Editorial | The FINSAC files

With elections on the horizon and political febricity on the rise, there are likely to be questions over the timing of Nigel Clarke’s release of the documents from the failed commission of inquiry into the 1990s collapse of large swathes of Jamaica’s financial sector.

Critics of the outgoing finance minister will say that Dr Clarke’s real aim is to present the governing Jamaica Labour Party (JLP) with a cudgel in the coming election campaign – an opportunity to rehash the so-called FINSAC (Financial Sector Adjustment Company) saga.

Except that the minister made the promise to collate and release the FINSAC archives in March. And given that he has no more than a fortnight in his current job before heading off to the International Monetary Fund (IMF) to become one of its deputy managing directors, he was bound to act now if he was to fulfil that pledge.

Obviously, from the perspective of Dr Clarke’s political opponents in the Opposition People’s National Party (PNP), which was in office at the time of the meltdown – the resolution of which cost 40 per cent of Jamaica’s gross national product and pushed the country’s debt from under 71 per cent in 1996 to 115 per cent of GDP early in the new century – there is no good time to release the files. Unless it was some time far in the future, when almost no one who was around at the time of, or was impacted by, the crisis is still around.

INTELLECTUAL DIVE

Whatever political circus might ensue from the development, this newspaper’s hope is that they provide the basis of a deep, intellectual dive into the cause and outcome of the crisis, which Dr Clarke claims to be his intention. Up to now, the discussion of the era, and of FINSAC, the vehicle used by the government of the day to intervene in/acquire insolvent financial companies, has tended to be emotive, or framed for political advantage.

In that regard, we welcome that grants will be available from the finance ministry for scholarly works on the period. The mechanism for awarding those grants must be transparent and be befitting of the declared aim. Dr Clarke, therefore, should publish the criteria for the awards before he demits office, so that it does not fall to a new minister who might have different priorities. Hopefully, there will be several applications for these grants.

Separately, sufficient distance has passed, we feel, for some of the policymakers who were intimately involved in the evolution and rapid expansion of Jamaica’s financial sector in the 1990s and presided over the resolution of its meltdown, to now offer their own in-depth interpretation of events.

Included in this group is Omar Davies, the finance minister during the period, who has become the FINSAC bogeyman, a political caricature of everything that went awry during the period. As a former government planner and university lecturer in economics before he joined the government, Dr Davies was not only at the centre of events. He possesses the research and analytical skills to contribute to the understanding of the era, beyond the burlesque figure that has been made of him.

Regarding how to move forward and to achieve Dr Clarke’s stated intention of building a base of knowledge around macroeconomic policy and a strengthened regulatory framework to guard against a repeat of the crisis, the minister should go further on the information from the inquiry that is released.

There is no gainsaying that very high interest rates, driven by unprecedented inflation, which was fuelled by foreign exchange deregulation in the early 1990s without reserves, contributed to the instability of the period. Lax fiscal management also helped.

INSUFFICIENTLY ROBUST

But in an insufficiently robust regulatory environment in the face of a rapidly expanding financial sector, government policymakers and central bankers of the period argued, financial company owners and managers exploited loopholes in the law in a Wild West-style stampede of self-indulgence. The financial sector bosses, the policymakers claimed, loaned themselves and connected parties money which often was not appropriately serviced, or tooled around between connected companies to disguise their non-performing status.

In some cases, they also claimed, financial companies essentially fabricated supposed capital injections with pass-through or in-and-out money ‘buddy loans’.

On this issue, the transcript of the testimony at the inquiry by Audrey Anderson, the deputy governor in charge of regulation at the Bank of Jamaica during the period, makes enthralling reading.

Against this backdrop, while we appreciate Dr Clarke’s explanation of his wish to follow the law and protect private interests, it is surprising, in the context of the scope of the crisis, that all reports of all the forensic audits into the intervened companies were not released. That must be corrected.

It is surprising, too, that in some cases portions of evidence given at public hearings was redacted. Dr Clarke should revisit that decision.

He should, as an addendum to the archive, cause to be uploaded the judgments at various levels of the court system in all the cases, criminal and civil, related to the owners and managers of the intervened institutions. This should include any challenges to FINSAC’s action.

The period left many people hurt, angry and confused. But the crisis was not single-dimensional and monochromatic. It was a complex epoch, which should be studied and learned from. The release of documents, including those already available, will help.