio of BAICO (various life, term and endowment policies and pension schemes), it having been re-capitalised largely from monies (US $30 million) in the Insurance Support Fund; and an agreed sum of US $100 million to be paid over by the current government of Trinidad and Tobago towards a settlement of “annuities” component of the insurance portfolio. Work is still on-going but light is now being seen at the end of this dark insurance tunnel.
The sale of the traditional life portfolio of BAICO to Sagicor takes care of roughly 22,000 policy-holders in the ECCU. The partial resolution of the hefty “annuities” conundrum goes towards the 11,000 or so of BAICO’s annuitants. In the latter regard, the partial settlement would satisfy, in full, the principal sums due, exclusive of interest, to roughly 75 percent of these annuitants. Institutional investors in BAICO such as banks, credit unions, and national insurance services are required to await the next phase of the resolution. These institutional investors have already made provision in their audited accounts for “write-offs”.
Meanwhile, the Judicial Managers with the full support of the governments of the ECCU have been pursuing legal recovery action against some of BAICO’s and CL Financial’s top personnel. One such action is in the state of Florida, U.S.A, for US $75 million arising from a suspect property transaction in Florida. Further, the Insurance Regulator in St. Vincent and the Grenadines has sued a commercial bank for the sum of EC $136 million (US $50 million) on a custodianship undertaking in relation to assets of BAICO due and payable to the Statutory Fund for a registered insurance company in St. Vincent and the Grenadines. More litigation is likely on the horizon.
In the case of policy-holders and investors (individual and institutional) of CLICO (Trinidad) who are ordinarily resident in the ECCU, the exact settlement delivered by the government of Trinidad and Tobago for those ordinarily resident in Trinidad and Tobago applies equally to them. In the case of CLICO International (Barbados), the general insurance portfolio (property and motor vehicle) has already been sold to another insurance company headquartered in Barbados; thus “the general insurance” policy-holders on the ECCU continue to be covered. In respect of the traditional life and annuities portfolios of CLICO International (Barbados) are covered by assets up to roughly 60 percent. On the other hand, BAICO’s assets were almost all dissipated by the time of its meltdown. The Judicial Manager of CLICO International and the government of Barbados have sent a proposal to the ECCU governments on a possible resolution of the difficulties arising from CLICO International. This proposal is being considered.
The amount of work, both in quantity and quality, required to address the insurance debacle has been monumental. And we are still not out of the proverbial woods yet, in this regard! Similarly, the ECCU have been addressing the challenges of the indigenous banks. We have noted earlier the efforts of the ECCB, the Monetary Council, and five other indigenous banks to save the Bank of Antigua, Allen Stanford’s on-shore commercial bank in Antigua and Barbuda. That Bank now operates satisfactorily. In St. Vincent and the Grenadines, the government sold 51 percent of the shares of the wholly-owned National Commercial Bank to the Eastern Caribbean Financial Holdings Limited which owns the Bank of St. Lucia in which the National Insurance Services (NIS) of St. Vincent and the Grenadines is itself a shareholder. The government of St. Vincent and the Grenadines has sold, too, 9 percent of its remaining 49 percent shareholding to its NIS and is now placing on the market for purchase by people of the ECCU one-half of its 40 percent shareholding.
Under the umbrella of the ECCU’s Monetary Council there is a Banking Sub-Committee headed by the distinguished Prime Minster of St. Kitts-Nevis. This Sub-Committee is working closely with the ECCB, our regional and international partners (CDB, IMF, World Bank), and the shareholders of certain indigenous banks in three countries of the ECCU/OECS. A plan is in place and it is being pursued with urgent focus.
In the fall-out of the global economic crisis of 2008 to 2012, and continuing, the OECS, as part of its response, has moved resolutely and swiftly to deepen substantially its integration mechanisms in the areas of functional cooperation; economic integration; the free movement of persons and goods; and improved regional governance. The upshot of all this has been the Revised Treaty of Basseterre Establishing an Economic Union of the OECS signed in June 2010 and ratified, and placed into domestic law in each member-country, and operational, by January 2011. It is this Revised Treaty that I now turn.
Next – Part 5: The Revised Treaty of Basseterre 2010 – 2011
Previous – Part 3: Regional Condition