Government’s initiative to support the beleaguered policyholders of British American Insurance Company will spike the island’s already high public debt, but failure to act would have resulted in a financial and economic crisis, warned Senator Darcy Boyce today.
Speaking in the Upper House during debate on the British American Insurance Company (Barbados) Ltd (Preservations of Investments) Bill 2016, Boyce, Minister in the Prime Minister’s Office, insisted it was not a light matter as he detailed how turning a blind eye would have affected the entire country and not just policyholders.
“This support for British American will of course increase our debt-to-GDP ratio, something everybody is concerned about. It will increase our debt service, I admit that there is no denying it.
“The question is, if we did not increase the debt-to-GDP [ratio], if we do not accept the increase in the debt service, what would we have done?
“Would we have let the country go to pieces because of that? Would we have let 15,000 or whatever it is policyholders go through the eddoes? What pain and suffering would that have caused and is not that pain and suffering more than what would be caused by an extra debt service?”
He argued that Government would have been faced with the cost of rebuilding the entire economy.
Senator Boyce contended that the troubles facing British American were not unique, citing the recent meltdown in the United States and Europe.
He explained that in Barbados’ case, if British American was left out to sea, not only would it have triggered a crisis of confidence in the financial sector, but lending institutions that use life insurance policies as part of collateral to secure mortgages may have been forced to take a write down in those portfolios and this would have spelt trouble for the banking and property sectors.
“We would have had a crisis not only in the insurance industry but also in the banking industry,” argued Boyce who also warned, “in these things there is a contagion effect particularly due to the matter of lack of confidence.”
Senator Boyce said the problems at the troubled insurance company were a strong reminder that not all things were done better by the private sector.
While he was not prepared to presume any criminal wrongdoing in the case of British American, he cautioned that poor investment decisions had resulted in severe consequences, and had forced Government to pick up the pieces.
“Poor investment decisions or decisions that may have looked good in a buoyant market sometimes turn foul and we keep on forgetting that what goes up comes down, said Boyce.
He also stated that trustees of companies had to be very careful of the kind of investments that they made, warning that “whenever these mistakes are made and a bailout has to be done, it is the Government of the country, the Government of the day that has to go through the pain of finding the resources for a bailout.”
Senator Boyce said Barbados was now fortunate to have a sound and efficient Financial Services Commission in place, suggesting that if the regulatory agency had been in place earlier, the troubles in the insurance sector may have been averted or nipped in the bud.