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Category: Trinidad Economy 26 Sep 10



Money is an emotional subject. Following the Minister of Finance, Winston Dookeran’s budget presentation, there has been much debate regarding the treatment of the short term depositors with Clico. In his budget presentation the Finance Minister referred to Clico’’s 250,000 policy holders. Of these the Minister assured that 225,000 people who had life insurance, health plans, pension plans or general insurance policies with Clico were safe. Like the banks in the US, Clico is too big to be allowed to collapse. Much of the discussion is centred around 25,000 people and entities which collectively had some TT$12 billion in short term policies with Clico. The following is an attempt to “sift the threads” and clearly put across each point of view.

 

The views from Facebook

“I'm sure when some old folks hear that they can’t get their money, they will just get a heart attack and die, thanks to Mr Dookeran.”

 

Here is another

“All investments have risk. You win some and you lose some. It is better that you have piece of the pie than none at all.”

 

The view of the Ministry of Finance

The Central Bank, when it took over Clico, gave assurances that they would put Clico in order. The Central Bank was not able to do so. Instead of action, the previous government spent TT$7 billion dollars to keep things ticking over, putting off making any hard decisions. The PP claims they inherited a huge problem that continued to affect ten per cent of both the Trinidad and Tobago economy and a significant share of the Caribbean economy.

 

Three options were available:

1. The standard option available for bankrupt companies, which would mean Clico’s liquidation of the companies, and the sale of its assets. It was unlikely that these funds could pay off even a small fraction of all types of policy holders. It would also cause huge disruptions in our economy.

2. The government would meet all the commitments of Clico and its associated companies. This would have added enormously to Trinidad and Tobago’s public debt, increased borrowing costs and significantly reduced the amount of money available to the government to spend in other necessary areas. These two options were not taken.

3. The third option: ensure that the traditional policies were honoured. This was done. There are 25,000 short term depositors. Of these 12,500 people who had less than $75,000 invested would be paid in full. Following an initial payment of this sum, the remaining 12,500 people with over $75,000 would be given twenty bonds adding up to the outstanding amount would be given to each depositor. These depositors lose the right to collect interest. The bonds allow each person to collect some 5 per cent of their money each year. If they need more, they have the option to sell some of the protected sovereign bonds or use it as collateral for bank loans. The government is also considering the special position of those twelve hundred people aged 60 and over.

 

Short-term depositors with over $75,000

When the Central Bank took over Clico in January 2009, the government and the Central Bank assured all policy holders, their funds will be available to them upon maturity. Over the last eighteen months this has been the modus operandi for Clico, with depositors being paid both their principal and interest. While there may be some large depositors at Clico, many are middle class people assured by the insurance industry regulators, that their money was safe, and accessible. They now feel let down with government’s current position. Their position is that a precedent has been set with these payments and the new PP government cannot renege on the assurances that had been given. According to various depositors their funds were put aside for buying homes, sending children to university, acting as their personal support systems and supporting them in their retirement.


Retirees with over $75, 000 invested

“The so-called resolution of the Clico fiasco has driven a lot of our senior citizens with over $75,000 invested, to depression. They are not rich. They are ordinary people who have denied themselves many extras in life so they would not burden the state when they retire, and medical bills escalate.”

 

Another writes

“With some policy holders the Government owned Clico entered into a contract promising to pay their money in tranches paid them till September 7 when they abruptly stopped the payments without and any consultations. Now the government is offering a fourth contract (again unilaterally) to pay the matured amount in 20 years at 0 per cent interest. What will happen to the elderly, the sick and single old women?”

 

Other views

“We understand that the government would want the 225,000 people who have life insurance, pensions and health plans to be safeguarded. These are usually covered by long term investments by the insurance company. Taxpayers’ money belongs to all the 1.3 million people of T&T, many of whom were too poor to put money into any savings. It should not be used to pay off the 25,000 people who were chasing high interest returns with Clico.


The basis of any investment is caveat emptor (let the buyer beware) and high interest returns means high risk. Mr Dookeran in his budget speech was being very generous to those investors in short term deposits by giving them any money back at all. Let them be happy with what they have been offered.”

 

Holding management, regulators responsible

All the groups have one response in common. They all want to see all those involved in Clico’s failure—the directors, the senior managers, the accountants and the regulators (including the Central Bank) to be held to account. They want money to be recovered from these people and they want them to be taken to court.

 

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All Articles Copyright Ira Mathur