New D.F.C. chairman faces tough task
The Development Finance Corporation: it’s an institution that is at the centre of all that is allegedly wrong with government’s management of the nation’s money. A half decade of over-borrowing, loose lending, and poor oversight have turned the once proud D.F.C. into an economic basket case… with more than one international expert recommending that it should be put out of its misery once and for all. Now, with those responsible for the debacle disappearing like cockroaches under a spotlight, a new board of directors has been appointed. Its chairman and the man in charge of day to day operations is Arsenio Burgos. News Five’s Stewart Krohn sat down with him on Wednesday at the Corporation’s Belmopan headquarters. Burgos, who was D.F.C. chairman from 1998 to 2003, explained how things had changed.
Arsenio Burgos, Chairman, D.F.C.
?In 1990 when I first came here to again restructure at that time a D.F.C. that was in trouble, it was hoping to be a fifty million dollar organisation. One of the shocks that I saw when I looked at the financial statements was that D.F.C. had grown ten times. It?s over five hundred million dollar organisation. And that perhaps is part of the dilemma in that it was growing to I think into the 199?say 2000, it was growing at a steady pace, it was a hundred million dollar organisation. And between the year 2000 and now it grew rapidly, to some extent beyond the capacity of the organization to cope with it.?
?D.F.C. was used as a vehicle to spur the economy into that growth, and that perhaps whenever the government starts to spur things people believe the money is freer. And then of course there is the urgency, let?s get the loans out, let?s grow this economy. And what happens then is that sometimes you do forget the good practices of lending.?
Stewart Krohn
?So, what you?re saying is that D.F.C.?s own guidelines were no longer followed??
Arsenio Burgos
?I think you will find that that probably is what happened. Loans in a hurry sometimes, that?s what happens, the due diligence does not happen as it should and little slips occur.?
Stewart Krohn
?What was the rush??
Arsenio Burgos
?Development. If you recall, that was the promise, we are going to grow this economy. That as the rush and the rush was set by the owners of the corporation.?
Those “owners” of course, are the Government of Belize, and it appears that for all practical purposes, their policies have left the D.F.C. bankrupt. We asked the new chairman how he plans to deal with the reality of a bank with no money and a pile of bad loans.
Arsenio Burgos
?I don?t think I would be here if I were to share with the idea that the D.F.C. is bankrupt. I think the D.F.C. needs to be restructured, and I think there is a possibility of doing that. Perhaps optimistically I am saying that, but from the assessment that I have done, if we can engage the larger lender to D.F.C. and get some concessions on it, I think we can?and with time I think that we can turn the D.F.C., much smaller organisation, but turn it that it can still be helpful in the development of this country.?
Stewart Krohn
?There are some terms being used like restructure and liquidate. What is the difference between restructuring D.F.C. and liquidating D.F.C.?s portfolio??
Arsenio Burgos
?There seems to be certain parties that want liquidation of D.F.C. and there seems to be certain parties that says there can be a restructuring. Actually, a combination of both need to be done. There are tremendous assets in–and I mean tremendous not in value but in number–at the D.F.C. that people are saying we need to liquidate those assets that are not what they call it, non-core to the D.F.C. lending window. For example, the Libertad factory is one of those items that is in the assets of the D.F.C. Those are non-core. So they?re talking–to some extent we?re talking of liquidating non-core and then trying to preserve the core asset, which is the loans that the D.F.C. has; see if we can salvage that. And if we can do that, if we can take away the non-core and the loans attached to those, then we might have chance at restructuring.?
Stewart Krohn
?Looking at the loan portfolio of D.F.C., what stands out is the number of huge multimillion dollar loans, like the Novelo?s loan, the Universal Health Services loan, huge non-performing loans that really weigh down the portfolio. What do you do about these huge stones around your neck??
Arsenio Burgos
?I think what you try and do is work with them, try and see how best you can recover what best you can recover.?
?You know in the States and other countries, even non-performing loans, if you recall, have a market. You can sell them twenty, thirty cents on the dollar, and when you?re liquidating sometimes that?s what you have to do. Some of these big loans are with lawyers. We?re going to attempt to collect as much as we can and restructuring and collecting. That much I do know, that they?re trying to be collected.?
Stewart Krohn
?There is a feeling out there in the pubic that a lot of these large loans, and in fact many small loans as well, were granted on the basis of political affiliation of the borrower. You come in with a new and professionally oriented ward, what is your attitude towards this type of accusation??
Arsenio Burgos
?I don?t think it?s new. I believe if you go back to look at any party that has ever been in power those accusations will always be made, that you got your loan because of your political clout, or your economic clout, or your closeness with that particular party. I think the D.F.C. has always, and I think it will continuously be used that way. It is a vehicle and sometimes it is misused. The only thing I would ask, if I may, is if you got your loan through the good offices of a champion–and you know what I mean by a champion, championing your cause. I would suggest, I would request, do him honour. He had faith in you, should him that his faith was not misplaced.?
Stewart Krohn
?Seni, you have a two-year contract. A man who takes a two-year contract doesn?t look like the kind of guy who?s going to preside over a quick sell-off of the corporation and liquidate it. Assuming that you?re in this for the long run, what is your strategy for getting D.F.C. back on its feet??
Arsenio Burgos
?To maximize recovery requires time, because what we need to do is to strengthen the portfolio that we have. All the non-performing, we need to make them as?we need to go collect them, we need to go make them performing as best as we can. So eventually if we do have to sell these assets, they will be performing loans and I can maximize what I can get for them. So liquidating in trying to maximize basically means you need to take the non-core off, which is what we have to do and strengthen the core assets of the organisation so that it is performing and we can then bargain from a position of strength rather than one of weakness, where if I go to sell now everybody says, fifty percent or thirty percent of your portfolio is non-performing and discounted. I think if I went and I said, ninety percent of my portfolio is performing I have a better bargaining position.?
Stewart Krohn
?There are a lot of people out there today that owe money to the D.F.C., a large percentage of those loans are not performing, big and small. What is your message to those people whose loans are not quite in order with the D.F.C., what do you have to say to them??
Arsenio Burgos
?My message is to remind you that the assets of this corporation, which we keep talking about liquidating, the assets of that corporation is the loans that you have here. And the best way for you to be able to negotiate with perhaps the future owner of your mortgage is for you to have kept your loans current, for you to have maintained your credit worthiness; that is the best thing that you will have I your favour. I think if your loan is in delinquency and we sell it to them, the way the loans are structured, the loans are on variable rates and can be increased by the new owner, if there is such a new thing, by merely giving the borrower sixty to ninety days notice and saying we will now renegotiate your loan. And they give you that option, and they say but at a new rate. So my plea is please keep your loans current, please keep your credit worthiness as high as you can. If we have to sell your loans, which are the assets of this corporation, you will be in a better position with a high credit worthiness.?
Burgos is joined on the board by Kay Menzies, Maurice Underwood, and Dr. Cardo Martinez. G.O.B. board members serving in an ex officio capacity are Financial Secretary Dr. Carla Barnett, and CEOs Dr. Mike Tewes and Hugh O’Brien.
