'Banks' management also responsible'

Former chairman of the Eagle Group of Companies, Dr Paul Chen-Young, said the management of banks and other financial institutions taken over by the government during the financial crisis of the 1990s must bear some of the responsibility.

However, he said the hostile financial environment as a consequence of high interest rates "made it extremely difficult to survive on a normal basis and forced entities into directions they would not normally have gone."

"One could almost say that (financial conglomerates) were like a ship going to sea with calm waters and then having to face numerous hurricanes," he said while testifying at the Financial Sector Adjustment Company (FINSAC) commission of enquiry into the financial crisis via videoconferencing from abroad yesterday.

He went on to suggest that the economic cost of selling off the bad debts created by financial institutions is set to have a negative long-term effect on Jamaica's balance of payment over the coming years.

"Economic costs is not a one-off transition, it's a cost that will continue over the years," said Chen-Young.

"As a result of how FINSAC divested the entities, we will have severe consequences on our balance of payment, and by this I mean these entities that were sold," he said.

Chen-Young, whose Eagle Group was taken over by FINSAC during the financial meltdown in the 1990s, added that "the profits earned will have a drain on our balance of payment going on infinitum."

According to the former banker, FINSAC has failed to live up to its mandate carried in the entity's 1988 annual report, suggesting that it should have provided the necessary support for the Eagle conglomerate to be viable by substituting high-cost funds for low-cost funds.

"When we look at the operation of FINSAC, there is no financial institution that got the sort of assistance for which it was mandated, not one," said Chen-Young.

slapped with a lawsuit

The former banker, who began his career with the World Bank in 1966 before starting his own business in 1975, emigrated to the United States after he was slapped with a lawsuit by Eagle Merchant Bank and Crown Eagle Life Insurance Company, two firms he founded but which were taken over by the Government.

The suit charged that two business transactions by Chen-Young, on behalf of his Ajax Investment Limited and Domville Limited, constituted breaches of fiduciary duty, breaches of contract and negligence.

He has since written a book, The Entrepreneurial Journey in Jamaica: When Policies Derail, in which he describes how he saw the financial collapse which wiped out a number of indigenous firms and left many individuals indebted to the financial institutions.