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Ralph Fonseca and his “growth economics” disciple, Glenn Godfrey, testify before DFC Commission of Inquiry

GeneralRalph Fonseca and his “growth economics” disciple, Glenn Godfrey, testify before DFC Commission of Inquiry
The last two public hearing sessions of the Commission of Inquiry into the Development Finance Corporation (DFC) have been filled with more drama, contentions and boldfaced challenges to the Government-appointed Commission than with meaningful information on the DFC for the period under investigation – 1999 to 2004. On Friday, March 9, and Tuesday, March 13, the time came for us to hear from former Minister responsible for Social Security, Hon. Ralph Fonseca, and former DFC chairman, Glenn D. Godfrey, respectively. These men had been perched at the very top of the DFC hierarchy—entrusted then with the greatest responsibility for that institution—so they have quite a lot to answer for.
 
For his part, Fonseca orchestrated the growth economics policies of this administration, and Godfrey was his committed disciple. Godfrey told the Commission on Tuesday that he believed in the whole growth economics program, and when he learned via radio that he was the new chairman of DFC in 1999, he was able to wade through his “mixed feelings” and finally accept that he was the man to deliver, and turn the DFC into a vehicle to achieve Fonseca’s plans.
 
Inarguably, both Fonseca and Godfrey should have been able to put substantive closure to many of the key issues of the DFC debates, but instead, their testimonies were punctuated with rude remarks directed at the Commission and those at home and abroad blamed for creating controversy over the DFC’s demise.
 
On several occasions, Commissioner Merlene Bailey-Martinez, one of two co-chairs for the Commission, had to pointedly reprimand both Fonseca and Godfrey, citing them for “disrespecting” the Commission. In fact, Godfrey went so far as to utter profanity at Commissioner Bailey-Martinez’s counsel, Lois Young, calling her an a$#hole, and then later remarking to the media that he did not care that the television crews had caught his vile utterance on camera.
 
Immediately upon hearing the offense, Commissioner Bailey-Martinez reprimanded Godfrey, telling him that those kinds of insults on her counsel would not be tolerated.
 
Just as Godfrey had promised when he appeared briefly before the Commission last Monday, Kaseke presented very strong objections to the Commission, even before Godfrey was sworn in to give his testimony. Even though the Commission told Mr. Kaseke he had 5 minutes to speak, he took the liberty of using 30 minutes, after protesting that the Commission was trying to put him in a strait jacket.
 
Taking hits even from far out left field, Kaseke touched every base in his statement, but he was stopped short of making a home run when he tried to step on forensic auditor, Mark Hulse, and his report. He complained in his statement before the Commission and at points during Godfrey’s six-hour long testimony that the Commission had not made proper disclosure of documents to his client. He and Godfrey went so far as to accuse the Commission of “ambushing” Godfrey with the documents they claim they had not seen beforehand. In one instance, the Commissioners noted that not only was Godfrey provided with a list of the areas to be covered in Tuesday’s hearing, but he was presented with the forensic audit, and the documents they claimed they did not get had been included in the forensic audit report as appendices.
 
When it came to the forensic auditor,Kaseke told the Commission that they are also challenging the appointment and the report Mr. Hulse had filed with the Commission. To this, the Commission replied that since the Commission had nothing to do with the appointment of the auditor, they should take up their complaint with the Government, which appointed the auditor, or with the Supreme Court. Commissioner Herbert Lord further responded that until and unless a court of law throws out the forensic audit, the Commission would use the document as it sees fit.
 
Another objection Kaseke made was that Godfrey was not allowed to cross-examine any of the witnesses, and Godfrey raised this point during his testimony when the Commission pointed to a difference in an account given by Godfrey and David Courtenay, former DFC vice chairman. With respect to the one-day disbursement of $30 million for Novelo Bus Line, Godfrey said that the transaction was approved via telephone because the Novelos urgently needed the funds, and the board later ratified it. When the Commission told Godfrey that David Courtenay had testified that he knew nothing of the one-day disbursement to Novelo, Godfrey responded that if the Commission were properly run, he would have been invited to hear Courtenay’s testimony and to cross-examine him. He accused Courtenay of having “a faulty memory.”
 
Kaseke went on to complain about biased remarks he alleges were made by former Commissioner, David Price, now deceased, including remarks where, according to Kaseke, Price accused Godfrey of “gross dereliction of his duties.” He accused the Commission of “egregious partiality, bias, and pre-judgment” and that the individual commissioners demonstrated “almost an insatiable proclivity for the desire to be on the public stage of media attention by giving what we call unlawful and illegal press interviews.”
 
Lord responded that Mr. Price couldn’t write from the grave and whatever personal comments he had made, died with him and will not form a part of the Commission’s final report.
 
Kaseke went on to object to attorney Young’s being counsel for Commissioner Bailey-Martinez only, and to her passing of notes to the Commissioner during the course of the proceedings and sitting at the Commission’s head table.
 
When the issue of the notes was raised during the course of Godfrey’s testimony, Commissioner Bailey-Martinez said that just as Kaseke is being allowed to represent Godfrey and whisper in his ear on occasions when giving him advice, she is entitled to communicating with her counsel through the passing of notes if that is the medium she wishes to use.
 
To put the icing on the cake, Kaseke mounted an objection to Commissioner Lord’s serving on the Commission of Inquiry, stating that, according to the terms of reference of the Commission, it is supposed to report to the Prime Minister and give advice. He argued that under the principles of separation of powers between the executive and the judiciary, Lord, as a Supreme Court judge, could not sit on a Commission that would advise the Prime Minister as a part of the executive.
 
To this the Commission responded that if the matter of the Commission were ever to be challenged in court and presented to Lord for hearing, that this matter would not be an issue because he would simply recuse himself from the case.
 
The Commission particularly questioned why the claim about Mr. Price’s alleged bias was not made before Tuesday.
 
All significant challenges to the Senate Special Select Committee (into the Social Security Board) came after that Committee had made its final report, but in the case of this DFC Commission, there have been a series of challenges starting with a submission made by David Novelo about a month ago, when he first challenged the work and the appointment of the forensic auditor, and then the legality of the Commission itself. While Novelo has gone to the Supreme Court with his allegations, Kaseke made no mention Tuesday that he and Godfrey were filing their complaints with the Supreme Court, though Godfrey threatened that the issues would be taken “to a higher tribunal.”
 
Fonseca’s testimony Friday was far less conflict-ridden than Godfrey’s. We note that the only thing that appeared to have peeved the minister was the passing of notes by attorney Young to Commissioner Bailey-Martinez.
 
The Commission questioned Fonseca about a number of important transactions, including the $50 million loan DFC had made with the Belize Bank to repay a debt to the Government of Belize, loans for board members of the DFC, and the Mahogany Heights and Los Lagos housing projects.
 
Fonseca told the Commission that for the entire five years in question, he was the Minister responsible for the DFC, and that the DFC was one of 60 responsibilities he had been given as a Minister of Government. He seemed very proud of his work with the DFC.
 
He testified that as the Minister, he set general policy directions for the corporation, but he was also required to review transactions that involved board members to decide whether he would give his stamp of approval or not. Fonseca said that even though some transactions took time for him to process, because of things that would have needed clarification, he eventually ratified them. The Minister insisted that he never approved anything by phone but always did so in writing. So when the Commission pointed to a statement made by former deputy chairman of the DFC, David Courtenay, in which he told the Commission that he knew of Fonseca’s making approvals via phone and not necessarily in writing, Fonseca responded that Courtenay “erred.”
 
On Friday, Fonseca also took a swing at the Commission when Commissioner Lord told him that they had not found any written approvals from him on the DFC documents and minutes of board meetings provided to them by the DFC.
 
“I am almost shocked and horrified to hear, Mr. Commissioner, that you did not find these things after the people of Belize have spent some one million dollars on this Commission—if not more,” Fonseca said, and when Commissioner Bailey-Martinez reprimanded him for implying that the Commission was at fault that the approvals were not provided to the Commission, Fonseca apologetically claimed that that was not his intention.
 
The Commission also asked Fonseca about specific transactions: Commissioner Merlene Bailey-Martinez questioned him about the company, Resource Investment Limited, a company in which Fonseca once had interest in and which had sold the Los Lagos land, later taken on by the DFC. She asked Fonseca whether he benefited financially from the purchase of lands in Los Lagos, to which he replied, “No.” Fonseca was visibly upset when Commissioner Bailey-Martinez said that up to the time of the investigation (2004), his “family” owned the company. Fonseca rebutted that he was “pretty sure” that was not the case, none of his relatives owned the company but one probably has shares in it, he argued.
 
Both Fonseca and Godfrey claimed that DFC suffered absolutely no losses over the years. Fonseca testified that Government had always intended to compensate the DFC for whatever additional burdens it placed on the corporation. One example he cited was the $50 million Belize Bank loan, which he said Government covered by reimbursing the DFC all the interest expense it had incurred on the transaction.
 
In discussing the Mahogany Heights issue, Fonseca told the Commission that Government never intended to give DFC an asset that would cause it to lose money. Any monies that DFC lost, the Government of Belize was obliged to make up because GOB would have had to pay for it in any case, Fonseca said, adding that for three years (2000, 2001 and 2002), millions of dollars were allocated in Government’s budget for Mahogany Heights.
 
In winding down on Friday, Commissioner Merlene Bailey-Martinez asked Minister Fonseca why the DFC is where it is today – being liquidated and with activities so scaled down that it has been redesigned to only manage the securitization portfolio.
 
“The short answer, in my understanding, is that DFC fell victim to a well orchestrated political agenda that was oiled by a determined, determined ideology of the international financial institutions,” Fonseca charged.
 
To elaborate, he made it clear that the IFI of which he was speaking is the International Monetary Fund – the IMF.
 
“We didn’t need the IMF, is what I am saying, to tell us that we were walking a tight rope. We knew we were walking a tight rope. When you get into government and you have minus $17 million dollars in the treasury, what else are you going to do?” Fonseca expressed.
 
Commissioner Bailey-Martinez insisted that the Commission has to look at the DFC in terms of what it could have done to prevent “an absolute disaster,” and whether the investments it made were done on their economic and financial merits, as required under the DFC Act.
 
In defending what had transpired with the DFC, Fonseca told the Commission that the Government had a mandate to build 10,000 houses – which was one of the manifesto promises of the ruling People’s United Party. He said the 10,000 houses were what the people wanted, and the Government used the DFC in trying to deliver on that expectation.
 
This is where Glenn Godfrey, former PUP Attorney General and Tourism Minister, claimed he found his niche. He told the Commission that he was the chairman of the DFC from January 1999 to October 2002. He said that the reason why he took up the position is because he felt someone should go to the DFC and implement the “growth economics” policies by building houses, for which, he said, there was “a dire need in Belize City, and the country as a whole—especially San Pedro.”
 
Godfrey also gave the impression that there was much ado about nothing in all the talk about the DFC, because the DFC did not collapse.
 
The Commission has previously noted that the DFC, which was one of the main banks for student loans for people in the low and middle-income bracket, had not issued a student loan in two years, and its functions have been substantially curtailed to dealing just with certain securitization transactions. But Godfrey did not seem to identify with this reality.
 
“Even today, the loan portfolio of the DFC remains liquid and profitable,” he told the Commission.
 
He went on to say, however, that what had hurt DFC was that Government did not live up to the promises it made when the DFC took over certain Government projects. He cited two specific loans on which he said certain expectations and Government promises were not met – Novelo’s $30 million and Universal Health Services $12 million.
Godfrey said that at the time that he agreed to the one-shot disbursement of the $30 million to the Novelos, it was because David Novelo had been calling him over a period of days saying that he needed the money to meet the deadline for final payments on certain equipment they had received, or else substantial deposits would have been lost. He said that at the time, the DFC had $60 million in securities from the Novelos – but Godfrey gave no indication in his statement whether DFC had first rights to those securities or whether another bank held first rights to some or all of those assets.
 
He said that DFC had ruled the loan viable because Government had promised the Novelos an exclusive franchise for the entire country, but under public pressure Government “backed off” on the agreement with the Novelos and began issuing licenses to other bus lines.
 
Another case he cited was Universal Health Services (UHS). He said that the project document for UHS assumed that the National Health Insurance (NHI) program would have come on stream to ensure the project’s viability. Godfrey said that the DFC had turned back the project between four to six times.
 
When Commissioner Bailey-Martinez asked Godfrey if he knows where the loan stands right now, he said, “I have no idea,” but in another breath he said that things were “very much outside [Novelo’s] control and outside of the possible foresight of the board at that time.”
 
He also sympathized with Dr. Victor Lizarraga, UHS majority shareholder, and said he was “a victim of unfortunate circumstances.”
 
The Commission probed Godfrey on transactions that involved his group of companies, and in particular, St. James National Building Society, Western Caribbean Properties, Alliance Bank, and Glenn D. Godfrey and Co. LLP.
 
Godfrey claimed that despite what the documents might claim, his law firm did not benefit from the Novelo transaction. He said that he was on “leave of absence” for the entire duration of the transaction, and it was his partner, attorney Christopher Coye, who “assisted” DFC’s attorney, Norman Neal, and who had collected all the proceeds in the form of commission at a rate of 2% of the loan value, minus a discount.
 
Commissioner Lord responded that that was, therefore, a huge commission at $1.7 million, according to a document the Commission referenced – that document was a letterhead out of Godfrey’s law firm and written to DFC, providing a breakdown of the costs.
 
Minister Fonseca had told the Commission that he knew nothing of the involvement of the Godfrey law firm in the Novelo transaction, and he never approved it.
 
Godfrey told the Commission that “there was nothing unlawful, illegal, improper, or unethical” about the one-day disbursement of the Novelo loan, and if they had not released the funds, the Novelos would have suffered major losses, and it would have made it hard for them to collect on the loan.
 
What the Commission has previously documented is that Novelo did not repay the DFC, and despite non-payments on the loan, DFC issued new loans to help Novelo service the debt, which had been bundled in the securitization pool and was too big for the DFC to easily find enough mortgages to replace it in the pool.
 
The next turn in that story is that Novelo was later put into receivership, and despite Godfrey’s claims that DFC had $60 million held in securities for the loan, there is still an outstanding balance of over $20 million, according to the forensic auditor, Mark Hulse, even after DFC had liquidated the collateral for the loan.
 
With respect to securitization transactions involving St. James, Godfrey claimed “attorney-client privileges” as the basis for which he could not discuss St. James in detail. Glenn Godfrey continues to wear many hats, and with respect to St. James, he claims to be both shareholder and attorney. At the Commission today, however, he was wearing the attorney’s hat and not the shareholder’s hat. While the DFC was dealing with the St. James transactions, he took off the DFC chairman’s hat and wore his St. James hat. He told the Commission that he recused himself from any DFC decisions on St. James.
 
He also argued today that because the Commission did not advise him in advance that they would be asking about St. James, he did not get clearance to speak, but Commissioner Lord disputed his claim, saying that the Commission did inform him well ahead of time, through his attorney, Kaseke, of a list of areas that would be addressed, and the St. James issue was included.
 
Godfrey was also questioned about a “discharge of charge” letter, which purportedly should have been delivered to the Social Security Board, to release Social Security from any financial responsibility having to do with the group of Glenn Godfrey companies whose mortgages were securitized. When the Commission informed Godfrey that they were in possession of an original letter, with him named as issuer, that had been signed, Godfrey declared that even though there might be a signature there, he did not put it there. He said that he had made that clear during the Social Security hearings, which preceded this Commission of Inquiry.
 
Of course, Godfrey’s oblique claim of forgery begs the question: Why has he not sought a police investigation if someone had the audacity to forge his signature on an official document for a multi-million-dollar transaction?
 
When Commissioner Bailey-Martinez ventured to comment on the letter, Godfrey made another upstart outburst, telling her, “Keep your comments to yourself.”
 
Tuesday marked the last scheduled public hearing for the Commission of Inquiry, but the Commission said that it reserves the right to recall Godfrey, and it may to do so in the context of a future public hearing if it sees it fit.
 
Godfrey said that he was willing to reappear and be of help to the Commission – even though his attorney started out by firmly challenging the legality of the very Commission, and used a similar challenge mounted against the forensic audit as the reason for their refusal to even entertain the Commission’s questions on the findings of the audit.
 
After receiving all testimonies and documents, the next step for the Commission is to prepare the final report. The Commission has promised to keep the media and the public updated on its progress.
 
The Commission of Inquiry into the DFC came out of an agreement Government signed with the National Trade Union Congress of Belize (NTUCB) on February 11, 2005, after a spate of protests on allegations of mismanagement of public funds amid burgeoning national debt.
 
The Prime Minister, Hon. Said Musa, is legally empowered to appoint the Commission—which he did in March 2005—and the Commission makes its final submissions to the Prime Minister with its recommendations for action.
 
As defined in a Government statement issued two years ago, on March 9, 2005, the Commission’s broad mandate is:
 
(a) to investigate the DFC s loans portfolio for the period 1st January 1999 to 31st December 2004, including the procedure for the processing and approval of applications as well as the disbursement and performance of the said loans;
 
(b) to evaluate the effectiveness of any mechanisms at the DFC for the monitoring of loan repayments and the recovery of delinquent loans;
 
(c) to investigate the DFC’s securitization program and the DFC s role in similar and related securitization programs;
 
(d) to determine whether any wrongdoing occurred in the operations of the DFC during the said period and if so, to identify the persons responsible, if possible;
 
(e) to investigate the financial position of the DFC during the said period;
 
(f) to provide oversight and support for the projected Forensic Accounting Investigation (FAI) of the DFC;
 
(g) to review the report of the Forensic Accounting Investigation, when complete, and make appropriate recommendations arising there from;
 
(h) to review the DFC Act with a view to making recommendations for its strengthening through legislative amendments or otherwise;
 
(i)   to bear and inquire into any other matter relating to the above.
 

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