For whom the locks click

Feb 10, 2009 Editorial

The New Year did not begin too auspiciously for Guyana; what with the news that the largest business entity in the Caribbean – CLICO — with an extensive and venerable presence in Guyana, was collapsing.

The news was especially shocking for those of us in Guyana who had been regaled with assurances that we were too much of an economic backwater to be affected by the financial meltdown that has been in the works for over a year, up north.

The local representatives in the financial sector rushed into a damage control mode with the reiteration of comforting sounds. CLICO Guyana Chief Executive Officer, Geeta Singh-Knight, reiterated that CLlCO Guyana was a separate entity within the CL Financial Group, and none of its assets were intertwined with CLICO [Trinidad] or CLlCO Investment Bank.

The Guyana Association of Bankers also sought to calm local nerves by claiming that Guyana’s overall financial sector was “insulated” from issues facing foreign financial institutions, and in any case, the level of liquidity here was very high.

These assurances are understandable, since we do not expect that the financial fraternity wants to create panic and initiate runs on banks, but they will have to be taken with quite a bit of salt, since they inevitably are self-serving. Citizens and clients deserve more objective assessments if they are to make informed decisions in the months ahead.

After all, it has now been revealed that even T&T’s Minister of Finance, Karen Nunez-Tesheira, closed her accounts with CL Financial towards the end of last December. She denied having access to inside information on the parlous state of CLICO at the time, and claims that her action was pure serendipity. But the ordinary Guyanese client of CLICO cannot depend on such providence; we’ve never had such luck.

The warrants by CLICO’s CEO were quite amazing for a number of reasons. Firstly, in light of the conceded complex and interlocking nature of the CLICO conglomerate, such blanket disavowals fly in the face of statements by Mr Ewart S. Williams, Governor of the Central Bank of Trinidad and Tobago, that one of the major reasons for CLICO’s denouement was “excessive related-party transactions which carry significant contagion risks”.

It strains one’s credulity to accept that a company that treated its insurance as a cash cow to finance its aggressive program of growth would leave cash in Guyana sloshing around. What has the CEO said about its short-term fund being $82M in the red, or the billions invested in and owed by several CLICO affiliates?

The second and more fundamental reason has to do with the welter of conflicting statements as to what factor or set of factors precipitated the collapse; and until this is sorted out, we cannot know the full extent of the corporations’ exposure, which could then involve any and all of its subsidiaries.

Many financial experts have also pointed out the inherent contradiction of a business model that used short-term deposits to fund high-risk (and high return while the going was good) long-term illiquid investments.

But, to return to whether we in Guyana ought to be concerned about the CLICO meltdown, Roberto Sifron, a top Wall Street economic analyst at Standard & Poor’s Sovereign Ratings, referring to Barbados’s exposure, said bluntly, “CLICO has a very large, complex corporate structure with a host of subsidiaries…I don’t know how you can say that it is completely isolated.”

And finally, we quote once again the Governor of the Bank of T&T, who one would expect would have the most credible information on the wounded giant: “The Central Bank is very conscious of the contagion risks that financial difficulties in an institution as vast as the CL Financial Group could have on the entire financial system of Trinidad and Tobago, and indeed in the entire Caribbean region.”
Forewarned is forearmed.

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