Thursday, May 26, 2011

52 Weeks Later

It's the one year anniversary of the coalition sweeping into power with an unprecedented popular mandate. They've been extensively analysed and polled, so there probably isn't any merit in rehashing the mantra of the last few weeks.

What is important is that we utilise an appropriate benchmark in order to assess this and any other government. These benchmarks will inevitably include direct comparisons to previous administrations as well as comparisons to a 'gold standard' of governance.

With respect to the comparison with the immediately preceding administration, I believe that there is no doubt that the current administration has not only shown but has also done many of the necessary things to bring about some degree of confidence back into the realm of good governance.

There are simple instances of line ministers and the Prime Minister making themselves available to be interviewed. There is the pleasing sight of high ranking cabinet ministers taking questions at the Post Cabinet Press Conference. There has been a restoration of Parliamentary oversight with the establishment of many Joint Select Committees, answering of questions posed to Ministers and even the sheer number of sittings that the Parliament has undertaken.

There has been an attempt to improve levels of transparency with the advertisements of numerous tenders for various projects. Whether or not this actually leads to any degree of improvement in the award of contracts is left to be seen, after the Mary King and NP debacles.

From a macro perspective, the Economy has been stabalised, reports of serious crimes have decreased while Agriculture has been given priority, despite the absolutely horrendous acts of bulldozing crops a few weeks ago. In addition there is a massive thrust in Trade and Industry and Foreign Affairs to position this country into a more competitive position and the Ministry of Energy has awarded new exploration contracts. The Ministry of Works has completed some outstanding PNM projects while undertaking some new initiatives.

However, this has all been marred by the events of the SIA, Mary King, Jack Warner and FIFA, Dookeran and Anil, Ramlogan and the Piano, the placement of ministers in capacities which clearly overwhelms them (Baptiste-Cornelis and Gopeesingh) and lately, the furor over the imminent award to a friend of the PM of an NP contract.

It is here that we must revert to the reasons why the current coalition is in power. A large part of their election was apathy toward the PNM and more specifically, Patrick Manning. Their campaign was hinged on the idea of new politics, better governance, increased transparency and less corruption. I am not one who believes that we have gotten exchange rather than change. However, there have been frustrating incidents. Incidents that make one wonder whether or not they realise that their election was something far more significant than a glossy campaign or rum and roti politics.

52 weeks later, each of the component entities of the Partnership seem intent on building their identities. The MSJ officially launched as a political party, while the COP has promoted their serialisation in the lead up to the 50th Anniversary of T&T's Independence. This, I believe, can only auger well for the strength of the coalition. It is high time however, that the component entities begin holding each other, especially the majority partner, accountable for actions.

As for the PNM, as has been the case with many parties shocked into opposition, there have been serious problems organising into a viable alternative administration. Significant steps have been taken, with the recent executive election and the consolidation of power around Dr. Rowley. Recently, however, the resurgence of a Manning faction has proved to somewhat discredit the idea that the PNM is a cohesive unitary party. This undermines their credibility when they seek to imply that the coalition of 5 is not a cohesive unit. There seems to be a misunderstanding that Cabinet cohesiveness and political cohesiveness are divergent. The PP is not a unitary party and as such, it is expected that divergent views are given at the level of the Executive of the individual parties. The same is not true of the current PNM, where divergence of views is tantamount to a direct assault on the authority of the Political Leader and the Whip.

For the first 52 weeks, I would agree with Mr. Imbert, who exhibited the most class I've seen of any politician in recent times when talking at a seminar hosted at UWI reflecting on the 1st year of the PP government. The government will get a passing grade; somewhere in the region of 6/10. There remains a lot of work to be done and many important manifesto promises to be fulfilled that requires the constitutional majority that they currently enjoy.

In the next year, I fervently hope that the PP address the structural aspects of governance, from a proper reshuffle of the cabinet to the laying and passing of legislation overhauling the constitution to better reflect the society that we live in and hope to build. This in addition to the developmental pillars that they themselves have set out and which would be the benchmark by which their governance would be judged. The 'gold standard' will be their ability to move T&T higher in the international indicators of development.

We cannot hope to achieve First World status with a Third World mentality. No more in our history is it more true than it is at the very present. Here's to a much better next 52 weeks.

Saturday, February 26, 2011

2011 Academy Awards Picks

So it's the annual season of Hollywood self-congratulation and the Academy Awards are less than 24 hours away. In the vein of lightheartedness, I'll post my picks for the awards in major categories. Just as a note, and for full disclosure, I have not seen the following movies which have been nominated for major awards: Winter's Bone, Animal Kingdom, Another Year.

Best Animated Feature:

Who should win: Toy Story 3
Who will win: Toy Story 3

Sorry all you Pixar haters, but you can count another golden statue in the pile for this flick which can evenly contend for th highest prize.

Best Adapted Screenplay:

Who should win: The Social Network
Who will win: The Social Network

I was caught between The Social Network and True Grit for my pick, but in the end I gave the edge to The Social Network mainly because of how fast paced the movie was and the incredible effortlessness that the delivery of the script contributed to the success of the movie.

Best Original Screenplay:

Who should win: Inception
Who will win: The King's Speech

The creative genius of Nolan that went into the multi-layered Inception is second to none. However, Academy voters have been barraged with the Weinsteins' King's Speech and the Royal tale will get the undeserving nod come Oscar night.

Best Director:

Who should win: Christopher Nolan (Inception)- Not Nominated
Who will win: David Fincher (The Social Network)

For another year, Nolan is snubbed. The win will come for Fincher, previously nominated for Benjamin Button and strangely not nominated for Fight Club.

Best Supporting Actress:

Who should win: Melissa Leo (The Fighter)
Who will win: Hailee Steinfeld (True Grit)

He's gone completely mad! That's what you're probably saying. But, with Amy Adams also nominated and the Academy's penchant for honouring young actresses in this category, this will probably be one of the few upsets of the night.

Best Supporting Actor:

Who should win: Geoffery Rush (The King's Speech)
Who will win: Christian Bale (The Fighter)

Look, it's MY opinion alright! You can comment and give yours too. I just think that acting goes beyond the ability to morph oneself by gaining or losing weight. Bale's performance is great, but I personally think that Rush embodied the role of Lionel Logue and made him completely believable.

Best Actress:

Who should win: Annette Bening (The Kids are All Right)
Who will win: Natalie Portman (Black Swan)

They both give convincing performances but again, in my opinion, Portman does more morphing by losing weight than acting. The real crime in this category is that Julianne Moore didn't get a nod.

Best Actor:

Who should win: Colin Firth (The King's Speech)
Who will win: Colin Firth (The King's Speech)

No contest. And the explanation for it is simply to look at the performance. Notable omission is Leonardo DiCaprio and no, not for Inception, but for Shutter Island, which was released in March and duly forgotten. His performance in that movie was at least better than Jesse Eisenberg in The Social Network, for which he got a nom.

Best Picture:

Who should win: Inception
Who will win: The Social Network

And you're thinking I've COMPLETELY lost it. Truthfully, I'm not that confident in The Social Network, but I gave it the edge over the King's Speech because of the nature of the story and the voters who actually make the decision. In any case, for yet another year, the best movie of the year won't win the Oscar.

After all is done tomorrow night, I think it's Inception that comes out on top with 5 or 6 awards, mainly in minor categories. Kings' Speech and Social Network should each pick up about 3.

Thursday, February 10, 2011

In Defence of Dookeran: CLICO

I am under no illusions that the Leader of the Congress of the People, de facto Deputy Prime Minister and current Minister of Finance, Mr. Winston Dookeran is in need of my or anyone else’s defence when it comes to matters of the economy or his ministry. It is, therefore, not in this context that I endeavour to write about matters that fall under his purview and recent developments that seek to distract and detract from what has been, thus far a commendable performance in a difficult position.

Firstly, and since the matter preceded him, I will tackle the issue of CLICO who are calling for Mr. Dookeran’s head as per their payouts. More specifically, Mr. Peter Permell has been talking to anyone who cares to listen, and has, to an extent, successfully gotten quite a significant portion of the population to go along with his ludicrous claims. As per CLICO, and I will painfully stand corrected, if wrong, the Minister identified approximately 250,000 policyholders/depositors who were affected by the fall out of the failure of the insurance giant.

Of these, 225,000 are traditional policyholders, traditional the word used to describe people who invested their monies in an insurance product familiar to most, namely (i) a life insurance policy payable to a beneficiary upon the policyholder’s death and (ii) an annuity policy payable to the policyholder upon retirement OR if death of the policyholder precedes retirement, to his/her beneficiary. The Minister has been at pains to point out that these persons are fully covered, have nothing to worry about and their investments are secure.

The second tranche of approximately 25,000 claimants are, in fact, depositors, despite the label of ‘Policyholder’ that Permell has managed to successfully introduce via the formation of his group. These depositors invested into a product sold by CLICO, namely the Executive Flexible Premium Annuity (EFPA). Whether or not they were misled by the company and its agents is a separate matter. By the very sentiment of the Minister and the Governor of the Central Bank, these individuals and, in some cases, CORPORATIONS, invested in a non-traditional instrument. What Mr. Permell, in his many ventures to the media and histrionics at meetings, has failed to clearly explain to the public is the nature of these EFPAs. What was the attraction to these ‘Annuities’? Was it the interest rates of 12-14% in an environment that, at the time, was paying at best, 5-7%? If not, then what? And if yes, then the case for greed cannot be made any clearer.

In any case, of these 25,000 depositors, approximately 11,000 hold less than TT$75,000 in assets and will be completely covered by a one-off payment as laid out by Dookeran’s plan in the 2010/2011 Budget. This leaves 14,000 depositors whose claim on the Treasury is approximately TT$7 billion, an average of TT$500,000 per client (although a median figure would be more instructive). Every single one of these depositors will receive an initial payment of $75,000, a total of $1 billion this year. The remaining $6 billion will be paid over the next 20 years in equal payments ($300 million/year), at 0% interest (just about the same that you or I are currently receiving on bank deposits). The important thing to take away from this is that every single depositor would have had the majority of his/her initial capital preserved.

A 20-year bond is to be floated to finance this debt that the GORTT has decided to undertake. Permell has either chosen to remain ignorant of the terms of this bond or has taken a conscious decision to suppress the information surrounding this issue. Depositors have two options. (i) Accept an initial payment of $75,000 and cash in their bonds at 100% of their face value each year for the next 20 years; thereby receiving 100% of their capital back (at an average of 2011-2030 inflation-adjusted dollar values). In a hypothetical case of a depositor with $1 million, and assuming a generous adjusted average inflation/depreciation rate of 7% over the next 20 years, the depositor will be reimbursed the equivalent of $581,000 in terms of 2011 dollars. This represents a ‘haircut’ of approximately 42%. This ‘haircut’ will be greater or smaller, depending on the rate of inflation/deflation and appreciation/depreciation of the TT dollar.

The second option is the acceptance of an initial payment of $75,000 and the immediate cashing in of the 20 year bond. As with any bond being cashed in prior to its maturity date, there will be a discount attached to the face value. Mr. Dookeran has gone out of his way to interfere with the free market by negotiating with local banks to accept the first 5 years of the CLICO issue at approximately 92-95% of face value. The remaining 15 years, as generally agreed, will attract a discount of approximately 40-45% (that is, 55-60% of face value) Again, using our hypothetical depositor with $1 million to receive, he will receive a lump sum of $75,000.
Assuming the bond attracts a discount on the lower end for both the first 5 years and the remaining 15 years, the depositor will be reimbursed $212,750 for the first 5 years and a further $381,562.50 for a total of approximately $670,000; a haircut of 33%. Note well that this sum will be a lump sum ($75,000 from GORTT and $595,000 from the commercial bank to which the bond will be sold). If the bond is cashed in at the higher end, the payment would be in the region of $710,000, a 29% loss on capital. This lump sum will be obtained almost immediately from the date of the first payment, tentatively scheduled for March 2011 (as indicated by the MoF and Attorney General)

In addition to this, provisions have also been made for individuals to receive money where a case of need is made out. Provisions have also been put in place for credit unions, which had no business investing in these types of products in the first place and which recklessly and irresponsibly weighted their portfolio heavily in the EFPAs, to be paid greater sums.

All this flies in the face of the suggestion that the minister is being vindictive or that people will have to wait for 20 years to get ‘their money’. What it means is that these depositors will have to experience some loss on their initial investment, not a large price to pay in a situation where they would otherwise receive nothing. What Permell is strangely quiet about is the concept of personal responsibility when it comes to investment. CLICO was not, and is still not a state owned entity.

Where is the criticism for the directors of the company which essentially ran a Ponzi scheme on EFPA deposits? Where is the criticism for those investors who piled all their money into a single investment, regardless of whether or not it was deemed risky at first, or if it was approved by the Central Bank? The long and short of this sham story by Permell is that these depositors chased after fast money and lost. It is NOT the responsibility of the REGULATOR to reimburse losses. The REGULATOR is not a GUARANTOR. If there is a facility for guarantee of funds, such as the Statutory Fund, it is my understanding that CLICO is responsible for contributing to that fund. If said money was not deposited, it is not the responsibility or obligation of the Central Bank, the REGULATOR, to meet that commitment.

Just because the GORTT has extended a facility to these depositors does not mean that the Treasury should be used as a cash cow for these accounts. As was stated soon after the election, the CL Financial Group had a net liability of $20 Billion. This means that the group as a whole, of which CLICO is a 100% owned subsidiary is insolvent. There are NO net assets for anyone to receive. The assets which exist, as explained by the minister, are heavily leveraged or encumbered. As such, any monies being paid are as a result of an assessment by the ministry and the Central Bank as to an amount deemed sufficient to prevent contagion to the financial system. Rest assured, if this were a similarly private, smaller insurance company or financial institution; investors would be fending for themselves and holding empty hats.
It is noteworthy also, that despite the best efforts by Permell to misrepresent, both S&P and the IMF have approved of the way that the Minister has handled the situation; S&P even suggesting that the GORTT has been more than generous in handling the CLICO affair. What Permell has conveniently failed to mention is that the Sovereign Rating of ‘A’ is as a RESULT of the GORTT’s handling of the CLICO matter, not a license to sweeten the deal.

So Mr. Permell, it’s about time you came clean on this whole charade. Depositors, as rich or poor, young or old as they are, are lucky to be receiving anything in the first place. Admit that the only reason this came to a head was the order by the Minister to issue a stop on the payment of interest at the ridiculous rate in this fiscal environment. Admit that responsibility for this fiasco lays LEAST in the hands of the Central Bank and the former and present Ministers of Finance and MOST in the hands of the company’s directors and irresponsible investors. Accept responsibility for risks associated with your investments, something that you seem averse to, as evidenced, not only by this case, but also by the fallout from the closure of BWIA where investors, including yourself, are seeking to recoup a premium to the approximately $0.20 a share that the company was delisted at.

It is a sad and lamentable fact that many unsuspecting citizens were caught up in the failure of this institution, but it cannot be the responsibility of taxpayers and the treasury to pay for the irresponsible decisions by directors, shareholders and clients of a private company. The GORTT has a responsibility to ALL citizens, not just the 1% (14,000 clients) affected in this case who are claiming 17% ($7 billion) of projected 2010/2011 revenue. It is most interesting that despite the claims of the EFPA group and the delays in payment, that no legal action has been formally filed. Is it now that legal counsel has advised the group that this is a losing cause and there are absolutely no legs to stand on?

The lesson from this for everyone is that individuals need to be more careful and seek financial advice if they are not competent to make such decisions on their own. The Central Bank needs to review insurance companies to ensure that they comply with relevant laws. Finally, and most importantly, the AG needs to ensure that justice must not only be done but seen to be done with respect to the directors of companies who mismanage funds leaving individuals in dire straits while they are allowed to enjoy the fruits of their ill-obtained gains.