For the first time since the Government intervened in the bailout of collapsed insurance giant CLICO more than three years ago, Central Bank Governor Jwala Rambarran yesterday admitted that, as a supervisory body, there was a perception that the Bank "faltered".
He said the Central Bank had performed quite well in carrying out its responsibility for financial stability.
But he added: "We cannot ignore the public perception—which is usually as important as reality—that the Bank faltered in relation to the failure of CLICO, CLICO Investment Bank and (insurance company) British American."
Rambarran was speaking on the topic, "Strengthening Financial Stability in Trinidad and Tobago: Staying Ahead of the Curve", at a breakfast seminar hosted by the Chartered Financial Accountants (CFA) Society of Trinidad and Tobago at Hyatt Regency (Trinidad) hotel, Port of Spain, yesterday.
"Apart from balance sheet scars, the CLICO crisis may have left psychological scars on the population of Trinidad and Tobago. For many, memories of this failure are still fresh, causing an overestimation of the probability of a repeat disaster—the fear of fear itself," he said.
Rambarran noted that for the first time in its 48-year history, the Central Bank, through the Commission of Enquiry into these failed financial institutions, would be subject to public scrutiny about its regulation of the financial system.
"At the Commission of Enquiry, the Bank will be transparent in accounting for its regulatory and supervisory actions in respect to these institutions," he said.
The former PNM government intervened in CLICO and CIB in January 2009 after former chairman Lawrence Duprey sought assistance for his failed company to pay back creditors whose policies had matured and who were owed hundreds of millions of dollars.
The Central Bank has several times attributed failure to properly regulate CLICO to inadequate and archaic financial legislation.
When it came into power in May 2010, the People's Partnership Government continued to assist in rebuilding CLICO and has spent more than $10 billion to repay policyholders and keep the insurance company afloat.
Rambarran said yesterday a new insurance bill has been drafted and will be laid in Parliament when the new term opens later this month.
"It is instructive to note that the Central Bank intervened to close one motor insurer in 2010 after addressing insolvencies in the previous years, and has issued compliance directions to several companies. Unless these smaller general insurance companies improve their pricing and capital positions, the Central Bank is likely to undertake further interventions in this part of the insurance sector," he said.
"The Insurance Act requires insurance companies to maintain assets in their Statutory Fund to cover liabilities for policies owned by residents of Trinidad and Tobago. With the exception of one life insurance and two general insurance companies, all other insurance companies were compliant with their Statutory Fund requirements. The Central Bank is working with the non-compliant insurance companies to correct the deficiencies in their statutory funds."
On the upcoming national budget, Rambarran said implementation of Government's Public Sector Investment Programme (PSIP) remains key to economic growth in Trinidad and Tobago.
Rambarran said while Government may have the "right view" on capital expenditure, it has problems with implementation of the PSIP.
Asked what he would recommend to the Government for economic growth, Rambarran responded: "For the moment I would say, we at the Bank are doing what we consider the right course of direction in terms of keeping the repo rate at a historical low and we could help stimulate growth. I think the Government has the right view of using the capital expenditure programme to jumpstart the economy. There are issues with implementation and that is something which they need to look at very strongly in terms of strengthening the implementation side to the PSIP."
Rambarran's view was that the local economy has been "fairly resilient" against the turbulent economic environment over the last five years.
"I think we have seen some encouraging signs of growth in the non-energy sector and what we look forward to is a budget that will properly set the proper tone and direction for the next year in terms of some of the key challenges we are facing now," he said.
Asked later by reporters if he thought austerity measures were necessary in the upcoming budget, Rambarran responded: "What I will say is that we would like to see a budget that reflects a move to consolidation over the medium term. Whatever those particular measures are that the Finance Minister is contemplating we simply await when the budget takes place to see what those are."
—See Page 9