Chairman's Remarks
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When I was asked, in December 1996, if I would head up a new government agency to tackle the growing crisis in Jamaica’s financial sector, my reactions were mixed. I felt at the same time honoured, challenged and, to be frank, frightened. Honoured - because the opportunity to serve my homeland in such an important role was a great privilege.
Challenged - because I recognized the potential enormity of the task ahead. And frightened - because I knew that a failure on my part to diagnose and deliver what my country so desperately needed, could affect the well being and livelihood of every ordinary Jamaican. On a very personal level, I realized I would now have to walk my own talk.
For years, I had sat on the side-lines like a Monday morning quarter-back, offering advice to those who were doing the real hard work, sounding warnings, sometimes being encouraging, but often being a critical voice, as I was, for example, when I issued my own minority report as a dissenting member of the Coke Commission.
Now, I was being asked not just to get onto the real playing field, but to be the Sunday afternoon quarterback to boot.
Jamaica’s problem, as presented to me at that initial meeting in Washington, D.C. with Finance Minister Dr. Omar Davies, Financial Secretary Shirley Tyndall, and Bank of Jamaica Governor Derrick Latibeaudiere, was one of a liquidity crisis in the country’s insurance and banking sectors. It did not take us long to discover what the moguls of the sector knew all along. This was not simply a liquidity crisis, it was a profound solvency crisis as well.
As with any start-up operation, the newly formed entity, of which I was now Chairman, had immediate practical needs.
First, it needed a name. For reasons which I never understood, the initials IRS were being recommended. As an American resident and taxpayer, this name did not appeal to me. My view was that the name for this new body should clearly tell the world exactly what we were about. My suggestion was the Financial Sector Adjustment Company, which would conveniently shorten to FINSAC, and that was quickly decided upon.
Second, we needed somewhere to work. Although temporary space was found for us at the Agricultural Credit Bank, it was less than ideal to have to put up with the inconveniences of being "of no fixed abode", while trying to deal with such serious national problems.
With the assistance of the Governor of the Bank of Jamaica (BoJ), suitable offices were found for FINSAC in property leased from the BoJ Pension Fund. We moved into 76 Knutsford Boulevard in May, 1997.
Our staff at that time consisted of myself, now called Executive Chairman, Dennis Boothe as Managing Director; with Rosemarie Morgan as Project Manager; Ramon Marks as Advisor in Monitoring and Evaluation, financed, as my position was, by World Bank project funds available to the Ministry of Finance for private sector development; and John Gooden, who was in charge of Administration; plus a handful of external consultants brought in from the U.K. based consulting firm of Ernst and Young.
But even at this early stage, there was another key person working with Dennis Boothe and myself to chart a course for FINSAC. Patrick Hylton was there from the outset. Somehow or other he found time from his responsibilities at Financial Institutions Services (FIS), the organization administering the government’s Blaise group’s holdings, always to be there when Dennis and I needed him. We were a troika. I cannot stress enough how invaluable Patrick’s contribution has been. I am very pleased to see that contribution continuing in his new role.
To ensure that FINSAC took a macro view of Jamaica’s financial sector difficulties, one of my first steps was to commission an overview study from a trio of experts I knew and greatly respected. David Cole, Betty Slade and Thomas Power, who were formerly from the Harvard Institute for International Development, produced for us a most comprehensive and insightful analysis entitled Building a Healthy Financial System for Jamaica’s Future. Their report has served as a frame of reference for FINSAC's efforts, and I would like to take this opportunity to thank them again for their indispensable advice and recommendations.
The above study was financed by a grant provided by the Inter-American Development Bank (IDB), and it served as the basis for an approach to the Multilateral Investment Facility in IDB (a) for grant funding to strengthen the Office of the Superintendent of Insurance in Jamaica, and (b) for another project to manage and prepare for divestment of real estate and other assets acquired by FINSAC from assisted institutions. Both these projects were soon up and running. Total grant funds from the IDB amounted to US$1.7 million.
From the very beginning, FINSAC's work to build for Jamaica a stable, sound, strong and well-regulated financial sector, has always been planned to be in three phases to be completed over a five to seven year period. We called these phases Intervention, Rehabilitation and Divestment.
I will not go into detail about the three phases here, since many readers will be familiar with what each entails. I also know that a full description of the phases, together with an account of FINSAC's activities under these headings is documented later in this report.
However, at the risk of stating the obvious, I would like to point out that the word "phases" is something of a misnomer here. In dealing with troubled financial institutions it is essential to keep an overall plan in mind, but every individual case is different, and activities that fall under the broad general headings of Intervention, Rehabilitation and Divestment will, of necessity, be taking place all at the same time.
I would like to emphasize here that the nature of FINSAC's intervention is "intervention by negotiation", in the belief that this is the only approach that will best serve all stakeholders.
Our interventions have mostly involved the provision of financial support to re-capitalize troubled institutions. Only in a few cases, where institutions have been deeply distressed, has a take-over been necessary.
Temporary take-overs by government of institutions in distress can lead to ordinary Jamaican depositors, policyholders and pensioners being alienated from their resources.
We sought to avoid this alienation. I am glad to observe that so far in FINSAC's short history, this has not happened, and I respectfully counsel FINSAC's critics always to be mindful of this fact.
Looking back at my 14-month term of office at FINSAC, I feel I can make the following evaluations.
I am pleased that by the end of March, 1998, the atmosphere of the financial sector had become much more stable. This was, I am sure, in part because of the guarantees announced by the government, but it was also in part because of the method of operation utilized by FINSAC in undertaking its tasks. There were no more runs on banks. And no acquisition of control by FINSAC provoked a major negative reaction on the part of depositors. While the difficult task of rehabilitating or closing intervened institutions was only started during my term of office, the intervention of so many institutions within a short period is a laudable achievement.
In closing, I would like to place on record my appreciation for the hard work, dedication and technical advice given to FINSAC by Dennis Boothe, whose innovative mind inspired us all. I express my gratitude to the Board of Directors for their long hours and wise guidance. And I thank FINSAC's staff and the numerous able consultants, who assisted us during my period in office, for their dedication and professionalism.
I would like also to praise the Prime Minister and the Minister of Finance and Planning, who gave invaluable inputs at critical junctures. Credit is also due to the Ministry of Finance, the Bank of Jamaica, and the Attorney General for their unstinting co-operation. Tribute is also due to the Leader of the Opposition for agreeing to keep FINSAC out of the election campaign, thereby preserving an apolitical atmosphere for our work.
Finally, I would like to express my utmost confidence in the new Chairman, Dr. the Honourable Kenneth Rattray, and the new Managing Director, Patrick Hylton. We are fortunate indeed to have such excellent minds working hard to build a new, strong financial sector for Jamaica.
Dr. Gladstone Bonnick, CD
Chairman, FINSAC
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