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The tangled web SSB, DFC, public finances and telecommunications

In a conference with the press on Thursday, September 9, the Prime Minister, Hon. Said Musa, admitted that the Government had gotten $36 million in short-term loans due within a year, knowing that it would have to borrow again?via the now withdrawn US$225 million bond?to be able to cover that additional debt.

Why did the Government of Belize borrow the $36 million in the first place? This was the question raised by Channel 7?s News Director, Jules Vasquez. To this, the Prime Minister responded:

?I believe they were taken in the context of a bond being floated, as you know obviously that didn?t pan out, but they were taken obviously for budgetary support, I don?t think there?s any other explanation?and also for debt servicing.?

In summary, what the Prime Minister was saying is that the Government of Belize took on short-term loans, partly to pay other debt; now, it has to secure new loans (or refinance) to cover the old ones.

?Is that indicative of a financial crisis, taking on $36 million US on a one-year term?? Vasquez probed again.

?It?s an interpretation, however, you want to put it,? the Prime Minister responded. ?Clearly, I am saying that clearly, we are going through a difficult financial period?there?s no secret about that?but I believe that it is manageable. I believe working together, Government and people, the social partners, we will work our way through that.?

So the Government of Belize hopes that its negotiations with both the RBTT and the IBOM will conclude by the end of October.

According to Standard and Poor?s, the public sector must find US$100 million in financing by the end of this year, December 31, 2004. Out of that, about US$60 million is to meet the current account deficit, while US$42 million is to pay for public sector principal repayments. Out of that, Central Government?s portion is US$33 million, while the Development Finance Corporation of Belize?s portion is US$9 million.

The bulk of principal repayments, according to the same source, is due in October and December. It reports GOB?s payment schedule as US$510,000 for September, US$2 million in October, US$60,000 in November and US$24.6 million in December.

A total of about US$23.3 mn is reportedly due to International Bank of Miami by the end of the year.

The last official reports on public sector debt placed the figure at about 92% of GDP, or about BZ$1.8 million, including publicly guaranteed debt. Foreign debt, or money owed to foreign banks like RBTT and IBOM, was last reported at BZ$1.3 billion. The debt associated with DFC?s securitization was reported at BZ$200.9 million.

According to the Government of Belize, the purpose of the now aborted US$225 million bond was largely for the refinancing of DFC?s debt and for meeting expenses under its capital budget. However, other reports indicate that portions of the bond were also intended to retire commercial debt that Government had gotten on a short-term basis, in the hopes that it could get new financing to make debt payments more manageable.

On August 30, Government announced that while the bond had to be aborted?purportedly because its agreement with the underwriter, Morgan Stanley and Co. Inc., had expired two weeks before?it intended to refinance with the banks it already owes.

When he met with the press on Thursday, September 9, the Prime Minister told us that it was while GOB discussed refinancing with RBTT that they began exploring the US$100 million bond with its investors. (See box.)

Since the Said Musa administration took office in 1998, the Government of Belize has floated two major bonds: one for US$100 million in 2003 and another for US$125 million in 2002.

Recently, a July report from Bear, Stearns, and Co. Inc., the underwriter for Belize?s bonds in 2002/2003, was negative for Belize and it questioned why, if Belize had taken out two prior bond issues totaling US$225 million in 2002 and 2003, it now needed a third bond issue for US$225 million.

Additionally, former Finance Minister, Hon. Ralph Fonseca had told us in a prior interview that the Government of Belize has securitized almost BZ$200 million worth of mortgages.

We came to learn recently that almost BZ$100 million of the mortgages came through the Belize Social Security Board. Out of that, nearly half (or $43 million) came from mortgages originating with the St. James National Building Society, controlled by former People?s United Party minister, Glenn D. Godfrey, who is now an attorney and businessman.

The public was alarmed to find out in late July that Godfrey had defaulted on his repayments towards funds his companies had received through the mortgage securitization process.

The securitized mortgages are ultimately backed by a sovereign guarantee by the Government of Belize. However, in the Godfrey case, the Social Security Board (SSB), as one of the guarantors, had to meet BZ$6 million in payments, which the SSB has since claimed Godfrey had repaid with 13% interest.

SSB?s CEO, Narda Garcia, had previously told the media that at the end of the day, the Government is the ultimate guarantor under the securitization procedure under which Godfrey got the BZ$41 million for his companies.

In his meeting with the press on September 9, the Prime Minister also addressed questions regarding the Godfrey loans.

Table

RBTT bond and refinancing negotiations

(Excerpted from interview with PM)

Adele: Prime Minister, in a statement that came from Cabinet recently, there was a promise that there would be full disclosure on public sector loans. Yet we were informed, even before the Government told us, that you were trying to secure a US$100 million bond through RBTT. Can you explain how it is that this could have happened?

Musa: I think there?s a bit of misunderstanding here, with due respect, Miss Adele. What we have said was that we were discontinuing the bond, for the primary reason that it had expired anyway, and we did not propose to renew it?the one with Morgan Stanley, the $225 million US bond and instead, in lieu thereof, we will pursue a process of refinancing with the various banks involved.

That is the process we are pursing with RBTT and with the International Bank of Miami. The RBTT bond sheet, if you like, speaks of a bond, but that?s a bond between the bank, the investment bank and its shareholders, if you like, or people who buy bonds from them. It?s not a bond, strictly speaking, that Belize is entering into a bond arrangement; we are strictly entering into a refinancing arrangement with the RBTT bank.

Adele: ?It?s not a straight loan, it?s a different procedure, where the bank would work along with its investors.

Musa: That?s right.

Adele: Can you explain to us how long this procedure would take, and how it is that the Government will ensure that it can meet its current budget deficit [of BZ$81 million].

Musa: We have been assured that that process should take no more than 60 days, so by the end of October, thereabouts, the RBTT and the International Bank of Miami, the refinancing process should be completed.

(If we were to backtrack 60 days from the end of October, it would mean that the Government of Belize actually began ?refinancing? talks with RBTT at the end of August?incidentally, at the same time when it announced that the Morgan Stanley-GOB bond agreement had expired.

End_Table

PM on Glenn Godfrey?s investments

Question: Janelle Chanona, Channel 5 News:

?Without the benefit of a full investigation, already it is clear that the Glenn Godfrey group of companies were able to access a substantial amount of public funds for various ventures; what is your Government? s response to the appearance of obvious favoritism towards Glenn Godfrey, a former minister in the PUP Government, especially in light of information received that Government, at one point, invested $4 million in the Galleria Maya project, another Glenn Godfrey project, only to get it back a few years later?I think which essentially amounted to an interest-free loan. What do you say to the Belizean people about that?

Answer: PM Musa: What I say in response to that is that my immediate priority at this time is to ensure that whatever funds were loaned or securitized or approved for any of the Godfrey companies, that those loans will be recovered. That Social Security will not lose any money in the process. This is what we are engaging at this time. As far as the Intelco side of things are concerned, you may well know that negotiations are ongoing to deal with that and we will do everything possible to ensure that coming out of that?assuming it?s successful, the buy-out by the ICC group or BTL, whatever?that Social Security?s exposure will be covered.

Chanona: ?in trying to work within the macroeconomic plan that we?ve been hearing about, SSB and other statutory bodies made sure that members of the PUP family got money when they needed it, whether it was a viable investment, whether it had the proper collateral, assets, et cetera; what is your response to that. Will there be investigation into that to make sure that that doesn?t happen again? Or even that it did happen, isn?t that enough?

Musa: It?s easy enough to comment, make editorial comments, about what appears to be the case; that this was some kind of favorite deal done for a former minister of the Government. The truth of the matter is, as far as I am concerned, that the Social Security Board was, if you like, impelled in this process because of trying to carry out Government?s macroeconomic policy. What do I mean by that? We were committed from day one?and I think the people of Belize voted for this?for a process of doing everything possible to bring down rates in telecommunications.

We saw, rightly or wrongly, that the way to go about that was to try and create competition in the industry. In hindsight now, you might say that we went about it the wrong way. Fair enough! But that was the sincere commitment to do whatever was possible to create this climate of competition to drive down rates in telecommunications.

In the process, yes, I?m prepared to accept that due prudence, due diligence may not have been practiced in every instance. But I don?t think you should draw from that a conclusion that it was done simply because he was a former minister of the Government or that whatever we have done, whether through Social Security or any other Government institution or agency, was simply to help PUP friends…

Adele Ramos, Amandala: Prime Minister, you told Ms. Chanona that your immediate priority is to ensure that the loans are recovered, but you didn?t say how you would go about ensuring that there aren?t any losses where these questionable transactions are concerned. Can you elaborate on that?

Musa: In certain cases, like I said, like for instance in the Intelco matter, we are giving it as a matter of priority that the Government needs to recover all that Social Security has exposed in that?the principal, it?s about $31 million, amortized payments that have to be made, it would be about $40, $41 million or thereabouts.

But in terms of whatever other loans are out there, whether it be through DFC exposure or what have you, like I said, we?re looking at that. We?re looking at the details to see what if any of those loans are non-performing and to take the necessary measures, whether to foreclose?

Oftentimes in these cases, certainly when dealing with mortgages, it?s a case of not following the process aggressively enough to recover, and we are pursing that process now.

Adele: Can you say what portion of Intelco?s loans and Glenn Godfrey?s loans overall are guaranteed by the Government of Belize?

Musa: I honestly don?t have those figures with me.

Adele: Is there currently an analysis taking place?

Musa: Yes

Adele: And how soon can we have those figures?

Musa: At the moment we have two teams looking at all these matters, including the general finances of the Government. We have a technical team of senior public officers and we also have a ministerial or finance committee of the Cabinet. We?re going over all these things at this time, but like I said, I believe that all these things will roll out, form part of the public hearings that will be held.

?Our Government continues to address the issue of the status of investments made by the Social Security Board as a matter of priority and urgency, and … we will continue to do so until it is satisfied that there has been satisfactory disclosure and explanations given to stakeholders,? the Prime Minister told the media.

On August 31, the Cabinet, headed by Prime Minister Said Musa, said that, ?The issue of a possible Senate inquiry into the Board?s loan portfolio was a matter to be decided by the Senate itself.?

There are some who argue that in fact the Said Musa administration controls the Senate, having chosen six of the twelve Senators, and having proposed the President of the Senate.

It was the social partners?the term that has been used to describe the informal coalition formed by the National Trade Union Congress of Belize, the Belize Business Bureau and the Belize Chamber of Commerce and Industry?that has been calling for a Senate hearing.

However, we were informed by the BCCI today, that when the partners met with the Prime Minister, prior to his meeting with the press, they presented their proposals for the scope of the investigations and corrective measure; however, they stayed away from specifying the vehicle, since there were those among them who, like the Opposition United Democratic Party, still felt that a Commission of Inquiry is the better way to go.

GOB agrees to Senate hearings

Nonetheless, when the Prime Minister emerged from his talks with the social partners on Thurs., he said that there would be a Senate hearing and listed the primary objectives as follows:

(1) to ensure the safety of the funds, of the SSB;

(2) to ensure maximum recoverability of the investments already made; and

(3) to review the processes and procedures used in making the investments and to make clear recommendations for improvements.

He pledged ?a full investigation and review of the Social Security fund, including investments and loans and most specifically, those falling under the Social Security board securitization investments and guarantee programs?this whole process must be transparent, open, public and thorough.?

Such investment and review will encompass:

a. the gathering of all documentation pertaining to the above investments, securitization, loans and guarantees;

b. interviews of any and all persons connected with the said BSSB programs and any other persons within the public service or other statutory bodies whose information may be material;

c. to determine where if any proper procedures and or regulations were not followed, or any process as determined by law was circumvented;

d. to determine person or persons that may responsible for such breach;

e. to recommend any corrective action necessary to the legislation, regulations or procedures to prevent recurrence; and

f. to recommend any action to be brought against person or persons, if applicable, for any misconduct or violation of the law.

?I indicated that at the next regular sitting of the House of Representatives, the Government will introduce amendments for the strengthening of the Social Security Act. The amendments will focus primarily on the composition, role and powers of the Investment Committee; strengthening disclosure and transparency in the activities of the board in the management and use of the fund. These amendments will be formulated in consultation with the social partners.?

The Prime Minister also put on record that ?there will be no increases in social security contributions during the remainder of this term of office.?

Musa also reiterated his Government?s commitment that ?the freeze of commercial loans from the SSB continues indefinitely, certainly until we know what are the guidelines and regulations agreed and approved and passed.

?Drafts of the new investment guidelines for the Social Security Fund will be available to the social partners by the end of this month, and we hope to have them in place by way of legislation no later than the 31stof October of this year,? he added.

At the next regular sitting of the House of Representatives, which would be sometime in October, the Government plans to table the 2003 audited financial statements of the Social Security Board.

?We?ll also present to the social partners the first quarterly review of the activities of the BSSB for the financial year 2004-2005, and that will be made available before the end of this month to the social partners,? the PM said.

PM accepts ?full ultimate responsibility?

?First of all, as the Minister of Finance, you are responsible for Social Security, so, am, actually, it was when I was Minister of Budget Management, I think it was during that period, but Social Security was under my portfolio, then I take full responsibility for what took place at Social Security.?

These were comments that Hon. Ralph Fonseca, Minister of Finance from March 2003 to August 2004, made to Love FM on August 25, 2004, in response to questions regarding the Social Security controversy.

About two weeks later, the Prime Minister, who has served as Finance Minister from August 1998 to March 2003, and August 2004 to present, had this to say:

?I accept full ultimate responsibility, whatever was done by Government or any of Government?s agencies?I don?t exactly remember the exact period when that process began??

Under the Social Security Act, Chapter 44 of the Laws of Belize, the minister responsible for Social Security often acts in consultation with the Minister of Finance, particularly where big financial decisions are concerns. Additionally, it is the Minister of Finance who, by law, appoints the chair of the Investment Committee (Section 49.2.1).

The record shows that during the period under which the mortgage securitization that included the Godfrey group took place in 2001/2002, it was the Prime Minister who was the Minister of Finance.

However, DFC?s CEO Troy Gabb, had commented to the media on August 16 that, ?We [the DFC and the SSB] could have never gone through this transaction without a resolution of the board; both the DFC board and the Social Security Board.?

Among those people who had served on the board during that period are: Senate President, Philip Zuniga, who served on the SSB?s Investment Committee; Senator Vincent Parks, who was a board member of SSB; SSB?s CEO, Narda Garcia and chairman, Yasin Shoman. Godfrey had served as DFC?s chairman when the securitization process was underway, and there has been much public skepticism over how it is that one well-positioned former politician could have access to so much foreign funds under a sovereign guarantee, and whether this has truly served the larger public good, or simply the private interests of a few.

Telecommunications as an example

The Prime Minister?s explanation was that the aim was to bring about competition to the telecommunications market through creating a company to compete against the Belize Telecommunications Limited. So, Government helped to finance Intelco?s birth through Glenn Godfrey.

The PM told us on Thursday that Government?s commitment to competition was sincere, because, along with competition would be cheaper phone rates, which, he said, the people wanted and voted for.

History will show, however, that Government has undoubtedly failed twice at securing lower rates.

First, even while BTL was still the only phone company serving the broader population, the company unilaterally ?rebalanced? rates. Government issued a stop order that BTL challenged in the courts. The Public Utilities Commission (PUC) also went before the Supreme Court, asking the court to, among other things, have BTL pay refunds to clients who had been overcharged.

The Chief Justice Abdulai Conteh told the PUC that it had the authority what it asked the court do. At the end of the day, the case was abandoned.

Secondly, late last year, the Government of Belize bought over BTL?s majority shareholder, Carlisle Holdings. It borrowed US$52 million from the International Bank of Miami, called a ?bridge loan,? to pay off Carlisle.

The reports from Government are that it was not until three months later that the Government sold those shares to a new investor, Jeffrey Prosser of Innovative Communication Corporation (ICC).

During the time that Government said it owned the majority BTL shares?we note that it was over 80% shareholding giving GOB almost supreme power to make whatever changes were necessary in the public good?Government failed to ensure interconnection between BTL and Intelco, even though it has said time and time again that this was necessary for the two companies to truly compete.

Today, the situation, as reports from both Godfrey and GOB indicate, is that ICC is concluding a buy-out of Intelco. So far, there are no official reports that the buy-out has concluded.

A third telecommunications company, SpeedNet, came on the scene after Intelco, but that company has yet to engage in the spectrum of services covered by its license. Intelco, to date, has not competed with BTL in the areas in which it is licensed. For instance, it never launched residential services?an area in which many Belizeans had greatly anticipated competition, to bring lower rates.

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