KINGSTON — Former head of the defunct Eagle Group of Companies, Dr. Paul Chen Young, has accused the Financial Sector Adjustment Company (FINSAC) of abrogating its duty to protect locally owned businesses in the 1990s, resulting in the life insurance and banking institutions being sold out to overseas interests.
“The wholesale take-over of financial institutions by FINSAC was totally contrary to its mandate, its terms of reference and its exit strategy. As such, FINSAC abrogated its duty,” Dr. Chen-Young told the FINSAC Commission of Enquiry at the Jamaica Pegasus Hotel, New Kingston Thursday April 14.
The Commissioners, accountant Worrick Bogle and investment banker Charles Ross are looking into the 1990s financial meltdown and the role of the Government-created holding company, FINSAC, in disposing of the assets and debts it acquired during the period.
Dr. Chen-Young, an economist and investor who built the indigenous Eagle Group of Companies from scratch, was testifying via video conferencing from Vancouver, Canada. He has been living abroad since the 1990s, after a lawsuit was brought by two of his former companies which were acquired by FINSAC, and him being stripped of his assets, including personal assets.
He said that as the financial crisis became evident in 1996, the insurance companies met to address the problem. PriceWaterhouse was commissioned to undertake a study to determine the amount of funding needed for the life insurance companies to stay afloat. They came up with an estimated $20 billion. A team comprised of Dr. Chen-Young, Dr. Marshall Hall and Dennis Lalor was appointed to take the case to then Minister of Finance, Dr. Omar Davies.
The team met with Dr. Davis, he said, and the minister promised to consider assistance, and that each company should submit their financial projections for assessment.
“But, it proved to be a useless exercise, as all of the companies were eventually taken over by FINSAC and sold to overseas interests,” he said.
Dr. Chen-Young noted that, as stated in its first annual report, FINSAC was incorporated in 1996 with the specific mandate from the then Government, to resolve the problems of solvency and liquidity in the local financial sector.
He read from FINSAC’s first annual report that its terms of reference were to assist troubled institutions to develop plans to return them to viability. These plans would have formed the basis for the conditions which FINSAC would attach to financial assistance. FINSAC would also, “monitor the implementation of such plans on a continuing basis, and evaluate their effectiveness in achieving their specific objective”.
FINSAC was expected to have an active life of about 5-7 years, providing support for companies on the basis of rehabilitation plans to be implemented over five years, and expected to be fully repaid by the end of the fifth year, assuming successful workouts of the problems, he added.
He said that FINSAC began by recruiting a team of investment bankers and forensic auditors. All the troubled financial entities met with the investment bankers, to discuss the type of financial assistance needed to restore viability. However, he said he had no knowledge of recommendations being made to the Minister of Finance, or what the substance of any such recommendations were but the team “disappeared from the scene” after a short while, and emphasis was switched to the work of forensic auditors.
Dr. Chen-Young suggested that the shift to focusing on forensic audits of the troubled companies, turned FINSAC away from its mandate and terms of reference and, instead of seeking to restructure the finances of the troubled financial institutions to allow them time to be rehabilitated, changed its focus to finding causes to prosecute the principals of the institutions.
He said that, over time, FINSAC took control and ownership of some 158 local companies and, eventually, sold off the entire troubled life insurance and domestic banking institutions to overseas interests.
Within a matter of months, Dr. Chen Young said, the ‘Jamaicanisation’ programme of the financial sector was wiped out, and entrepreneurs, who had successfully run financial institutions until the 1990s crisis, lost their businesses and were summarily discarded.
Dr. Chen Young said that FINSAC acted more like a “business broker”, simply engaged in a “fire sale” to sell off some of the most valuable national assets to overseas interests. He said that, in so doing, FINSAC “destroyed entrepreneurship and created hardships” for thousands of Jamaicans and, today, almost the entire banking and life insurance industries are totally owned and controlled by overseas companies.
By BALFORD HENRY, JIS Reporter & Editor