February 8, 2013

Changing environment calls for greater economic and financial literacy

Fri Feb 08, 2013

The St. Vincent and the Grenadines Building and Loan Association issue has dominated local discussion over the past three weeks or so. That is not surprising, given the stakes involved.{{more}}

Struggling economies like ours, hard hit by the on-going international economic crisis, can ill afford any threat to our fragile financial institutions. Even as we endeavour to make our way out of the economic morass, and, in our case, achieve the modest 1.5 per cent growth projected for this year, financial stability is crucial to the recovery efforts. In addition, we are still suffering the pains of the CLICO/BAICO fiasco which has burnt the hearts, and the pockets of too many local investors.

With this experience so fresh in our memory, any public questioning of the governance and financial viability of such an important local institution as the Building and Loan Association, could not but fuel panic among shareholders and depositors. This in turn led to the predictable response – a clamour for withdrawal of investments and a virtual run on the Association. Given the interlocking nature of relationships among financial institutions, no one knows where this could have led, without timely intervention.

Decisive action was clearly needed and the institution with responsibility for oversight of local non commercial bank financial institutions did so by assuming management and control of the Association from February 1. It relieved both the Board of Directors and the Chief Executive Officer of Building and Loan of their responsibilities, as it is empowered to do under the provisions of the Financial Services Authority Act No. 33 of 2011. These actions have been taken, the FSA explained, because of “concerns about the financial soundness and corporate governance of the Association and for the purpose of protecting the interests of shareholders, members and depositors, as well as the public in general”.

Clearly, the FSA was trying to contain the run on the Association, prevent possible collapse and the resultant catastrophic implications for the economy. It is also seeking to soothe the confidence of shareholders, badly shaken by speculation, and frightened by the resultant wide-ranging discussions in the media, on social networking sites, in bars and on street corners.

Perhaps the most positive reactions have been the statements of support from both the Prime Minister and the Leader of the Opposition, urging the public not to panic. The Prime Minister himself has sought to lead the way by making a personal investment in the Association.

Ironically, as the debate rages, there are some who do not approve of the FSA intervention and view it as being too heavy handed. Yet not too long ago, when the CLICO/BAICO collapse occurred, there were those who accused the regulators of falling asleep on the job. We just cannot have it both ways.

The lessons of these developments must not be lost on us. The entire economic and financial environment has changed and we need to have appropriate mechanisms to keep up with these changes. The changing environment also calls for greater public economic and financial literacy. We in the media have a critical role to play in this, as do other stakeholders. Together with the facilitation of public discussion and debate, we need to have much more educational material to lift the level of understanding of our people, which can play an important role in guiding investment and ensuring better financial management at all levels.