Dawn Ritch, Contributor
ON WEDNESDAY last week I telephoned Derick Latibeaudiere, governor of the Bank of Jamaica (BoJ), to ask: "What was the responsibility of the Bank of Jamaica with respect to the acquisition by financial entities of hotels and farm land in the early 1990s?"
He replied that he would "...have to go and research it, and would get Audrey to call (me)." This was a reference to Audrey Anderson, deputy governor of the BoJ.
It seemed to me that the BoJ must have had some responsibility to advise the Government when they were urging Jamaican financial institutions to acquire Government-owned hotels and farm lands.
I can remember when these companies were resoundingly applauded for acquiring the hotels and properties. There were signings covered by the press between Government officials and the bankers and much ballyhoo. The Minister of Finance himself was often present at the glittering opening ceremonies. They were a not-to-be missed photo opportunity.
Prime Minister P.J. Patterson was the fulsome guest speaker at the opening ceremony in 1996 for the newly-refurbished Holiday Inn, owned and refurbished by Paul Chen-Young's Eagle Group, which had acquired it from the Government for US$22 million in 1994. Yet when this and other financial entities ran into difficulty the Government was the first to blame them publicly for buying and building these things.
BoJ's role
I therefore wondered about the role of the BOJ. Should it not have had some responsibility for advising the Minister of Finance against these unwise, or inappropriate investments by financial entities? It seemed to me that the Government ought to bear the responsibility for causing the collapse of the domestic financial sector.
The next day the BOJ Governor called back to say that Mrs. Anderson "...had explained to (him) that these things were acquired by holding companies which are not supervised by the Bank of Jamaica." It sounded like he was whistling, but I couldn't be sure.
Mrs. Anderson subsequently called, and said banks are not allowed to buy real estate because the Banking Act clearly prohibits it. Banks used holding companies, she said, "...to get a hold of hotels and farm land." She also said that holding companies fall under the Companies Act, and that Jamaica does not have a Bank Holding Companies Act.
If these acquisitions were unwise investments, I asked, surely the Bank of Jamaica had a duty and responsibility to advise the Government in the matter. Mrs. Anderson replied: "You are assuming Miss Ritch, that the Bank of Jamaica did not state its opinion in correspondence to the Minister of Finance."
This would seem to suggest, therefore, that the Minister was advised against these ill-fated transactions. It leaves me to wonder at the wickedness of a Government in seizing these assets afterwards, and then blaming Jamaican bankers for departing from their core business and displaying personal and corporate greed.
Slow system
Mrs. Anderson also said that the problem was that the Parliamentary system is too slow. In 1992 she said, when legislation was amended in the House of Parliament, more legislation ought to have been enacted at that time and was not. The Banking Act was then substantially amended, she said, and the Protection of Depositors Act was repealed and replaced with the Financial Institutions Act to facilitate merchant banks. She went on to say that she was not all that happy about the repealing of the Protection of Depositors Act.
The BoJ deputy governor also said that later in 1997 new legislation came into effect limiting loans to connected parties where no legislation on the subject had existed before.
It seems to me, therefore, a consummate injustice that these bankers are now blamed for exceeding limits on loans to connected parties, which loans were entered into before the legislation came into effect. The horse had already bolted out the gate.
In Don Crawford's case, he bought the Jamaica Grande Hotel with a United States loan at about seven or eight Jamaican dollars to one U.S. dollar in the early 1990s. The Government then caused the rapid devaluation of the Jamaican dollar, and Century Merchant Bank's loan to Mr. Crawford's holding company as a connected party went flying through the roof in Jamaican dollar terms.
Mrs. Anderson said to me, as though in passing, that it is impossible to legislate everything in the financial industry, and that, with regard to financial companies, "prudentially sound behaviour" cannot be legislated. I would have hoped, however, that our country's legislators would themselves display that "prudentially sound behaviour". The decision to sell these Government-owned things to bank holding companies was after all the Government's, and the Government's alone.
Politics
Mrs. Anderson curtly said: "That is politics, and we don't get into those issues and questions." That may indeed by politics, since it certainly is wickedness.
Nevertheless the BoJ cannot be absolved. Mrs. Anderson was the BoJ's signatory on many of its letters to these institutions. She was director of banking supervision before she became the BoJ's deputy governor.
Her excuse is that "...the banks found a loophole in holding companies and exploited it." Mrs. Anderson completely ignores, however, the responsibility of a Government that encouraged and actively facilitated them to so do.
This situation reminds me, therefore, of the NCB manager in Montego Bay who decided to make an old man happy. The NCB customer Stephen Hew said to the manager that he'd always had a childhood dream to borrow a million pounds, and the manager in effect said: "Here take a multimillion dollar overdraft, and go develop land to which you have no title." The manager made Mr. Hew's dream come true big time, to the tune of an indebtedness of $132.5 million in loan and interest sometimes at 80 per cent, after the overdraft facility was withdrawn when it reached over $3 million.
The Supreme Court found in favour of Mr. Hew and ordered the bank to pay him $18 million in damages and interest for breach of fiduciary duty.
I recommend the case to Mrs. Anderson and indeed FINSAC for close and careful study. Perhaps she would be good enough to explain it not only to Mr. Latibeaudiere, but Patrick Hylton, managing director of FINSAC. This is the Government's holding company for the country's seized assets.
