Blythe calls FINSAC a necessary tool but unfair arbiter
Published:Friday | July 15, 2011 | 12:00 AM
McPherse Thompson, Assistant Editor - Business
Dr Karl Blythe, former minister of water and housing in the People's National Party of the 1990s, said the creation of the Financial Sector Adjustment Company (FINSAC) was a necessary tool to prevent the total collapse of the financial sector and to restore it to stability and growth.
However, he felt that some of the debtors, including himself and his relatives, were treated unfairly and inequitably when loans were taken over from banks and transferred to FINSAC and eventually sold to the Jamaican Redevelopment Foundation Inc (JRF)
In addition, he said, National Commercial Bank (NCB) should have been offered to workers and the public rather than sold to a private individual or company.
Blythe, testifying at the commission of enquiry into the financial-sector meltdown at The Jamaica Pegasus hotel in New Kingston yesterday, said he was not privy to the internal workings of the financial institutions, and not having had the opportunity to examine their books in detail, could not comment on whether the treatment meted out to them was the best possible approach available.
"My only concern was that, having agreed that National Commercial Bank was too big to fail, and removing its bad debt portfolio, this bank ought not to have been sold to any private individual or company unless there was just no other option," he said. "It should have been offered to the workers and to the public by way of shares. It would have been very easy for Government to change top management if that was the problem, and improve on the monitoring and regulation of the financial sector."
Blythe emphasised that NCB, with nearly all the same workers, in its first year of operation after a majority stake was sold to Michael Lee-Chin's AIC, was able to achieve significant profits.
The former minister said he was "in total agreement with the steps taken by FINSAC to protect the insurance policyholders, the pensioners, small savers and depositors, but would certainly have placed a limit on how much taxpayers of this country were called upon to bail out the large depositors."
"Nobody can deny the positive outcomes in creating FINSAC as they relate to the financial sector, including strengthening the regulatory and legislative framework," and the Government and Dr Omar Davies, then minister of finance, must be commended, Blythe said.
However, he told the commission that it was in dealing with commercial and individual debtors "that I believe, as a government, we took our eyes off the ball."
Blythe said it was disappointing to hear of difficulties faced by operators of commercial entities in trying to settle their debts. "In some cases, assuming that the presentation made by these commercial entities is, indeed, correct, I would have to conclude that they were not treated properly," he added.
He also said Dr Davies had stated that instructions were given that special consideration should be given to debtors where their primary residence was used as security for loans. However, he said that "based on the testimonies given to the commission, and on my experience as it relates to my brother's debt, it is clear that these considerations were not given. Had they been, it would be unlikely to be hearing of the many sufferings driving some families into utter despair, having lost their primary residence, as well as other business assets."
Blythe testified that persons now being referred to as bad debtors were good clients of the banks, having met their obligations to the financial institutions, but were being stifled by the high interest rate regime at that time.
However, Blythe's testimony about debtors generally raised objections from attorney Sandra Minott-Phillips representing JRF, who suggested that the witness was speculating and had no authority to speak on behalf of other debtors.
Blythe also said it was a mistake to have given the JRF the right to charge interest on the loans it bought from FINSAC since the debt collector did not operate under the control of the Ministry of Finance, the minister of finance, the Financial Services Commission, the Banking Act or the Bank of Jamaica Act, and hence did not have the same obligations to debtors as would a bank.
In his own case, Blythe, who is being represented by attorney Leonard Green at the hearing, said a debt taken out by his sister Grace for $1 million at NCB, which he agreed to repay on her behalf, ballooned to $21 million over a period of about four years. However, he said efforts to have FINSAC settle the debt by taking over commercial property the Blythe family owned on Great George Street, Savanna-la-Mar, Westmoreland, was consistently rejected by FINSAC.