Ram & McRae urges Parliament to act on financial crisis

Chartered accounting firm Ram & McRae yesterday urged the National Assembly to take immediate action to address systemic deficiencies that it says contributed to Guyana’s exposure to the Duprey-controlled CLICO Group’s financial turmoil, warning that the country faces the worst financial crisis in its history.

In a strongly-worded statement issued yesterday, the firm said the failure of the Group and several subsidiaries is as much the result of legislative and regulatory deficiencies as is the impact of the global financial crisis. It came a day after the government moved to the court to bring CLICO (Guyana) under judicial management, following an order by the Bahamas Supreme Court for the liquidation of CLICO (Bahamas). CLICO (Bahamas) held 51% of the assets of the Guyana affiliate at the end of 2007. Coupled with the Hand –in-Hand Trust Corporation’s vulnerability to losses on investments in the Antigua-based Stanford International Bank and other affected entities, the firm warned that there are potential consequences for the pensions and savings of hundreds of thousands of ordinary Guyanese, including sugar workers. “The distress of [CLICO] and the fall-out for Hand-in-Hand Trust and other affected entities from this and the Stanford failure will lead to the worst financial crisis this country has ever witnessed,” it said.

The National Insurance Scheme (NIS) alone is exposed to CLICO for well in excess of $6 billion or more than 20% of the funds accumulated by the NIS over its forty years of existence, the firm said. (Under section 34 of the National Insurance Scheme Act Chapter 36:01, any temporary insufficiency in the assets of the [NIS] Fund to meet its liabilities has to be met from appropriations by Parliament.) Other investors and insurance policy holders in CLICO, it added, can lose further billions of dollars if the problems of CLICO are not resolved soon. “But the losses do not end there,” Ram & McRae said. “They run into billions in savings, pensions and insurance coverage managed or offered by other entities directly affected by the distress being experienced by [CLICO] and the failure of Stanford.”

Ram & McRae stressed that moving to the courts against one entity would not address the systemic problems that affect all. As a result, it was adamant that immediate and major legislative, regulatory and effective practical changes are required. “The events have revealed egregious lapses in regulatory oversight, aided and abetted by laws that prevent the public from obtaining the most basic information relating to the conduct of the regulated companies,” it said, while urging the Assembly against allowing restrictive laws to prevent it from ascertaining the full extent of the consequences of CLICO’s exposure and the Stanford failure.

Additionally, the firm said as the implications of the Stanford failure are considered, the country needs to take a collective approach to protect the interest of all Guyanese and it suggested common legal representation, possibly at the level of the Attorney General, as offering the most cost-effective and best approach to protecting that interest. Also, it recommended that the National Assembly convene a special sitting to address the issues including steps to determine the extent of the exposure, the actual and potential immediate and longer term consequences of the failures and steps to mitigate and prevent further risks. Further, noting that the problem is faced by the entire Caribbean region and the solution as such requires a Caribbean approach, it said too that Assembly should initiate a collective approach.

Meanwhile, the firm rapped the two principal regulators, the Commissioner of Insurance and the Bank of Guyana, for remaining silent save for assurances that they have been monitoring the situation. It directed similar criticism towards Finance Minister Dr. Ashni Singh and President Bharrat Jagdeo in wake of the news of the bailout of CLICO Guyana’s Trinidad parent company a month ago.

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