Category: International

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The new constitution of Kenya: An analysis

Introduction
The disputed Kenyan Presidential elections of 2007 sparked horrendous clashes among supporters of the incumbent President Mwai Kibaki and his losing challenger Raila Odinga. With the blood and death of over one thousand persons on their hands, the imminence of a civil war and the prospect of an apocalyptic future, the country’s political leaders, with support from the continent spearheaded by former UN Secretary General Kofi Anan, decided that a new constitutional model was the only way to save the society and address the unequal distribution of opportunity and resources in their society.

Two years later, Kenyans now have just such a Constitution. One does not need to be a cynic to recognise that the Constitution of a country is only as good as its impact on the lives of its citizens. If this new Constitution works, the future for Kenya is assured and the dancing in the streets that followed the overwhelming popular vote for its existence would be vindicated.

Criticisms and comparisons
There are two criticisms of the Kenya Constitution that I think have considerable validity. The first is that it may overreach, that it may be too advanced for the objective circumstances of a country only now trying to rid itself of a colonial structure, riddled with ethnic, religious and tribal differences, still bearing the scars of a civil war that almost tore it asunder four decades ago. In one sense the constitution may be too perfect for fallible humans. This criticism has merit. I was even told that the chief fault is that it may be too good. That is a fault that many might like to possess.

The second and some may even say more serious criticism is the substantial powers of the presidency that are not unlike those in Guyana’s 1980 Constitution. Like in Guyana, the President is both the Head of State and Government. He chairs Cabinet meetings and directs and co-ordinates the functions of ministries and government, exercising executive authority of the country with the assistance of the Deputy President and Cabinet Secretaries. He is also the Commander-in-Chief of the Kenya Defence Forces and confers national honours.

Unlike the case of the 1980 Guyana Constitution however, Kenya’s has a number of countervailing measures that are designed to prevent the kind of abuse that is all too common in Guyana. Devolution of power and their separation at the national and regional levels, including national and county governments, a bi-cameral legislature, and clear rules on revenue sharing, are expressly spelt out in the Kenya Consti-tution.

Ministerial overload
While the Kenyan President chooses his Cabinet Secretaries – our equivalent to Ministers – that Constitution sets a minimum (14) and maximum (22) number of ministers. In Guyana, with 0.5% of Nigeria’s population, we have more ministers than that.

Their Constitution also provides for simple rules for the removal of anyone of those persons in the event of misconduct. It is unlikely therefore that our gun-toting minister, or the one implicated in buying and supplying spy equipment to a drug dealer, or some of those engaged in what seem clear cases of misfeasance in public office, could have remained ministers under the Kenya Constitution.

Just last month, Kenya has witnessed the sacking of its higher education minister from the Cabinet following a Constitutional Court ruling on a six-year-old corruption case accusing the minister of illegally selling land to a state corporation. By contrast, in Guyana, the more likely scenario is for state lands to be sold illegally to members of the Cabinet and those in the political elite.

The Kenya legislature cannot pass legislation like the president’s benefits bill which excludes Jagdeo and all other presidents in Guyana from the payment of taxes. Nor could there be a situation where Acts of Parliament are held up by the President, to be assented to as and when he feels like.

Insights and ideas
So as we in Guyana seek institutional solutions to our endemic problems, Kenya’s 2010 Constitution offers some interesting and innovative insights and ideas. It is a model for the devolution of power, for respect for citizens, for preservation of the rule of law and for the development of each region in the country.

It is an audacious document, repealing and replacing the entire former Constitution and containing two hundred and sixty-four Articles and six Schedules. Article 10 sets out the national values and the principles for governance that include national unity, sharing and devolution of power, the rule of law, democracy and participation of the people; human dignity, equity, social justice, inclusiveness, equality, human rights, nondiscrimination, protection of the marginalized, good governance, integrity, transparency, accountability and sustainable development.

Article 11 on culture requires Parliament to enact legislation that ensures receipt by communities of compensation or royalties for the promotion and use of cultures and cultural heritage and recognises and protects ownership of indigenous seeds and plants, their genetic and diverse characteristics and their use by the communities of Kenya.

Bill of Rights
Chapter 4 contains forty-one Articles and includes a Bill of Rights that guarantees enjoyment of the rights and fundamental freedoms for every person, binds all state organs, provides for implementation of rights and fundamental freedoms, and for the enforcement of those rights and freedoms. In respect of these rights and freedoms, the locus standi rule does not apply and any person can bring an action on his own behalf, or on that of another person, as a member of, or in the interest of, a group, or, in the public interest.

The Constitution guarantees twenty-six specific rights and makes it a fundamental responsibility of the State and every organ of the State, to observe, respect, protect, promote and fulfill the rights and fundamental freedoms set out in the Bill of Rights.

In addition to the usual rights to life, liberty and association, the Constitution guarantees such rights as privacy, consumer rights and access to information held by the State; the freedom and independence of the press; the right to a clean and healthy environment; economic and social rights including to social security provided by the State; the use and enjoyment of one’s own language and culture; the right to marry a person of the opposite sex based on the free consent of the parties; equal rights at the time of, during and on dissolution of the marriage; and administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair. If a right or fundamental freedom of any person has been, or is likely to be, adversely affected by administrative action, that person has the right to be provided with written reasons for the action.

Special people
The Constitution also has special rights for children who for example may only be detained as a last resort; for persons with disabilities being provided with access to all places, public transport and information (Braille is specifically mentioned); and for youth. The State is also obliged to provide for minorities and marginalized groups to be represented in governance and to provide access to employment and special opportunities in educational and economic fields.

The Constitution requires the government to provide measures for older persons to fully participate in the affairs of society; to pursue their personal development; to live in dignity and respect, free from abuse and to receive reasonable care and assistance from their family and the State. With respect to the environment, the State is required to maintain a tree cover of at least ten per-cent of the country’s land area and the right to a clean and healthy environment is protected under Article 42 and is justiciable under Article 70 without having to demonstrate actual loss or injury.

Article 48 provides that an arrested person must be brought before a court no later than twenty-four hours after being arrested; imposes on the State guaranteed access to justice for all persons and, where a fee applies, for it to be reasonable so as not to impede access to justice. No right or fundamental freedom in the Bill of Rights shall be limited in any way, except by law. Any provision in legislation limiting a right or fundamental freedom must specifically express the intention to, and the nature and extent of the limitation, and must be clear and specific about the right or freedom to be limited and the nature and extent of that limitation. In no case, can any law limit a right or fundamental freedom so far as to derogate from its core or essential content.

Non-citizens may hold land only on the basis of leasehold tenure, and any such lease, however granted, shall not exceed ninety-nine years. On pain of disciplinary action, an officer of the State is duty-bound, in public and official life, to avoid any conflict between personal interests and public or official duties that compromise that official’s public or official interest in favour of a personal interest; or demeans the office held by that officer.

Elections
Responsibility for elections vests in an Independent Electoral and Boundaries Commission which is responsible for ensuring continuous registration across the country. Any person who is not a member of a registered political party is eligible to stand as an independent candidate for elections which are held on the second Tuesday in August every five years.

Political parties must be registered, must have a democratically elected governing body, must subscribe to, and observe, the Code of Conduct for political parties, must have their accounts audited and are subject to restrictions on the use of public resources that promote their political interests.

General election of members of Parliament is to be held on the second Tuesday in August in every fifth year. The electorate of a constituency may recall their Member of Parliament before the end of the term of the relevant House of Parliament.

The legislature
Kenya has a bi-cameral legislature with the Senate representing the counties and their governments and determining the allocation of national revenue among them. There is a guaranteed minimum number of women members of the National Assembly (47) all of whom are elected, and the Senate (16), who are nominated by the political parties. There is also guaranteed representation of two youths and two persons with disabilities in the Senate.

All sittings of Parliament and those of its Committees must be in public, the members of which are guaranteed participation and involvement in the legislative and other business of Parliament and its Committees. Persons have a right to petition Parliament to consider any matter within its authority, including enacting, amending or repealing any legislation. The procedures for accessing and giving effect to this right are to be enshrined in legislation which must be passed within two years following introduction of the new Constitution.

The President has fourteen days to assent to a Bill or refer it back to Parliament for reconsideration. If the President does not assent to a Bill, or otherwise deal with it in accordance with the Constitution, the Bill is taken to have been assented to.

The Executive
The Executive is made up of the President, the Deputy President and the Cabinet, the composition of which the Constitution requires to reflect the regional and ethnic diversity of the people of Kenya.

A person who owes allegiance to a foreign state may not be elected President of Kenya. The powers and functions of the President are not dissimilar to those of the Guyana President, but in Kenya the holder of this office has other obligations that include addressing Parliament at least once every year; reporting annually to the nation; and publishing in the Gazette, all measures taken and all progress achieved in the realisation of the national values; and submitting a report for debate to the National Assembly on the progress made in fulfilling the Republic’s international obligations. During the term of office, which is limited to two terms, the President enjoys immunity from criminal and civil proceedings.

Ministers are designated as Cabinet Secretaries of which there can be no less than fourteen (14) or more than twenty-two (22). Any member of the National Assembly supported by a quarter of all members can propose a motion requiring the President to dismiss a Cabinet Secretary. If the motion is supported by one third of the members of the Assembly, the Assembly must appoint a Select Committee to investigate the matter and report back to the Assembly in ten days. If a majority votes for removal, the President is required to dismiss that person.

Cabinet Secretaries are required to attend before a Committee of the National Assembly when required to do so by the Committee and to answer any questions pertaining to any matter for which they have ministerial responsibility.

Judiciary
A judge shall retire from office on attaining the age of seventy years, but may elect to retire at any time after attaining the age of sixty-five years. The Chief Justice holds office for a maximum of ten years or until retirement, whichever is the earlier. A Judiciary Fund, administered by the Chief Registrar of the Judiciary and funded out of the Consolidated Fund, is to be used for administrative expenses of the Judiciary and such other purposes as may be necessary for the discharge of the Judiciary’s functions.

For adherents of Islam, there is a Kadhis’ court with jurisdiction to determine questions of Muslim law relating to personal status, marriage, divorce or inheritance. The Constitution also provides for the devolution of power including county governments, and the equitable sharing of national and local resources throughout Kenya. The stated objective of devolution is the decentralisation of State organs, their functions and service and enhancing checks and balances and the separation of powers. Every county is headed by an elected governor and has a county assembly and a county executive committee.

Devolution of Power
The Fourth Schedule sets out the respective functions of the national government and the county governments. Some of these functions are strictly separated, such as foreign affairs, international trade, immigration and citizenship, tertiary education, monetary policy, and the courts which are functions reserved for the national government. Functions reserved for the counties include county health services, county transport, and county planning and development while some overlap and may be exercised at both national and county levels. These include culture, sport and the control of pollution.

Revenue raised nationally is to be shared equitably among the national and county governments.

County governments may be given additional allocations from the national government’s share of the revenue, either conditionally or unconditionally. Criteria for equitable sharing are set out in Article 203 but the amount allocated to county governments must not be less than 15% of the national revenues of the preceding year.

Article 204 provides for an Equalisation Fund into which is paid one half of one per-cent of all revenue collected by the national government each year. The Equalisation Fund is to be used by the national government only for the purpose of providing basic services such as health, water, roads and electricity to marginalised areas. Parliament may only pass Bills that appropriate funds from the Equalisation Fund on the recommendations of the Commission on Revenue Allocation that must obtain approval by the Controller of Budget for all withdrawals from the Fund.

At the national level there is a Consolidated Fund and for all counties there is a Revenue Fund.

Into these funds are placed all revenues and from which payments must be approved by the respective legislative assembly. Only the national government may impose income taxes; value added taxes; excise taxes as well as customs and other duties on the import and export of goods.

A county may impose property rates; entertainment taxes; and any other taxes authorised or imposed by an Act of Parliament. Both the national and county governments may impose charges for services.

Finance and taxation
A waiver of any tax or licensing fee may only be granted if authorised by law. A public record of each waiver must be maintained along with the reason for the waiver. Each waiver must be reported to the Auditor-General. Article 210 specifically states that there can be no law excluding the President and judges as officers of the State as excluded from the payment of income tax. In Guyana, the official emoluments of the President, the Chancellor of the Judiciary, the Chief Justice and the Auditor General are exempt from income tax.

There are detailed provisions regulating the preparation and timing of national and county budgets and contingencies and audits. The report of the Auditor General has to be submitted to the Parliament or the County Assembly within six months of the end of every year and must be considered and debated within three months. The Constitution provides for a Salaries and Remuneration Commission to set and regularly review the remuneration and benefits of all officers of the State and advise the national and county governments on the remuneration and benefits of all other public officers.

Constitutional Commissions
A member of a Commission, or the holder of an independent office, other than an ex officio member, is appointed for a single term of six years and is not eligible for re-appointment, and unless ex officio or part-time, such any officer may not hold any other office or employment for profit, whether public or private.

Some of the Commissions provided for in the Constitution are:
● Commission on the Implementation of the Constitution set up to monitor, facilitate and oversee the development of legislation and administrative procedures required to implement the Constitution. That body is required to co-ordinate with the Attorney – General and the Kenya Law Reform Commission in preparing, for tabling in Parliament, the legislation required to implement this Constitution; and to report regularly to the Constitutional Implementation Oversight Committee on the progress and impediments in the implementation of this Constitution;

● A Human Rights and Equality Commission whose functions include investigation into the conduct in state affairs, or any act or omission in public administration in any sphere of government, that is alleged or suspected to be prejudicial or improper or to result in any impropriety or prejudice as well as to receive complaints about the abuse of power, unfair treatment, manifest injustice or unlawful, oppressive, unfair or unresponsive official conduct;

● A Land Commission to manage public land on behalf of the national and county Governments and to recommend a national land policy to the national government;

● An independent Ethics and Anti-corruption Commission to deal with the conduct and financial probity of officers of the State whose activities are in any case restricted by dictates of the Constitution; and,

● A Commission on Revenue Allocation to make recommendations concerning the basis for the equitable sharing of revenue raised by the national government between the national and county governments; and among the county governments.

The Constitution provides for members of the public to be represented on several of the commissions while the following commissions and independent offices have the power to summon persons including public officials in any of their investigations:

(a) the National Human Rights and Equality Commission;
(b) the Judicial Service Commission;
(c) the National Land Commission; and
(d) the Auditor-General

Unlike Guyana there is no Office of the Ombudsman or Public Procurement Commission. However, in respect of procurement the Article 227 of the Constitution of Kenya requires the enactment of an Act of Parliament that prescribes the framework within which policies relating to procurement and asset disposal shall be implemented.

Giving effect to the Constitution
Apart from resolutions of Parliament or referenda, as appropriate, the Constitution provides for citizens to propose amendments to the Constitution by a popular initiative signed by at least one million registered voters. But it is Article 258 that I find very attractive, giving every person who claims that the Constitution has been contravened or is threatened with contravention, the right to institute court proceedings. In other words, the locus standi rule which requires a person bringing an action to show a direct interest in the matter, does not apply and any citizen can institute such a suit to enforce the Constitution whether or not it affects that citizen.

The Fifth Schedule sets out the time within which the various provisions of the Constitution are to be implemented. The Schedule requires that the necessary legislative measures must be enacted within one year to four years. In the case of any provision not specifically identified in the Schedule, the legislative time limit for these to be addressed is five years.

If Parliament fails to enact any legislation as required by the Constitution within the specified time, any person may petition the High Court for a declaratory order. The order is transmitted to Parliament and the Attorney-General directing them to take steps to ensure that the required legislation is enacted within the period specified in the order.

While the commission which reviewed the 1980 Constitution after the contentious 1997 elections may have had several of the ideas now enshrined in the Kenya Constitution, the opposition parliamentary parties that constituted the Commission and the members of civil society and the public which made submissions, obviously failed to anticipate the extent to which the PPP/C would have frustrated progressive changes to the 1980 Constitution or even to implement the recommendations coming out of that exercise.

Conclusion
President Barack Obama whose father hails from Kenya welcomed that country’s new constitution as an important step that sets “a positive example for all of Africa and the world.” It is an example from which we in Guyana can certainly benefit.

But as the ruling PPP/C and President Jagdeo have strengthened their hold on the country, its institutions and its purses, they have shown no interest in any constitutional reform. As a result, they have also failed to implement several important provisions in the existing constitution such as the appointment of an Ombudsman and the Public Procurement Commission, allocation of revenues to the regions, the proper use of the Consolidated Fund and the integrity of the financial system.

As a result, instead of enjoying a modem, progressive constitution, Guyana, in many key areas, is actually worse off. That we seem to have neither an appetite nor a willingness to address our constitutional backwardness may explain several of the fundamental defects that stifle the country’s development.

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Ring the Bell and tell the working poor, the consumer and the unemployed: The recession is over!

Introduction
After all the fears of economic Armageddon, the Great Depression Mark II and no recovery until after mid-2010, the economies of the world have bounced back, and for the economists at least, the recession is over. So is it safe to pop the champagne and celebrate? That may be just a bit premature. As Newsweek, the US weekly notes, when economists proclaim a recession over, they’re celebrating a technicality: they mean economic output has stopped contracting. Readers who have been following Professor Clive Thomas would know the globally accepted definition of recession is the “two quarter” decline in economic output, but this definition is not accepted by all economists as it ignores key economic variables such as unemployment rates, consumer confidence and spending. In the US the agency that is officially in charge of declaring a recession in the United States is known as the National Bureau of Economic Research, or NBER. The NBER defines a recession as a “significant decline in economic activity lasting more than a few months.”

So how exactly are the world’s economies faring and how did the world avoid the worst fear – the collapse of capitalism – and why did the Great Recession not turn into the second Great Depression? The two persons who have been credited with the economic miracle and hailed as the ‘Man Who Saved the World’ are Gordon Brown, the embattled Prime Minister of the Britain, and Mr Ben Bernanke, the Chairman of the US Federal Reserve Board. Brown of course was Chancellor to Tony Blair and presided over one of the longest periods of sustained growth in the UK while in the case of Bernanke, as providence would have it, his doctoral studies and expertise were coincidentally on the 1929-1934 Great Depression. That allowed him to exude the quiet but commanding and reassuring performance before the US Congress and Senate and guaranteed his nomination by President Obama for another five years when his current term ends early next year.

Across continents, Keynesian economics ruled the day, as governments primed their economies with newly printed money to prevent their collapse. It seems that the action taken produced results that exceeded the expectations of the politicians and economists, although not everyone is convinced that the recovery is permanent. For that we will have to wait and see. For now, however, the evidence of a recovery is strong, and while the economies and countries have grown at vastly different rates, everyone is impressed by their resilience. In today’s Business Page we look at the performance of the major economies and their prospects in the near and medium term.

The US
The bursting of the housing market bubble in the US had a domino effect, not only on the rest of the US economy, but across the world as a result of the investments by overseas investors in derivatives based on the housing market. Well, home sales have now risen for three straight months, and while this may be due to speculators cashing in on the bargains available on foreclosed properties, it is the first time since 2004 that the US experienced such a sales trend.

From its disastrous decline over a year, the stock market grew by 44 per cent since March, and many of the troubled banks which received bail-out money from Uncle Sam have reported a dramatic turnaround. In June, seven of the 10 indicators in the Conference Board Leading Economic Index pointed upward, including manufacturing hours worked and unemployment claims. But the US economy lost 6.5 million jobs since December 2007 and current unemployment now stands at 9.7 per cent and climbing. Compounding the problems for the US economy is the national debt which has risen dramatically and is projected to reach 77% of GDP in 2019 – up from 41% in 2008. This poses a huge challenge to President Obama who is losing political capital on health care reform and who needs the private sector to create millions of new jobs even as they face potential tax increases.

Asia
Once again the region astounds and confounds the critics, observers and the pundits. When the region experienced a financial crisis in 1997-98, the literature and conventional wisdom was that Asia was falling. The story of the region following the dot.com bubble was no different. Now we have the amazing story of how the region not only survived but has prospered during the most recent crisis. Conventional wisdom was that since the countries of the region were export-dependent, their recovery had to follow that of the rich world that bought its imports. Look at what happened – while the economies of the countries of Asia have galloped at close to 10% annually, those of the rich countries have contracted by close to 4%.

China’s economy – give and take some fudging of figures – grew at about 10%, the same as South Korea, while Taiwan’s industrial output grew by an annualised rate of a whopping 89% in the second quarter, and India’s industrial production was an impressive 14% growth in the second quarter. The Economist attributes the remarkable performance as arising from cyclical factors, the unfreezing of global finance, the comparatively more effective fiscal packages and the strength of the economies as the countries entered the recession. Other factors would of course include the work ethic of the Asians and their propensity to save.

Japan, the world’s second largest economy officially came out of recession in the second quarter of the year with a growth of 0.9%, after four consecutive quarters of contraction. The rebound was attributed to one of the largest and aggressive fiscal stimulus packages in the rich world, and so there is some concern among analysts whether the momentum can be sustained. Ever since the early nineties when its economy suffered a bursting of a land bubble the government has been grappling with how to rebalance the country’s economy. It has been less than successful, and a country known for Toyota, high tech and Buddhism has seen a boom in the brothel business and Toyota recording losses for the first time in its history. Yet, if Japan’s latest quarterly rate were maintained for a full year, the economy would grow 3.7%, slightly less than the 3.9% which the stock market was hoping for.

Europe
The United Kingdom: The end of the recession was pronounced by the prestigious Institute of Chartered Accountants in England and Wales (ICAEW) following a recent study which showed the biggest rise in business confidence in two years. The Labour government which once appeared unbeatable is now heading for almost certain defeat next year, while the resurgent Conservatives dub the country as ‘Broken Britain.’ But the upbeat mood in the financial centre of the City and the emergence from the recession have been confirmed by detailed forecasts published by the Bank of England showing that gross domestic product (GDP) will rise by 0.2 per cent between July and September, marking the first economic expansion since the first three months of last year. The bank expects the economy to continue to expand in the fourth quarter, by 0.4 per cent, and sustain the recovery throughout next year.

Contributing to the recovery were huge stimulus packages particularly in the financial sector, interest rate cuts by the Bank of England and a temporary reduction in the VAT from 17.5 per cent to 15 per cent in December, all designed to boost consumer spending. The reduction in the VAT rate has however led to a huge budget deficit and has now come to an end.

The rest: France and Germany have posted surprising growth of 0.3 per cent in the second quarter, a big turnaround fuelled by massive stimulus spending and Asian demand for exports. The exit from the recession was fuelled by massive government spending, strong social safety nets and a crucial boost from Asia and China in particular, causing one economist to describe the rebound as “made in China” as exports to that country particularly from France have surged.

Germany is Europe’s biggest economy and the world’s biggest exporter of manufactured goods. Not surprisingly then the German performance sets the pace and direction for the rest of the euro zone, whose members share a common currency. Those countries saw their economies shrink by only 0.1 per cent in the second quarter – far less than expected – after dropping 2.5 per cent in the first quarter.

Brazil: This South American giant and neighbour, more famous for its football and the Rio Carnival dubbed the greatest show on earth, has been one of the world’s great success stories and has chalked up some impressive successes in the midst of the global recession. Its President, Mr Luiz Inacio Lula da Silva, trade unionist and one of the most popular and inspirational leaders in the world has presided over an economic boom with rising Foreign Direct Investment, stable consumption and near zero inflation. We in Guyana have such opportunities right over the bridge!

Caricom: The economies of the Caribbean, other than Trinidad and Tobago and Guyana, dependant as they are on tourists from the countries of Europe and North America have all been struggling with some turning to the IMF to shore up their weak economies, and one must wonder whether there is a positive relationship between the state of West Indian cricket and the performance of their economies. Like our cricket administrators, our politicians seem to be in a different world, and only last month T&T Energy Minister Conrad Enill denied that the country was ever in a recession, despite a decline in economic performance by more than four per cent between October 2008 and March 2009. To boost his argument, Mr Enill sought to give his own definition of recession.

With respect to Guyana, the Statistical Bureau simply refuses to publish any data, no doubt waiting on their political bosses for direction. I understand that figures must first be “cleared” by the Minister of Finance and until he gets around to providing the country with his mid-year report we will have to wait to see where and how we are. Let us hope however that our few outstanding exporters will move rapidly to take advantage of the new opportunities that the end of the recession offers.

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Stanford 20/20 smoke and mirrors and an update on Clico

Introduction
The columns of Business Page have reported on far more financial scandals than it would have liked. Although it was soon overtaken as the biggest corporate scandal ever, Enron was covered in a series in February 2002 and remembered in a piece one year later to mark its anniversary. Parmalat too with a hole of billions on its balance sheet and Nick Leeson who brought down the 233-year-old Barings Bank, the Queen’s bank, were accorded their fair share of space. More recently it was Bernard Madoff of the US and B. Ramalinga Raju of Satyam Computer Ltd of India to add to the list of corporate fraudsters. Each fraud has had its own consequences, with Enron taking down with it Arthur Andersen, one of the world’s most respected accounting firms, as well as the investments of its employees’ pension scheme.

For the most part however the direct consequences have been felt by employees, creditors and shareholders, including pension schemes. And they have all had some common ingredients − a tale of lies, deception, smoke and mirrors, sleeping accountants and poor governance and weak regulators, all fed by frenzied greed in the name of capitalism. Each, however, took place in larger economies that could absorb a moderate level of stress and setbacks.

‘Sticky Wicket’
On the other hand, the fall from grace of cricket icon Sir Allen Stanford is in a different ballpark altogether. After the government, the Stanford group is/was the largest employer in its home base Antigua. It has its own cricket ground – named appropriately Sticky Wicket − with swimming pool, lighting and facilities that rival the government-owned stadium and the record-making Antigua Recreation Ground. It operates the Bank of Antigua which has a significant share of the retail banking in that country. It owns some of the choicest pieces of real estate on the island. It was, prior to its fall, planning to develop an area called Shell Beach and nearby Maiden Island, towards the end of the airport runway, with a marina, shopping and entertainment complex.

Stanford’s towering image, cosy relationship, influence and hold over Antigua simply cannot be under-estimated. The island’s Prime Minister, Baldwin Spencer, never a friend of Stanford, admitted that the charges brought by the SEC against Mr Stanford and two of his associates could have “catastrophic” consequences. He urged the public not to panic. It was like telling persons in a rainstorm not to take protective action – and such advice was quietly ignored by depositors who queued up to withdraw their money from the Stanford-owned Bank of Antigua. Seizing the political opportunity to crush Lester Bird, he has called general elections which he is certain to win.

Threat
There is also a wider, regional threat to the Eastern Caribbean Dollar – one of the most stable currencies in the world and which is managed by the Eastern Caribbean Central Bank, the monetary authority for eight OECS island economies including Antigua. The bank in a statement reportedly handed to people queuing to get their money said its “liquidity position is sound.” It was careful to note however that that the bank’s ability to meet customer requirements applied “under normal circumstances” and that if individuals persisted in rushing to the bank in a panic, they would precipitate a collapse. The consequences of massive withdrawals and conversion into and flight of foreign currency is going to test the stability of the EC dollar over the coming weeks.

But the image Mr Stanford cultivated was even bigger than the assets or his plans. For example, the helicopter in which he landed at Lord’s to announce his “20/20 for 20 million” deal with the England and Wales Cricket Board was not, as the gold-plated Stanford name and logo emblem on its body indicated, corporate property but one rented for the day. Nor was the $20 million jackpot in the treasure chest shown to the world at the launch real money – it was at most about US$100,000 standing atop wads and wads of paper. It was one big con. The press, fascinated by the Texan billionaire, was too dazzled by the dollars to see the game at work and to ask questions.

Dazzled by wealth and….
Stanford was flamboyant, ambitious and most importantly for the gullible, including most of the region, fabulously rich. But contrary to his tale of a family heritage and inheritance associated with Stanford University, Stanford’s real wealth had its source in the early 1980s when he and his father James Stanford bought distressed properties in Texas during the oil industry bust and the S&L crisis, rehabilitated them and sold them at huge profits when the market got better.

But Texas was too big for the man who had visions of grandeur and royalty. He wanted to be king and chose first Montserrat to base his operations before moving to Antigua where he became a real force during the rule of the Bird family, the father-and-son dynasty that held power for more than 40 years. It was during that period that Stanford helped the Birds turn Antigua into a tax haven and soon made him into a billionaire. With his personal wealth estimated at more than US$2 billion, he was bigger than the economy of Antigua and so Stanford could get whatever Stanford wanted. He demanded and received the trappings of royalty that Texas could not give him – a knighthood without the need to bow in front of the Queen. In fact that knighthood was granted to him by the Birds. He ran his financial empire from the island’s airport office park which was the most iconic landmark to greet any visitor to the island. While his empire extended to Latin America his colossal status derived from his tryst with West Indian cricket of which he was seen as the saviour following years of the most pathetic management by a succession of the most pathetic Board of Directors ever to have ruled the game anywhere in the world. With the glitter of millions, he redefined West Indian cricket into a game of fast paced entertainment, money and image, particularly appealing to the lucrative television market.

Criminal charges likely
The details of Stanford’s fall are still unfolding but what seems to have emerged so far is that the company was selling investors high-yielding certificates of deposit on the basis they were safe and liquid investments. According to the US Securities and Exchange Commission (SEC) Stanford’s investment portfolio was an opaque “black box,” including holdings in illiquid real estate and private equity. Following investigations that had been going on since last summer, the SEC has filed charges against three entities, Antigua-based Stanford International Bank, and its affiliated Houston-based investment advisers, Stanford Group Company and Stanford Capital Management.

Unlike Kenneth Lay or Madoff or Raju, Stanford has not been charged with any criminal offence – at least not yet. The action brought against Stanford is a civil action although the word fraud has been used by the SEC involving somewhere between $8 and $9.2 billion. It has been reported that the FBI is carrying out its own investigations but that it does not want to lay charges until it has been able to find sufficient evidence to secure a conviction. Should it move too early it will have set in train a schedule that would force criminal investigators to charge, indict and construct a trial within a tight time-frame. Whether it is criminal or civil fraud is the kind of fine distinction that does not interest depositors and investors who have been rushing to all locations where Stanford operates demanding the return of their money.

Impact
It has been reported that some of our cricketers have invested money in Stanford while the Ministry of Finance has confirmed that one major institutional investor, which Business Page suspects is either a commercial bank or an insurance company, has placed funds with the Stanford group. The Ministry has told the press that it is “monitoring the situation” although quite what this means in the light of its handling of the Clico issue is hardly reassuring. We must not forget that there are thousands of Guyanese living in Antigua and it is a fair guess that many of them would have had their savings in Stanford’s bank. If the government is truly monitoring the situation it should immediately send a high-level representative to Antigua to represent the interest of those persons.

At some time we will have to confront the threats to small countries by rich investors and oligarchs who can bribe, cajole and threaten to get what they want. The view that these people are here to save us must by now be surely mistaken. So too is the view that we are insulated from the world economic crisis. Our own politicians need to stop feeding us with their own form of garbage.

Clico update
Chairman of the National Insurance Scheme has told the press, more than a month after the news of the failure of Clico Investment Bank in Trinidad and Tobago that he is uncertain about the extent of the exposure of the NIS to the local Clico company. That is amazing and dangerous when in the same breath he estimates that the exposure can be as much as $6 billion.

Business Page has for two weeks been trying to obtain confirmation from various members of the NIS Investment Committee of the value of the exposure and has written to the acting General Manager of the Scheme seeking confirmation. By arrangement the Commissioner of Insurance has also been written to with a list of several questions the answers to which would form the basis of next week’s Business Page. If Dr Luncheon is right and the exposure is around $6 billion, then potentially we could have some really serious problems since the Scheme’s viability will depend on the continued success of Clico Guyana. The consequences of a failure are simply too frightening to contemplate.

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Truth Made-off leaving trail of cooked books

Introduction
Over the years this column has reported on its fair share of scandals in the financial world, often in the biggest this and biggest that. Today we report on two such biggest – one from, you would have guessed, New York and the other India. The ingredients that make up these frauds are the usual suspects – persons too clever for their own good; greed; an unsuspecting public; poor oversight and accountants sleeping on the job. The historical economist and author Charles Kindleberger expressed it in slightly more elegant language, writing that “swindling is demand-determined, following Keynes’s law that demand determines its own supply, rather than Say’s law that supply creates its own demand. In a boom, fortunes are made, individuals wax greedy, and swindlers come forward to exploit that greed.”

Whatever it is, the vehicle used in the Madoff scandal is one that came to be known as a Ponzi scheme, a swindle offering unusually high returns, with early investors paid off with money from later investors. The scheme got its name from the Italian-born American resident who promised clients a 50% profit within 45 days, or 100% profit within 90 days.

Madoff
While Ponzi was a known itinerant crook who served time on more than one occasion, Bernard Madoff, was a star of Wall Street, former chairman of the Nasdaq Stock Market and founder of Bernard L Madoff Investment Securities LLC, which had operated successfully for over four decades. And to support Kindleberger’s theory, the victims of what may turn out to be a US$50 billion swindle were not the small-town residents buying postal coupons, but top names in banking, show business, the intellectual class and many on the list of the wealthy. HSBC said its losses were about one billion US dollars while the Royal Bank of Scotland estimates its losses at US$600 million.

Investigators estimate that it will take more than two years to complete their work, but it is unlikely that they will ever come up with even reasonably precise figures. It is the nature of a Ponzi scheme that early investors do benefit, quickly receiving their initial capital from subsequent investors.

What must surely annoy is that once again there is failure of regulatory oversight. Last month, SEC Chairman Christopher Cox expressed grave concern at the “multiple failures over at least a decade to thoroughly investigate these allegations [at Madoff] or at any point to seek formal authority to pursue them,” ordering belatedly an internal review into the agency’s failure. And it is the same SEC that facilitated a three-employee accounting firm to audit Madoff on an annual basis. Brokerage firms like Madoff Securities are required to be audited by firms that were registered with the Public Company Accounting Oversight Board created after Enron to help prevent frauds.

Amazingly, the SEC allowed a waiver, which it extended on numerous occasions, to the audit requirement in respect of privately held brokerage firms. It is not surprising therefore that the auditors Friehling & Horowitz failed to detect the large Ponzi scheme run by Mr Madoff. Ironically, in its latest extension of the rule, issued December 12, 2006, the SEC said it had determined that allowing such firms not to register was “consistent with the public interest and the protection of investors.” Well, well, well.

Now to India
India was not too long ago held up as the country where the Beatles would go to seek spiritual renewal. The country lost its innocence with the Indira Gandhi emergency of 1975, but still the myth of innocence prevails with former Australian cricket captain writing in the aftermath of the Mumbai bombing in November that India had been “robbed of its innocence.”

Now in a twist of irony, one of its top information technology companies that have led the way in the in-sourcing credited with the country’s economic boom, Satyam Computer Services Ltd, has found itself embroiled in a scandal dubbed by commentators as “India’s Enron.” The word ‘Satyam’ in Sanskrit means ‘truth.’ Last week the company’s founder and chairman, B. Ramalinga Raju, resigned amid revelations of widespread accounting fraud in the company.

Mera Naam Raju
The resignation came in a five-page letter to the company’s board in which Mr Raju apologised to the shareholders, taking personal and sole responsibility for the fraud involving bogus accounting over several years, including inflating profits by more than tenfold between July and September of last year. As if making a concession the soft-spoken Raju with trademark paternal charisma, said he was prepared to face the law.

Raju was like a corporate deity in India, not only for having built a $2 billion IT empire bringing in foreign currency, but also for launching the Emergency Management and Research Institute, a national, not-for-profit 911-like emergency-response service funded by $50 million of his and his family’s money. Three months ago his company received the Golden Peacock award from a group of Indian directors for excellence in corporate governance.

PricewaterhouseCoopers
Juxtaposed against Satyam or Mr Raju’s personal accounting misdeeds, such benevolence raises doubts about human nature and the philanthropy with which we associate businesspersons. In his letter Mr Raju disclosed that Satyam had inflated its operating profit for the three months ended September 30, 2008 to 6.49 billion rupees ($136 million) from 610 million rupees reported previously, while revenue was inflated to $565 million from $443 million. It had reported an operating margin of 24 per cent which was actually 3 per cent. On the asset side, Satyam’s balance sheet as of September 30 had a non-existent cash balance of over $1 billion (remember Parmalat?); nonexistent accrued interest of $79 million; an understated liability of $258 million and an overstated debtor position of $103 million.

Several investors in Satyam were considering suing PricewaterhouseCoopers LLC, the company’s auditors, which like all the top auditing firms benefited from the fall of Enron’s auditors, Arthur Andersen. The investors say the auditors are supposed to check on the accounts and that they rely on the auditor’s report. In a careful meaningless statement PWC said that they had worked “in accordance with applicable auditing standards and were supported by appropriate audit evidence.” That statement really says nothing since it is no more than a repetition of the standard words used in any audit report.

Creative explanation
While the firm was right to explain that their obligations for client confidentiality precluded the possibility of commenting on the alleged irregularities, how do they expect the public to have any confidence in a profession where top auditing firms repeatedly fail to detect massive frauds year after year? Like Raju, Pricewaterhouse’s assurance that it “will fully meet its obligations to cooperate with the regulators and others,” seems neither a concession nor an option.

Raju’s explanation was a bit more interesting and philosophical, even if far too defensive. His letter which will go down as one of history’s most creative and longest resignations states in part that what had begun as a small gap between real and reported profits continued to grow over the years, like “riding a tiger, not knowing how to get off without being eaten.”

It is probably too early to assess the impact of the scandal described by PC Gupta, the federal minister for company affairs as a “shameful act” while Jagdish Malkani, country head at TAIB Capital Corp described it as “a monumental scandal [that] is terrible for the Indian IT industry.”

Some things, however, are fairly certain. There will be calls for more oversight and regulation of public companies, which happened in the aftermath of Enron and the other Dotcom failures. Indeed Mr Gupta has already said that government would take coordinated action with the Securities and Exchange Board of India. Meanwhile and more immediately, there are two major risks making India very uncomfortable – the likelihood that the Satyam is not unique in creative accounting and the same thing is happening in other public companies. That would scare away foreign investors. Equally serious is the potential disruption of services to the lucrative US outsourcing market. The timing could not be worse. As the Obama administration responds to the highest unemployment rate in the US for decades, tempted by protectionist instincts, outsourcing must be high on the agenda.

Satyam was already facing a World Bank ban for improper financial dealings with a top bank official. Along with the World Bank, Satyam’s clients include General Electric Co, General Motors Corp, Nissan Motor Co, Applied Materials Inc, Caterpillar Inc, Cisco Systems Inc. and Sony Corp. Will the other Indian IT firms be chosen to take up any slack or will these customers go elsewhere?

Conclusion
The almost co-incidental revelations of Madoff and Satyam have no doubt come about because a bear market drives the chickens home to roost while no one cares about corporate governance in a bull market. In Guyana here in the nether world – neither bull nor bear – we never seem to care. The scandals show that those who appear as good guys may be putting on a front. Madoff is described on his company’s website as having “a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm’s hallmark.” Raju was the personification of piety and generosity.

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Our World in 2009

Introduction
Certainly the most authoritative publication which predicts the grand occasions and developments of the following year is the widely circulated Economist, published in the UK. Even by its own admission many of its predictions for 2008 were way off target. That of course is true of all other publications that engage in this annual crystal ball-gazing. But then the Economist is no ordinary weekly – it is the weekly on economics and political issues of the day. Yet it got the US presidential elections wrong and like everyone else did not foresee the financial meltdown which started in the US and saw the nationalisation of nine banks across the US and Europe and the injection of more than a trillion US dollars. Incidentally, economists by a margin of 2 to 1 supported Barack Obama for the presidency of the US.

The US, therefore, is as good a place to start any prediction for 2009 when come January 20, Barack Obama will be sworn in as the first black President of the USA, the world’s only superpower. That is an occasion of historic proportions in a world that has for centuries been defined by colour and class. The world has changed dramatically since Obama began his campaign for the White House on the winning slogan, ‘Yes, We Can.’ The problem for him is how he can persuade the Americans that that statement comes with the unstated qualification, “but not now.” The truth is not even Superman could right the wrongs of US economy in one year.

America’s hope
Yet there are positives from an Obama presidency. He is one reason why the world will start looking at the US through changed lenses. The other is why they should. America accounts for some 20% of global GDP, ie one out of every five dollars spent. It is the willingness of the American consumer to spend – often money it does not have, on goods it does not produce – which has driven China and India, two of the most populous nations of the world to record growth lifting hundreds of millions out of poverty.

But then there are some contradictions. Some economists are troubled that a President Obama, committed to righting the US economy will adopt protectionist measures. He has signalled as much with the promise to give tax breaks to American firms that stay at home. He is also on record as describing NAFTA as “devastating” and “a big mistake,” although he later back-peddled and indicated he would not unilaterally reopen negotiations on NAFTA as he had earlier threatened to do. As increasing number of jobs are perceived to be lost to Mexico, Canada, India and China, the unanimous support which Obama has received from US labour may start to unravel. Already faced with the worst economy ever to have been inherited by an incoming US President, Obama will find that he has one of the shortest honeymoons on record with a zero margin for error.

Obama has also indicated that he would go full steam in a stimulus package designed to slow and then reverse the rate at which the economy is contracting. Estimates of the decline are anywhere between 3-5%, a catastrophic rate indeed, that would spell trouble for the rest of the world. If not the US, can the BRIC countries − Brazil, Russia, India and China − prevent the world economy nose-diving?

The elephant and the dragon
Not too long ago conventional wisdom was that the Chinese and Indian economies could do just that. But more recently, the pessimists have been in the ascendancy. The close of 2008 finds India sabre-rattling with its long-term rival Pakistan following the Mumbai bombing last month. Suddenly the Indian star is losing its brightness with the ever-present political uncertainties resurfacing. Elections predicted to be held in the first half of the year will almost certainly see the governing party paying a huge political price for its failure to respond quickly and decisively to the attack which India blames on Pakistan. The country that has had an average annual growth rate in the past five years in excess of 8% with the major share coming from services is almost certain to slow. The most direct impact will be on the poor, with tens of millions falling back into poverty.

This columnist for one has never been comfortable with an economic philosophy in which economic growth must necessarily be accompanied by a widening of the income and wealth gap. And that is what has been taking place in India. The World Bank reckons that in 2005 the number of persons living below the poverty line was 456 million compared with 420 million in 1981, although when measured as a percentage of the population there was a drop of some 18%. India’s infrastructure is poor, foreign investment is declining and the value of business on which the country’s hugely successful outsourcing information technology sector has been built has also declined.

China too will have its own problems. Its economy and rapid growth have been driven by exports which for seven years until November 2008 kept rising at rates so phenomenal that they astounded economists around the world. Then in November the Chinese reported the first year on year decline in exports of 2.6%. That is as bad for the economy as for the psyche which had started to entertain dreams of a Chinese century. But China’s fortunes in 2009 are bleak only by its own stratospheric standards.

The safest bet to weather an economic storm is to have lots and lots of money. China certainly does. It has re-invested upward of $1 trillion, mostly earnings from manufacturing exports, into American government bonds and government-backed mortgage debt. Its challenge is on choosing between further lending to finance American consumption of China goods or risk a further slowdown of exports on which it has built a modern economy that is the envy of the rest of the world. Its greatest challenge in 2009, however, is not the meltdown itself but how it responds to it. And there the signs for the Year of the Ox in the Chinese calendar are not good. Its instinctive response was a return to censorship.

Brazil and Russia
That takes a huge chunk out of the BRIC countries which some leading thinkers consider as having the potential to challenge the West as the most powerful economies, all within the next few decades. This may seem wishful thinking but those countries cover over twenty-five per cent of the world’s land and forty per cent of the world’s population. But Brazil too is experiencing its own challenges and its Congress recently approved on Thursday a cut of 10.3 billion reals ($4.38 billion) in the government’s 2009 budget to cope with an expected decline in tax revenues as a result of the global economic slowdown.

That leaves Russia. Judging by Putin’s swagger and the short uneven war with Georgia, one gets the impression that Russian power, pride and influence are rising. But with oil prices falling, Russia will have its own economic problems in 2009 with the usual mix of reduced foreign investments, rising imports and declining exports, restrictions on credit and inflation reducing real income.

Here at home
The end of 2008 of course was highlighted by the opening of the bridge across the Berbice River. It was a tremendous Christmas gift not only to Berbicians but to Guyana, and the government should be complimented on the achievement. But as the government looks at the prospects for 2009 it can do so only with at best guarded optimism. Forty years after Independence, Guyana is still mainly a commodity producing country which has only just graduated from being a country subject to the strictures of the IMF.

We are still without any real plan or direction. After more than two decades of allocating the nation’s forestry resources mainly to foreign investors, the country now wakes up to the possibility of carbon credits with President Jagdeo so convinced that he is prepared to make fundamental changes to the use of our forests, all without consultation.  The problem is that so much of our forests have already been allocated that any decision by the President on the use of the forests will require the agreement of the licensees. We could then be in a situation similar to that with GT&T where the government is unable to negotiate out of a lop-sided agreement following years of dithering.

The shelving of any plans for hydropower leaves the consumers at the mercy of the Guyana Power & Light Company which is easily the most inefficient operator of its kind in the region. Perhaps because GPL is state-owned and managed it has escaped the kind of criticism to which GuySuCo has been subjected, sometimes unfairly. It should not escape the attention of the decision-makers that none of the growth sectors of the economy rely on power by GPL for their operations. Until GPL can become an efficient producer and transmitter of electricity, the country’s economic progress will be retarded.

Over the past few years there has been a boom in commodity prices but the national budget has little to show for it. In fact in the midst of the boom, our national sugar company continues to rely on Government for support. National performance like growth in GDP is distorted by the role of international operators in bauxite, rice, gold and forestry. Excessive taxation is imposed on labour while investors enjoy all forms of concessions. There is an obsession with GDP while ignoring people issues like employment and poverty.

The country has so far taken the ostrich’s view of the economic crisis. It is time that we take our heads from the sand if we are to successfully negotiate with the challenges of 2009.