The judgment of the Privy Council in the Clico Policy Holders case which was delivered yesterday morning serves as vindication of the decisions and actions taken by the People’s Partnership government.
As you are aware, when we assumed office after the May 24th 2010 election we inherited a burning hole in the economy as a result of the Clico financial disaster. It was difficult to dimension the precise magnitude of the problem caused by the collapse of this financial behemoth. The fact that Clico’s assets amounted to more than 70% of the country’s Gross Domestic Product gives some idea of the colossal and dramatic ramifications and consequences.
The critical issues included the stability of the financial system, the risk of the loss of public confidence, possible downgrading of the country’s international credit rating, an adverse report from the IMF and the harsh reality that if we paid the Policyholders their full pound of flesh it would compromise the Government’s financial ability to undertake projects and provide goods and services for the rest of the country.
The Clico headache was caused by the PNM Administration’s failure to take preemptive action until it was too late. They ignored the distress signals and those who had the responsibility for supervising at the Central bank fell asleep at the wheels.
The PNM’s attempt to bailout Clico was ill conceived. They pumped over $10b in an attempt to bailout Clico and British American Insurance. This was a spectacular failure which worsened the crisis as friends and family of the PNM benefited by cashing in their policies to the detriment of the truly disadvantaged. The PNM misdiagnosed the problem at Clico and treated what was a deep seated solvency issue as a mere liquidity problem. To compound matters they gave a public guarantee of repayment to policyholders which was based on reckless assumptions about the state of the economy.
The Peoples Partnership administration made full and frank disclosure to the public and indicated that it could not honour these reckless PNM promises. Although we were critiqued for doing so, I am happy that the Privy Council in its unanimous judgment cited with approval my speech delivered in October 2010 where I said that as a responsible government, we could simply deprive 1.2 million citizens who did not invest in Clico of much needed expenditure in areas such as infrastructure for health, education and security (see paragraph 56 of the Judgment)
The Privy Council said that the High Court should have taken into account the rationale of the People’s Partnership government which included the fact that a payout to the Clico policyholders “would have crowded out the possibility of borrowing for the purposes of resuscitating the economy and financing the development of the nation”.
The acceptance of former Finance Minister Mr. Winston Dookeran’s evidence that the PNM government had failed to appreciate the depth of Clico’s financial problems is a vindication of our careful and skillful management of the economy during these troubling times. At paragraph 61 of the Judgment the Privy Council highlighted my government’s concerns “for example, the group assets were far more leveraged that at first realized such that they were not going to realize much cash in the short to medium term, the value of some of the assets had fallen, the deficit in the Fund was larger than envisaged, and the redemption of EFPAs had been much larger than expected (thereby increasing the cash flow demand on Clico above that expected). Furthermore, there were particular problems in realizing the value of the important MHTL holding which were not resolved until much later. It was not possible to divert all the assets to the Fund without threatening the viability of the company as a whole. Since the basis of the Memorandum was that Clico would continue as a going concern, it was essential to consider the interests of other creditors”.
At a time when the present government seems unable to manage the economy, this Judgment is a timely reminder of the competent, responsible and professional manner in which the People’s Partnership Government navigated the treacherous economic waters during our tenure. We created jobs and stimulated economic expansion and growth, controlled inflation and increased the safety net for the poor and under privileged. To date, the PNM’s incompetence and lack of ideas and visions for the economy has caused untold pain and suffering, distress and hardship to so many. This could have easily happened during 2010-2015 had it not been for the firm and decisive manner in which we dealt with the Clico fiasco which would have had a contagion effect on the entire economy with implications for our neighboring CARICOM partners.
The Privy Council rejected every complaint made by the policyholders including the allegation of discrimination (see paragraph 76). The Judgment is a ringing endorsement for the financial policies and program of action taken by the People’s Partnership administration in relation to the single largest financial disaster in our country’s recent history.
Kamla Persad-Bissessar, SC, MP
Leader of the Opposition
29th June 2016