KINGSTOWN, St. Vincent, Feb. 11, IWN – A prominent member of the New Democratic Party seems to see the developments at the Building & Loan Association (BLA) as an opportunity for the party to correct what it seemingly considers missteps from 2010.
Opposition Leader Arnhim Eustace, who is head of the NDP, has repeatedly said that had he revealed information about the financial health of the then National Commercial Bank, it would have led to a run on the institution.
The theory, Eustace’s argument suggests, is that the NCB would have collapsed and angry electors would have taken it out on Prime Minister Dr Ralph Gonsalves and his Unity Labour Party and voted against them — denying them a third term in office.
But Eustace also noted that small depositors, most of whom had less than $5,000 in the NCB, would have lost all their saving.
So, based on his statements on the matter, Eustace kept quiet and allowed the government to privatise the bank.
Gonsalves later described the transition of the NCB as a “masterstroke”.
But while Eustace seems hesitant to encourage a run on the embattled BLA, St. Clair Leacock, an NDP vice president, made comments yesterday that might have left anxious investor and observers even more worried.
He suggested that the NDP should consider sacrificing BLA for the NDP’s survival.
“We have done our part here and we will continue to do it. But we are a political party. In the same breath that we must save Building & Loan, we also have to save thyself, save the New Democratic Party,” he said at a press conference Monday.
It emerged on Monday that there was a $10 million run on BLA in 2009. It is not yet publicly know how much was drained during a run on the institution in January.
Leacock, responding to a question about what an NDP government would have done if faced with the current situation at BLA, said:
“We are not only a government in waiting we act like a government. When this legislation came before the Parliament, Mr. Eustace was very strong, he was very clear that he supported the idea that we had to have regulations for non-commercial banks institutions,” Leacock said of the act that established the FSA — which began functioning last November.
But Leacock also noted that Eustace had said that the FSA may be overloading itself and “we should take this in small bites”.
The Central Kingstown representative, a lecturer in business, who is often seen as more forceful than Eustace, sidestepped a question about how the opposition would have responded.
“The media should also ask, if we are one month after a national budget, was this not a matter of national importance that should have been raised at the budgetary exercise,” he said of the developments at BLA, which was under the supervision of the Ministry of Finance since 2010.
“The better question, … can Vincentian depend on government either for accuracy of information, timeliness of information, or whether in fact they are putting party interest above that of the nation …”
The latest known run on BLA — in January — came after a letter in the Vincentian newspaper by Luke Browne, an economist at the Ministry of Finance, who accused former BLA director of untoward actions, raised concerns about the management of the institution, and asked if it was about to collapse.
Prime Minister Dr. Ralph Gonsalves, on Feb. 4 deposited at BLA $21,000 on behalf of his daughter. And, Eustace disclosed on Monday that Gonsalves’ brothers withdrew some $1 million from BLA in October 2012.
“… we have two discordant songs: a Prime Minister carrying $20,000 to the bank and saying have confidence … and another spokesperson in his ministry is saying, ‘Look, that house is on fire. Out it!” Leacock said at the press conference on Monday.
“So, basically, Building & Loan is, in a sense, in their scenario, a building on fire and he’s running up with a butter pan to out it.
“That’s what we have in St. Vincent. Is that enough for us? And the message from the Leader, as I understand it from him, it is far from satisfactory. But Vincentian say that is a problem for the New Democratic Party. I say it is a problem for all of us.”
Leacock noted that it was the second time in two years that this country is facing a problem with a financial institution.
“In the case of the National Commercial Bank, the problem was small people who were saving and who were at risk to lose their shirt. Over 5,000 such people, I understand, could have lost their money in the National Commercial Bank. We took the moral highway, the principled approach, and some may argue we lost the election because we put St Vincent before the New Democratic Party.
“On this occasion, it is not those who were saving; this is those who are the investment class of this country who are now at risk. People need to take that on board. Over 1,000 houses can go up,” Leacock said.
He said the situation has the potential for a contagion effect
“If a board house is burning and yours is two, three feet away, and you don’t wet yours, it may get burnt down too,” he said.
He said if Vincentians have lost confidence in BIACO and CLICO — the insurance magnates that collapsed, sending a financial tsunami across the region — and they also lose confidence in the 72-year-old BLA, a building society,
“Then what other institution will they lose confidence in?
“You know what that means?” Leacock further said.
“Serious investors will begin to have a flight of capital, take their money and invest it out of St. Vincent and the Grenadines. So we will compound the jobless non-growth that we have in St. Vincent and the Grenadines. That’s what we are having, a virtual collapse of the financial economy because of the mismanagement and the absence of confidence,” he said at the press conference.
But the collapse of BLA could have significant negative impact on the Vincentian economy.
BLA is said to be worth 12 per cent of the country’s gross domestic product. Reports say it has a loan portfolio of over $200 million, and membership of over 20,000 – about one-fifth of the population of St. Vincent and the Grenadines.