If I were a betting man, my money would be on the likelihood that neither the Ministry of Finance nor the Central Bank take any action to bring the Clico issue to resolution unless they are provoked by a dramatic external event or ruling.
This pessimism is based, in part, on the response of the Minister of Finance, Colm Imbert, when asked by an Express reporter for his assessment on a March 23 resolution proposal submitted by former Clico executive chairman, Lawrence Duprey to him in March.
Mr Imbert's response was: "I haven't seen it yet. Maybe it was before my time or maybe he submitted it to someone else, such as the Central Bank."
It would appear that Duprey's correspondence to the Minister of Finance–which was reported on by the T&T Guardian's Gail Alexander–got misplaced between its delivery to the receptionist on the ground floor of the Ministry of Finance building and the minister's office on the seventh floor.
Even so, it seems not to have occurred to the minister that he could simply ask Central Bank Governor, Alvin Hilaire, to see his copy of the Duprey resolution proposal, as Mr Imbert himself has said on at least two occasions that he meets with Dr Hilaire every Wednesday. Or maybe the mail delivery system at the Central Bank operates sub optimally as well and neither gentleman received the resolution proposal.
The pessimism at the likelihood of concrete action by the Government on this issue is also based on a response that I received from the Central Bank on a request for an update on the Central Bank's stewardship of the insurance company.
Last week Tuesday morning, the following email was sent to the senior manager at the Central Bank who is charged with responsibility for the institution's communications:
Dear Ms.....
I am seeking an urgent update from the Central Bank, encapsulated in the following questions:
1) Is the Central Bank still carrying out the three-phase Clico Resolution Plan outlined in the Bank's November 6, 2015 statement, which speaks to the transfer to Government and the sale of Clico assets to pay off the insurance company's creditors?
2) If the answer to question 1 is positive, what progress has the Central Bank made in completing phase 1, in which it is envisaged that Clico's shares in Angostura Holdings Ltd, CL World Brands and Home Construction Ltd would be transferred to the Government in lieu of about $3 billion?
3) What progress has been made with regard to the second phase deliverable, which is the valuation and sale of Methanol Holdings (International) Ltd, consistent with the Duff & Phelps valuation and the methanol company's shareholders' agreement?
4) Has the Central Bank given any consideration to the proposal of requiring Clico to leverage its $24 billion in assets–which include $14 billion in government securities, cash and short-term deposits–to pay off its creditors?
The Central Bank employee acknowledged receipt of the email on Tuesday morning and indicated that she would provide the Central Bank's response "soon."
On Thursday morning, the Central Bank senior manager responded: "Thanks for your questions. We will need to get back to you at a later date as we are working through the technical and legal details internally and in consultation with the Ministry of Finance."
It appears that it may be too much to ask the Central Bank to report on the status of the Clico resolution, while it is "working through the technical and legal details internally and in consultation with the Ministry of Finance."
While the comparison may be unfair, it should be noted that the former Central Bank Governor–whose tenure was terminated by the government on December 23 last year–produced updates on the Clico resolution on March 27 and November 8, 2015, while the Central Bank was "working through the technical and legal details internally."
But then, part of the reason Jwala Rambarran was fired was because he did not consult with the Minister of Finance, as he was required to by the Central Bank Act...a fact noted by Government Senator and the ruling party's chairman, Franklin Khan, in the Senate on Tuesday.
If the government fails to act on the Clico resolution in a timely manner, there are likely to be several consequences:
1) In his mid-year budget review on April 8, Mr Imbert said that the Government expected to receive $3 billion in revenue from the sale of some Clico assets before the end of the 2016 fiscal year on September 30.
According to the minister, he requested the Central Bank to dispose of the remaining Methanol Holdings (International) shares owned by Clico, at the valuation price, which is in the vicinity of $2 billion, as well as Clico's traditional portfolio of insurance policies and other associated assets valued at approximately $1 billion.
As the minister indicated in April that he expected a fiscal deficit of $6.7 billion for 2016 (which includes the $3 billion from the sale of the Clico assets), if the Government is unable to sell those assets, its deficit automatically goes to $9.7 billion.
If the government fails to monetise the Clico assets, the consequence will be that T&T's 2016 fiscal deficit, which Mr Imbert predicted would be 4 per cent of GDP, will climb to 5.8 per cent of GDP.
2) It should be noted that in downgrading T&T from Baa2 to Baa3 with a negative outlook on April 15, Moody's Investors Service said: "The negative outlook captures lack of visibility on how effective fiscal consolidation efforts will ultimately be and the extent to which fiscal consolidation will have to rely on one-off measures in the coming one to two years."
Moody's also said the downgrade was due to the "high likelihood that the policy response to the commodity price shock will not be as timely and effective as required due to lack of macroeconomic data and weak policy execution capacity."
In other words, T&T was downgraded because the rating agency anticipated that the government would not respond to the country's declining revenue situation in a timely and effective fashion due, partly, to "weak policy execution capacity."
Clearly, a larger-than-expected deficit, as a result of the inaction on the Clico issue, may result in a further sovereign downgrade for T&T, which will push up the cost of borrowing for the Government.
3) The increased deficit also means that the government will either have to increase its borrowing–at a time when its borrowing costs are going up–or it will have to lean more heavily on the Heritage and Stabilisation Fund to close the 2016 fiscal gap than originally anticipated.
4) If the inaction goes to beyond the end of September, the government's 2017 fiscal accounts could be affected, as the minister referred to "further asset sales, including the remaining Clico assets, such as the shares in Republic Bank."
It's clear that there are costs to inaction.
Disclosure: Author owns shares in Angostura Holdings Ltd, part of the CL Financial Group.