Collateral for St. James loans was laughable
Much of today’s proceedings in the National Assembly focussed on procedural irregularities regarding the management of the investment portfolio of the Social Security Board but today Senator Hulse also highlighted that while the idea of securitization is sound, the way the Belize programme was administered continues to cripple the nation’s finances.
Senator Godwin Hulse
?Securitization was a very effective and useful tool. Because Mr. President the idea was to bring in much needed United States dollars into the country. Currency fortunately or unfortunately which we must use to buy everything we need to stimulate our development. And therefore, an opportunity to be able to sell legitimate mortgage loans, and get U.S. dollars that you could bring into the country to turn over again into new loans and into new businesses. Particularly, export oriented businesses or even import substitution businesses that would generate new capital was the way to go. And definitely stop inviting foreign investors, who would simply put their money in the country with all sorts of conditions. So when those monies came into the country the idea was that the Social Security and the D.F.C. as the two lead institutions were suppose to manage those funds. Our investigations have shown that the loans that S.S.B., and we use the term purported, bought from St. James was in Belize dollars. And even though they did not pay at the same time, which they should have done to my mind, when they subsequently received the funds from the Royal Merchant Bank and the North American was put in the Central Bank; they should have paid St. James in Belize dollars because that was the contract. It is in the report. Then St. James should have gone to the Central Bank and applied for its U.S. dollars giving the reasons why it needed U.S. dollars. Instead the Social Security instructed the Central Bank to pay St. James account overseas and Central Bank complied. So the whole the purpose of bringing U.S. dollars into the country is zipped in and zipped right out and we have no idea if those projects ever got on the way. Central Bank to our minds also fell down on their responsibility. But we go farther Mr. President, because here is the crux of the matter, Senator Bradley says the collateral was insufficient and it was an easy task to drive up the road because we did. In fact, when we went there it was not so bad but quite frankly when we went to the cayes for the first time in my life I caught a fit of laughter that I could not contain. My stomach was vibrating and it was not funny. Because I went out there to see all these great developments and I saw some Johnny Fiddler running on a bare piece of land. It blew me away, but when we returned at about eleven when we were suppose to return at three, I just had to catch a plane. Johnny Fiddler and some little grabs, they originally blue but they have some little red legs.?
?In any case Mr. President the issue here was and I want my fellow Senators to understand this point absolutely clearly, when St. James sold a mortgage loan for seven point seven million dollars the Social Security in turn guaranteed it because it was the flows that they were selling. They guaranteed the Royal Merchant Bank not the payment of seven point seven plus interest that was not how it was done. The Royal Merchant Bank looked at the entire flow coming in from that loan and said that piece of action I want, and you will pay me this amount period. And I will give your seven million dollars less cost and other deductions, but I will get back not seven million dollars but twelve to thirteen million dollars. And so in tranche c when the Social Security Board sold nineteen million two hundred and eighty seven thousand dollars worth of loans on behalf of St. James they guaranteed to pay the Royal Merchant Bank twenty-eight million two hundred and eighty-eight thousand dollars, and therein lies the major problem. They guaranteed to pay it whether they collected from St. James or not. So it was not a matter of security to cover nineteen million it was a matter of security to cover twenty-eight million, that is the issue.?
?Because the Social Security programme was never intended to flow the money through a third party but to buy mortgages from St. James or anybody and sell them. Herein lies the second point, if St. James paid off early, as Senator Bradley and the reports are suggesting was done when government sold the nineteen point five million worth of assets it would not have mattered to the Social Security because you can not penalize someone for paying their loans early. But the Social Security would have gotten back its money, lent it out again and go again, while it continued to pay the Royal Merchant Bank. That is the way the programme works and let us be crystal clear that that is the way the programme works. Because it is the institution of the Social Security and the D.F.C. who were selling the mortgages and getting the money to recover what they had already invested, not on behalf of somebody else. So when these figures are coming through from the Ministry of Finance and Mr. Ghandi in particular where he is attempting to calculate principal and interest due he misses the point. That when paid the Royal Merchant Bank in October of 2004, fifty-four million dollars the Government of Belize had to pay a penalty of almost ten million U.S. dollars. And that penalty was for early payment because the people wanted their total money, not part of it. They didn?t want you to pay them off early; they wanted their total money. And so that money is owned whether you like it or not it doesn?t matter. Now the ten million dollars, let me be clear is across the entire transaction so it has to be prorated and that figure has not been worked out. In the case of North American, that the government has not paid off even though the sums received by St. James was seventeen million the amount due to be paid back to the North American is twenty-eight million plus dollars, and that government is paying continuously as we speak. That twenty-eight million dollars so far from our calculations St. James had repaid eight million, leaving outstanding twenty million.?
?When I saw a company whose majority shareholder would benefit, and I saw the majority shareholder was the very same person of the director of the seller, I really thought they were related. But I have found Mr. President that in fact just the utterance and the logic I applied made me legally wrong. But I thought that the spirit of the document in all its impeccableness was intended to preserve that level of integrity and without causing any aspersions on the honourable chairman of the D.F.C. at the time. I felt inside of me that because he was associated with these companies, who were mortgagers and he knew the process all the way along the line, and I also thought because even though he suggested, he is right, and I am hesitant to say that he is right, he had no responsibility to advise anybody along the way it is my good, solid, straight-forward common sense Belizean in me that says some things just no right and I wouldn?t do them. That is why I would say to everybody look man see them thing I associated with you know, but legally we were wrong.?
Our attempts to garner comment from Social Security Board’s general manager, Narda Garcia were unsuccessful as her secretary informed us that she was “unavailable”. The one hundred twenty-four page Senate report will now be handed over to Prime Minister Said Musa who will decide on the next course of action. As for accessing copies of the still confidential document, we understand tonight that one option being explored is that following its handover to the P.M., the entire report will be posted on the government’s website. In related news, the Ministry of Finance is inviting tenders for a forensic auditor in connection with the investigation into the operations of the Development Finance Corporation from 1998 through 2004. Interested Belizean accounting firms are asked to contact the Financial secretary in Belmopan.
