Our guest this week is Former Governor of the Bank of Mauritius Manou Bheenick. With the ghost of the British American Investment conglomerate coming back to haunt ministers through parliamentary questions about the cost to the taxpayer of the closing down of the BAI, we wanted to talk to Bheenick about the story from within the Bank of Mauritius. We also took the opportunity to talk about the latest International Monetary Fund ‘recommendations’ and the economic situation in general.

The ghost of the British American Investment companies is coming back to haunt those who closed it down. What is the situation with all the companies that were taken over by the state?

Let’s start, if you permit me, by a quick reminder of some aspects of the BAI story, which are relevant to the decision to close it. It just happened to be the largest non-state local corporate to emerge in the country after independence. Elsewhere, you’d celebrate a national champion, not bury the founder alive.

How was it different from the other businesses?

It was quite unrelated to the traditional oligopolistic capital interests which have been dominating our economy, our society and the body-politic for so long now that it’s actually seen by some as the natural order of things around here. Maybe the new regime that came to power in December 2014 tended to this view? The BAI group was actually seen by traditional corporates, not just as a competitor, but as a thorn in their flesh to be combated, tooth and nail, by means fair or foul.

Aren’t we confusing issues here? It was not the corporates who closed down the BAI, was it?

Maybe the architects and perpetrators of the BAI’s engineered implosion made common cause with the political renegades who came to the support of the superannuated Anerood Jugnauth and re-installed him as prime minister. Dawood Rawat has quite a story to tell, hasn’t he?

“The avalanche of downgradings and de-ratings that has dogged this regime can trace its roots to this stupendous evil and misguided action of the team of saboteurs and artificers who blew up Bramer, and through it, the entire BAI Group.”

How much truth is there in the reasons given by Government about closing down the BAI?

It will soon be six years since BAI was brought tumbling down.  We don’t hear much these days about Rawat allegedly outdoing Madoff, as the local media and government propaganda machine made the gullible public believe. Prime BAI assets — no, it never was a Ponzi and there were prime assets there —  have been looted by chatwas  or sold to the same oligopolistic interests that have a stranglehold on large chunks of the domestic economy. The corporate undertaker is slowly finding his way out of the quagmire which has been created after the BAI implosion, much helped by the new culture of financial opacity instilled in the country. The value-destroying binge is coming to a halt soon. There will be much blood on the carpet. A shortfall in the range of US$1 billion is on the cards. To say nothing of liability vis-à-vis Mr Rawat and his shareholders, once the court delivers its verdict.   A large part of this liability will have to be borne by the currently bare public coffers.

What lessons can be drawn from this episode?

There is a lesson particularly for both our voters and future leaders. See what happens when you  throw  the whole might of a newly-elected and vengeful regime at an operating  conglomerate — admittedly,  not in the good books of your sponsors and supporters —  and you do it  in the most brutal conditions imaginable, with  a regime of Stalinist terror to quell any dissent and muzzle those associated with the previous government in whatever capacity, together with  a programme of arrests and show CCID-investigations- and- trial-by-the-press wrapped into one,  to allow your regime to proceed quietly to bring to boot the perpetrators of what you told the nation was just  a giant Ponzi operation.

Weren’t there some elements of a Ponzi scheme in the operation, though?

I’ve said it before but it will bear repeating. The BAI, either under Mr Rawat or before when it launched operations here and he was an employee, was an insurance operation, not a Ponzi.

“An ex-Bramer board director was despatched to the Middle East immediately to finalise the extra capital injection which had already been agreed upon and he informed the minister of finance before catching his flight. By the time his flight landed, he was informed that there was no longer any need for fresh capital as the banking licence had been withdrawn in the very early hours of the morning!”

But the business model wasn’t sustainable, was it?

Its business model was different from that of the established insurance operators and it democratised access to insurance products. Predictably, it began with a bad press as it rocked the boat for major players. Of course, you can argue that insurance, like banking and other financial operations, may have some elements in common with some types of Ponzis. But that is precisely why financial sector operations, whether banking or insurance or brokerages, are closely regulated and supervised.

As governor of the central bank, you were one of the regulators and supervisors. What did you miss?

I was directly responsible only for the supervision of the BAI’s banking operation in Mauritius, namely Bramer Bank, and I knew the rest of BAI’s operations like everybody else through its published accounts. I was not even a consumer of any BAI products or services. I did follow the conglomerate’s important equity stake in a regional bank if only because it was a prime African bank, and African bank regulators would seek me out on this matter.  

Were you aware of the unaddressed concerns expressed by the International Monetary Fund on an ‘unnamed insurance operator’ to the insurance regulator?

Yes I was. When I joined the central bank, we agreed as a second-best to set up a joint Bank of Mauritius/Financial Services Commission Committee, co-chaired by a deputy governor and his FSC counterpart, to look at any issues concerning this conglomerate that could have fallen between supervisory cracks.  Until I was fired from BoM – with immediate effect, I must add – just a few weeks ahead of the engineered implosion, no particular issue had been flagged for my attention there. There was no issue with Bramer, either, apart from a minor regulatory issue requiring Mr Rawat to reduce his direct shareholding in the bank. We had the same issue with a couple of other banks at the time; it was therefore neither a big deal nor any special favour to Mr Rawat. I had initiated the formal validation of staff bank ratings and arranged for their regular publication on the BoM website. The last CAMEL rating during my mandate is there for all to see. The C in the acronym stands for Capital Adequacy. The central bank has an established and well-oiled mechanism to bail out any bank in temporary liquidity shortfall and, for the life of me, I have never been able to figure out why BAI wasn’t allowed access to it.

So how was the implosion engineered?

The engineered Bramer implosion started by the mass immediate withdrawal of large parastatal and State Owned Enterprise deposits from Bramer, which led to an immediate capital shortfall. What happened next is a tragi-comedy the likes of which we haven’t seen around here in our modern history!   Why did the regulator pull the plug on Bramer barely 24 hours after giving it a two-week moratorium to inject fresh capital?  Sources indicate that the deposit withdrawals, necessitating capital injections, were initiated by the minister of finance and executed by his officers.

Did Rawat have the capital to inject in the bank to make up for the shortfall?

I am given to understand that the responsible deputy governor received the Bramer board of directors and they informed him that shareholders were arranging to mobilise fresh capital from shareholders of a bank in the region. An ex-Bramer board director was despatched to the Middle East immediately to finalise the extra capital injection which had already been all but agreed upon. And this board director informed the minister of finance of this démarche before catching his flight. By the time his flight landed, he was informed that there was no longer any need for fresh capital as the banking licence had been withdrawn in the very early hours of the morning!

What was gained by closing down the BAI? The cost of the BAI to the taxpayer today has been estimated at Rs21 billion, isn’t it?

I fear the Rs21 billion may be an underestimate of the total impact of the engineered implosion of the BAI group. There is the loss of credibility undermining the overall attractiveness of Mauritius as an economic partner – whether for trade, investment, tax-planning, international diplomacy, or whatever – and the avalanche of downgradings and de-ratings that has dogged this regime can trace its roots to this stupendous evil and misguided action of the team of saboteurs and artificers who blew up Bramer, and through it, the entire BAI Group.

Didn’t Dawood Rawat need Rs300 to put his company back on track?

No, Dawood Rawat did NOT need Rs300 million. His group was no stronger or weaker than other large groups. I can assure you that there were larger, more heavily-indebted groups operating here. It’s for their bankers and shareholders to deal with them as  going concerns, and weigh the balance of risks, with some help from professional  accountants, auditors, and valuers.  Mr Rawat was not given this opportunity. After engineering or blessing the deposit withdrawals, the bank regulator and the minister of finance substituted themselves for bankers and shareholders, took the matter into their own hands and, for whatever reason, drove BAI’s collapse. They achieved this by engineering the Bramer implosion through mass-withdrawals of public deposits from this bank, sparking a minor panic in the process, with even the prime minister and a central bank deputy governor-soon-to-become-governor hastily removing their own money before the bank’s closure. It was clear that Mr Rawat and the BAI could neither dispose of their assets at fair value nor mobilise the fresh capital required from local sources within the short moratorium extended to them. Their attempt to reach out to external capital, and that too from a banking source, would not do. Hence, the meeting of vampires in the midst of the night to deliver the fatal blow to Bramer.

The point I am trying to make is that all this was done at great cost to the taxpayer, wasn’t it?

Any right-thinking individual, with the public interest in mind, would certainly not have done this monstrous thing. But, we must discard this mind-set and separate out the private gains from the public cost. There would have been no private gains if BAI were still around, for anyone except BAI’s shareholders and, additionally for the insurance arm, its policy-holders. By blowing up the bank and dismantling the BAI corporate empire, the perpetrators have ensured humongous private gains for selected parties who have walked off with the choicest bits at throwaway prices. As for the taxpayer who must foot the bill for this egregiously catastrophic maladministration, the guardian of his interest is the minister of finance and, ultimately, the prime minister. It looks as if the individuals filling these boots have been mostly missing in action, or just too busy enlarging the scope for private gains to spare a thought for the public interest.

The International Monetary Fund has given a severe indictment on the government, particularly on the Bank of Mauritius. Did you see that coming?

This particular writing has been on the wall for quite some time. Remember I’ve been dealing with Bretton Woods for over three decades. I have been lamenting the spineless attitude of the Fund staff vis à vis Mauritius from the very first Article IV Consultation with the Jugnauth regime. At the time, we benefited from the reflected glory of the Ramgoolam years and were still very much a poster boy for the right macro policies. The Fund was overly accommodating in buying the spin of government spokesmen. Mauritius cannot be doing anything that far out of the way, can it? That would explain the relatively hands-off Fund attitude on some burning questions like pension reform, debt sustainability, public accounts integrity and transparency etc.

So what happened then to explain the change in tone?

When this government committed a hold-up of central bank reserves, without so much as a whimper from the central bank, it was clear that the central bank had been gangrened and was no longer fit for purpose. Unless corrective action were taken fast, you couldn’t legitimately expect this central bank to play fully its role as an independent institution.

Is that what woke the IMF up?

Yes and I think the Fund should realise that the indictment which you talk about can no longer limit itself to the central bank. It affects all our regulatory agencies, public service providers, State majority-owned enterprises, and parastatals which are all fast rotting away. To say nothing of government departments like the police where the latest reports point to the direct involvement of top brass as operators in the flourishing drug trade! We need much more than a rap on the knuckles of the trio of total misfits at the helm of the central bank if we are to have any glimmer of hope to stop the spreading decay and scramble our way back to international respectability.

What areas should we address to do that?

We should look at our fiscal stance that has turned into a plaything of book-keepers and has become totally inadequate because of the negligent and short-term approach to budgeting inaugurated in 2015. The capital budget is worthy of the worst kleptocracies ever seen anywhere. The opacity of public finances is thick enough to cut with a knife. Public accountability is at a discount. Public scrutiny has become quasi-impossible. Elected members of parliament are suspended for the duration of an entire parliamentary session and prevented from exercising their parliamentary duties. Governance and democracy have been fast receding.

Some ‘analysts’ are saying all this is normal considering the Covid situation. Is it?

We must resist the temptation to fall back on the pandemic as the ready-made all-purpose explanation of first resort on which to pin the blame. Covid is not responsible for our own wrongdoings, emergency procurement malpractices, and similar shenanigans which threw good, established and reasonably efficient management practices out of the window and replaced them with an improvised free-for-all mess. It is not responsible for the major consideration which seems to have been how to maximise the flow of public funds into the pockets of cronies and accomplices in the name of procuring emergency supplies for the war on Covid. Previously unknown  suppliers,  already paid in advance  from public funds for goods not yet received or when received are unfit  for the stated purpose, amount to fraud and should attract, not write-offs of the dilapidated amounts, but criminal prosecution of all those concerned in this procurement-rigging.

What about the combination of falling national income and rising domestic debt we are facing? Is that attributable to Covid-19?

No. It is neither “Covid-related” nor “normal”.  Our reported indebtedness is at a crippling 90 % of GDP, if we accept the Fund’s figures.  We need to pierce through the accounting smoke screens deployed by this regime before we can even accept this figure! Our excessive national debt is the logical consequence of the grossest public sector economic and financial mismanagement ever witnessed in our country.