ST. VINCENT: – Leader of the Opposition Arnhim Eustace is no longer confident that an enterprise to assume the liabilities of financially troubled British American Insurance Company (BAICO) will materialize before next year.
British American has been placed under judicial management and Organisation of Eastern Caribbean States (OECS) and other Caribbean governments are partnering with investors to form a new company to assume its liabilities.
Eustace spoke of his dwindling optimism on Monday on the heels of a Chamber of Industry and Commerce (CIAC) symposium that addressed policy holders’ concerns about the failing company.
He said while judicial manager Brian Glasgow reported that British American was trying to salvage as much as 90 per cent of its assets, the company was still confronted by several challenges.
These challenges include the multi-layer structure of the company, the lack of pledged assets (used as security for a loan), falling methanol prices, and law suits filed against the company in the United States.
Eustace also said much hinges on the success of negotiations with private investors interested in the new company. (Follow I Witness-News on Facebook)
British American has used monies from its OECS subsidiaries to fund a methanol plant in Trinidad and Tobago, the home of its financially-troubled parent-company, regional conglomerate CL Financial.
The company also used similar funds to buy in the United States 6,000 acres of undeveloped lands at US$600 million (EC$1.62 billion).
However, methanol prices have fallen 43 per cent and the United States is still reeling from the impact of the global financial crisis on its real estate sector.
“All those are challenges that anybody who is trying to come to grips with the situation has to understand…. Because a large part of the money of British American-CLICO went to these things, expecting to make money on them and have in fact turned to be losing money on them,” Eustace said.
Prime Minister of St. Vincent and the Grenadines (SVG) Dr. Ralph Gonsalves has lead responsibility for addressing the British American debacle within the OECS and said earlier this month governments of the sub-regional grouping were closer to taking over the operations of BAICO.
He said a new company would begin operation about six months after its get the judicial go ahead in all eight Eastern Caribbean Currency Union (ECCU) jurisdictions, with only Montserrat still awaiting the green light.
But Eustace said while the seminar last week was very informative, he was doubtful that the proposed replacement of British American would begin operating until next year.
“I left there with less confidence that when I went in. Confidence in the sense that when is this thing going to really start get going.”
He further said there were possible gaps in the financing of the new company, which is to be capitalised at US$400 million (EC$1.8 billion) in contributions from governments of the Eastern Caribbean Currency Union (ECCU) and other Caribbean nations.
“One thing that came out very clearly to me [is that] so much is still up in the air. You don’t know exactly how much money you are going to collect for the company; you don’t know when you are going to collect it. The legal process in the United States court is a difficult one and an expensive one,” he said.
Of monies invested in the company by OECS nations, 3.37 per cent came from social security schemes.
However, Eustace was particularly concerned about the EC$62 million (US$22.96 million) that this country’s National Insurance Services (NIS) invested in British American, saying it was higher than the OECS average.
“For the next five years or so, the NIS is not going to make any interest on its investments that they can draw down, even when they mature,” he said.
The trained economists said this does not augur well for Vincentians whose government is being pressured by the International Monetary Fund to increase NIS contribution from 8 percent to 11 percent.
He also noted that some commercial banks throughout the OECS were no longer accepting insurance policies as security for loans and were asking for additional security on existing mortgages.
“The security is no longer at the level that is required to make them comfortable, and therefore they are asking people to put in additional security or new security, or a combination of both.”
Eustace in January said his New Democratic Party supported an allocation of EC$41 million (US$15.2 million) from this year’s national budget to the British American bailout.
He did not say this week if his party had changed its position, weeks after he called on the Patrick Manning administration in Trinidad and Tobago to say if it has changed its position on the rescue plan.
Trinidad and Tobago has already contributed US$50 million to the liquidity fund but Eustace said earlier this month that comments by Gonsalves suggested that the government of Trinidad and Tobago was “no longer responsible for clearing up the British American matter”.