As you sow, so shall you reap

20181025

Policy measures need to be consistent clear and transparent. That enables the establishment of priorities with comparative rankings

Running a country is not easy. Resources are always limited so choices must be made between competing options. It gets more complicated when government revenues become skewed through periodic instability in the country’s main revenue generator, the energy sector. It is even more important to have a framework which helps to set priorities and establish a ranking system that facilitates choices between alternatives. Additional complications arise as in the 9 elections since 1986 only one administration held office for more than five years. This is best illustrated this with some e few examples.

First, the CLICO “bailout” (for want of a better word) is one such example. Since the company’s asset base accounted for 25% of GDP, the purpose was to prevent financial contagion by providing financial support and to take management control.

The initial intervention was meant to fill the statutory reserve fund deficit estimated at $4 billion.  The intervention cost expanded to $9 billion by the time the PNM left office in 2010. Under the UNC the policy position was extended to bailing out policy holders. The final figure was $25 billion approximately with additional contingent liabilities hinted at during the bankruptcy proceedings.

Was the objective achieved and was it the correct objective? And was there an alternative? Financial crises do not have happen overnight. The root causes start well before problem becomes visible. Most have conveniently overlooked that the intervention was aided and abetted by a lack of political will to prevent it, and poor management after the fact. Clico’s issues were first tabled in 1998 and raised on the political platform by former Attorney-General Ramesh Lawrence Maharaj in his “I do pray” speech circa 2000, nine years earlier.   

In 2004 Central Bank’s supervisory powers were widened by centralizing the supervision of insurance companies in the Bank’s Inspectorate division to forestall such a situation. Similarly, the Insurance Act was amended, but the full revised draft remains in draft more than 10 years later. The real issue is that proximate and tailored responses were never in time. It would not have cost $25 billion if action was taken. Is Petrotrin another Clico and how much will Petrotrin cost the taxpayer as it is more complicated?

Second, the inadequacy of the NIS fund to meet the growing benefit payments caused by the demographic shift is another policy conflict. Independent actuaries review the NIS’s financial soundness every three years to ensure the sustainability of the fund. Making the appropriate policy decision should then be easy. Instead, both political parties have suffered “election fever” increasing benefit payments faster than contribution raises. This, in addition to the rapid population ageing has severely compromised the fund. The longer corrective action is delayed, the bigger financial impact.  

The third example is more delicate but raises even more sensitive issues. Ministers have insurance coverage of sorts in their emolument packages using the public health care system. This is sometimes extended to include overseas treatment. What is appropriate and how much should be spent? And should there be a contribution with fixed reimbursement rates in accordance with a health insurance plan. A related question is how are public servants insured and how are the benefit payments determined? This is easily done in the private sector with health care plans. Where the plans do not cover treatment, then the beneficiary has to make good the difference.

In the specific case health care treatment for one parliamentarian is reputed to have cost $12 million. By way of comparison, the government announced a funding allocation of $25 million to cover compensation to flood victims in accordance with a schedule published by the Ministry of Social Development. The figures have been compared on social media in a satirical light. In addition, it has been noted that many applicants from last year’s flooding episodes are yet to be paid.

Another point to consider is that several HDC housing settlements also suffered serious flooding. It has been argued that the flooding was unforeseeable, and homeowners ought to have had contents insurance. It also has been pointed out that some of these settlements are in areas that are flood prone and this ought to have been considered in the planning stages. Also, the “savings/ expenditure cuts” of the last three years included the reduction in drain clearance and river bank maintenance which would have contributed to the severity of the flooding. Plastic waste in particular would also have been a factor, especially as the Container Bill remains in limbo after 15 years!

These are just three examples of policy conflicts or the failure to make policy explicit and transparent. Flooding is an annual problem affecting all sections of the society. Scarcity of resources requires that we make choices and those choices are explained. Leadership and management are critical to the process.