D.F.C. hearings: some borrowers more equal than others

After approximately thirteen hours of testimony given thus far to the Commission of Inquiry into the Development Finance Corporation, it is growing increasingly clear that not all of D.F.C.’s borrowers were created equal. The questions of whether that special treatment was given only to a select few and, if so, why, will no doubt occupy much of the Commission’s future work. News Five’s Janelle Chanona reports on the latest session.

Janelle Chanona, Reporting
Day three of the D.F.C. Commission of Inquiry delved deeper into the handling of ?sensitive? loans, with all three witnesses detailing apparent conflict of interest, special privileges and blatant irregularities.

Emerson Burke, D.F.C.?s Chief Appraisal Officer told the commissioners that in September 2003, he raised concerns to management in a Collateral Review report.

Emerson Burke, Chief Appraisal Officer, D.F.C.
?It must be emphasized that it was clearly observed that excessively high values were placed on some properties being used as collateral prior to the approval consideration. One particular case that stands out is that of the Belize Resorts and Development Company Limited with relatively inaccessible swamp land being valued at seven thousand five hundred per acre. On the other hand some securities grossly undervalued just prior to being publicly auctioned. These practices impair the D.F.C.?s loan to collateral ratio and call into question the integrity of the devaluation process.?

David Price, Chair, Commission of Inquiry
?So the fact that the majority of loans were not performing indicates that perhaps this process was open to abuse.?

Emerson Burke
?Most certainly. There was a concept that we got to appreciate under guidance of C.D.B. And basically that concept was that you do not–a loan does not become bad; you give a bad loan from day one. Of course there are a few exceptions, but that would be exception rather than the rule. It starts out basically with the analysis, perhaps the assumptions made in that project. Basically the underlying assumptions provided to you by that company or individual may have been fraud. And I could tell you that there had been instances where the assumptions used in project analysis and project appraisal did not hold true.?

Merlene Bailey Martinez, Member, Commission of Inquiry
?Was there a directive to relax the requirements to facilitate processing of these loans? Was that ever discussed??

Emerson Burke
?I think there was a general feeling with fairness to our appraisers, credit officers, we had and we were told that we have x amount of million dollars sitting in Central Bank. It will not create anything there. We need to implement, so there was this drive to facilitate processing of loans.?

And as legal officer Ann Wiltshire disclosed, in the case of just one borrower, Arnaldo ?Papi? Pena, there were as many fourteen highly questionable loans.

Ann Wiltshire, Legal Officer, D.F.C.
?There?s a letter dated March thirtieth, 2004.?

David Price
?The first one was dated when??

Ann Wiltshire
?The first one was dated twenty-seventh May 2004. This one is thirtieth March 2004, and this one is to Mr. Arnaldo Pena also for a loan of ten thousand five hundred thirty-two dollars and twenty cents to assist with working capital needs of your company Belize Resorts and Development Company Limited.?

David Price
?That is also accompanied by a promissory note that you drafted??

Ann Wiltshire
?Yes sir. The other letter is dated January twenty-eighth 2004, also addressed to Arnaldo Pena, and this was for ten thousand five hundred thirty-one dollars and eighty-two cents to assist with working capital needs of Belize Resorts and Development Company Limiter. The other letter is dated February twenty-sixth 2004, and it is for additional loan of ten thousand five hundred seventy-two dollars and fifty cents also to assist with working capital needs of Belize Resorts and Development Company Limited. The last one is dated December thirtieth 2003, addressed to Mr. Arnaldo Pena also and this one of an additional loan of ten thousand three hundred and eighty-seven dollars, and the purpose was also for working capital needs for Belize Resorts and Development Company Limited.?

Merlene Bailey Martinez
?What date was that??

Ann Wiltshire
?This one was thirtieth December 2003.?

David Price
?I think there were five or six that you read of just now??

Ann Wiltshire
?There were five letters.

David Price
?So that would amount to something in vicinity of fifty plus thousand dollars in additional loans??

Ann Wiltshire
?Yes sir.?

David Price
?Was there anything beyond the promissory note that secured that additional fifty??

Ann Wiltshire
?No sir. They were individually secured by promissory notes as I can recall.?

Merlene Bailey Martinez
?What was first date you gave us? Could you give me that again, the first one??

Ann Wiltshire
?The first letter was dated May twenty-seventh 2004.?

Merlene Bailey Martinez
?Ok the twenty-seventh of May 2004, and the amount was??

Ann Wiltshire
?Ten thousand five hundred thirty-five dollars and thirty-four cents.?

Merlene Bailey Martinez
?I have here a loan repayment on the thirty-first of May 2004, under Belize Resorts and Development Company Limited for lo and behold ten thousand five hundred thirty-five dollars and thirty- four cents, so Mr. Pena borrowed that for working capital needs according to what that document says. And it shows up ? three days later or a similar amount shows up three days later as a loan repayment under Belize Resorts and Development Company Limited. Similarly the thirtieth of June, ten thousand five hundred thirty-five dollars and forty-five cents a loan repayment ? on the thirtieth of July, a loan repayment of ten thousand five hundred thirty-five dollars and there seems to be a coloration and sometimes it is one day later between promissory note being executed and that loan being perfected and the payments towards the balance owed to D.F.C.?

Today the commission also exposed that when it came to interest rates, the numbers just don?t add up.

Orlando Magana, Debt Management Clerk
?G.O.B. refinancing, nine and a half percent, G.O.B. loan number two, ten percent, IBoM–G.O.B. fifteen point six million, ten percent, D.F.C. debt restructuring, nine point seven-five percent, and Government of Belize four point one-one percent.?

Merlene Bailey Martinez
?I?m looking at Belize Water Service, there?s a rate of eight percent. I am looking at Derrick Alexander Boyd for some reason it says a rate of zero percent. I am not sure if that is correct I am just looking at the print out from your ledger card. In terms of comparison with that, won?t that create a problem? I have here for instance Mr. Glenn D. Godfrey the source of funds is R.M.B. two, and it says interest rate eight percent. So that is also what you would put in??

Orlando Magana
?Whatever we get from projects.?

Merlene Bailey Martinez
?So we could just follow up with accounting department in terms of that analysis??

Orlando Magana
?Which one of the analysis??

Merlene Bailey Martinez
?The comparing rates coming in, as oppose to the rate of interest going out.?

Orlando Magana
?The accounts department does not prepare a report. It would be the manager, the M.I.S. manager.?

David Price
?On the face of it, it appears that in those cases, D.F.C. was obtaining funds at a higher rate of interest than it was lending at. We will raise that issue with the M.I.S. manager.?

And then there is the issue of conflict of interest.

David Price
?Were the services of Glenn D. Godfrey ever utilized by the D.F.C. at the time he served as chairman of Board of Directors??

Ann Wiltshire
?The services of the law firm were retained at that time, but it was actually Mr. Christopher Coye who did the work.?

David Price
?But it was the law firm of Glen D. Godfrey and Company??

Ann Wiltshire
?Yes sir.?

David Price
?I believe it was that law firm, and correct me if I am wrong, that dealt with most of the Novelo?s legal documents. Is that correct??

Ann Wiltshire
?Yes sir that is correct.?

For the first time today the role of the D.F.C.?s former General Manager Troy Gabb was discussed. Wiltshire testified that Gabb waived administration fees in select instances.

Merlene Bailey Martinez
?So there is no policy to charge, is that what you are saying??

Ann Wiltshire
?There is a policy to charge. It is passed by the Board of Directors.?

Merlene Bailey Martinez
?So the decision not to charge, you are saying is left to the discretion of the general manager, but who gives the general manager that authority or that discretion? That is what I am having a little bit of a problem to understand. I would like that if you have an answer for that to clarify it.?

Ann Wiltshire
?I could research to see it there is any memorandum or anything, which gives that power.?

Janelle Chanona
?Previous testimony has already revealed that there were more than two thousand non-performing loans in the D.F.C. portfolio, but as the inquiry proceeds, it is clear that the commissioners are focussing on a very select group. Namely the Glenn Godfrey companies, the Novelo family, Arnaldo Papi Pena, James Janmohammed and Derrick ?Rick the Ruler? Boyd. The public hearings are scheduled to resume on Thursday. Reporting for News Five, I am Janelle Chanona.?

News Five has been unable to determine if the People’s United Party has made good on its threat to bring legal action to dissolve the Commission, which Prime Minister Said Musa has characterised as “biased”. For his part, Chairman David Price seems unfazed by the ruling party’s campaign to oust him.