David Walker
SCARBOROUGH, Tobago, Tuesday July 1, 2014 - Throughout this sorry CLICO / CLF saga, we have had great difficulty in extracting any meaningful financial information from those in charge, and who spend billions of our dollars without oversight. We must therefore be grateful for the treasure trove of information disclosed within the recent judgment at the Court of Appeal. Indeed, this is not the first time that very important financial information has been gleaned as a result of depositions in court.
In this instance, we have been presented with long coveted information about the data upon which the decision was made to implement the “Dookeran Plan”. The following is an extract from the judgment.
“The first option involved no additional government funding, and the liquidation of CLICO, which would have resulted in a payment to policy holders of an estimated 70 cents on the dollar.
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The second option involved the full funding of the asset shortfall and repayment based on contractual terms. This would have resulted in no loss to policy holders, but would have required the injection of a further 7.2 billion (TT), about 18% of the national budget. This assumed the short-term monetization of CLICO and BA assets, since 10.8 billion of EFPA and mutual fund liabilities would fall due over the ensuing twenty seven months.
Option 3, the Dookeran Plan, would require an investment by the government of 4.2 billion (TT), which represented 8.6% of the national budget.”
In 2010 and already under severe financial duress, policy holders were being told by ministers and members of government that if they pressed for full contractual payment, they would be lucky to receive 10 cents on the dollar. No minister sought to correct the misinformation. Further, had the authorities acceded to any of the many requests for supporting data, policy holders would have been able to see for themselves that a liquidation would yield a return of 70%.
The difference between 10% and 70% is stark. I have no doubt that it would have had a significant impact on the decisions reached by a large number of policy holders. It was also always likely that an orderly disposal of assets over say, two years would have returned an addition 20% or more given that we all knew that the world was emerging from a severe financial crisis. In other words, the data in the hands of the government, and now openly acknowledged, says that policy holders could have been paid close to 100% of their contractual obligations without any further taxpayer injections, a remarkable admission indeed.
Next we are told that they calculated that to fully fund contractual obligations would cost a further 7.2 billion. That simply makes no sense. If the shortfall without government input was 30%, then funding that shortfall would cost 30% of 12.6 billion, would it not? That gives us a cost of just short of 4 billion, not 7.2 billion. Did they make the most significant economic decision of our times based on flawed calculations? If they got this simple one wrong, we can have no confidence in any of their figures.
Finally, their claim is that in order to save the taxpayer the burden of option two, they decided to implement option three at a cost of 4.2 billion. The only justification for punishing EFPA holders and defying our constitution was that option three would result in less cost than option two. That was wrong even then.
You have seen that the cost of option 2 was miscalculated, it should have been about 4 billion. The other aspect of option 2 that we must highlight is that it was certain, and carried no risk to the taxpayer of unforeseen escalation. In fact, rising asset values held the prospect of a lower actual cost. Despite their claims of reduced cost, option 3 is now estimated to have cost over 20 billion, with the final figure yet to be established. The cost that, according to them, we could not afford has now been spectacularly exceeded while policy holders have been unnecessarily disadvantaged.
Acceptance of contractual obligations was always the least risky option for the taxpayer, and we said so. We also put forward a plan that would have paid policy holders while rewarding those who chose to rollover their policies. Here is the bottom line, as disclosed by their deposition:-
Option 2, full contractual payment of policy holders was known to be less costly that the Dookeran Plan. Option 2 carried no risk of escalation while option 3 the Dookeran Plan did, and should have been known so to do. The result is a bill of more than 20 billion, and the sequestration of personal assets without just cause.
You will note that I have avoided comment on the legal basis of the judgment. That is for Ramesh Lawrence Maharaj in the first instance. He is better placed and infinitely more qualified in that regard. After hearing his comments I shall consider whether I can usefully add anything further.
David Walker is a corporate finance consultant. He is adviser to several CLICO clients. He also writes regularly on matters of the economy in the local media. He can be reached at d.walker@alcindorwalker.com. His blog is at www.alcindorwalker.com.
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David Walker: Counting the cost – CLICO
