#header-inner img {margin: 0 auto !important; #header-inner {text-align: Center ;} Fiji Coupfourpointfive: End FNPF subsidy to Fiji governments: linking the many battles

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Wednesday, July 20, 2011

End FNPF subsidy to Fiji governments: linking the many battles

By Professor Wadan Narsey  
Editor's Note: These are the personal views of Professor Wadan Narsey, not those of USP where he is employed as Professor of Economics, but is currently on leave in Japan

There are many battles going on over the FNPF pensions.


From The Fiji Times of July 15, it seems that the FNPF Board and management are pushing ahead with their plans to reduce the pension rates of current high income pensioners (Battle 1 by current FNPF pensioners through Burness/Shameem Law) and future pensioners (Battle 2 by FICTU etc).

Totally ignoring the sanctity of the legal contracts FNPF itself offered the retirees, they continue to focus on alleged unsustainable cross-subsidization of current pensioners by current contributors.

They refuse to call on Government statutory guarantees to finance any future shortfalls in revenue for FNPF pensions.

They also conveniently ignore that FNPF has been giving large subsidies (amounting to hundreds of millions over the last forty years) to successive Fiji governments through easily available loans, at interest rates much lower than that charged by commercial banks.

These huge subsidies by FNPF to successive Fiji governments represent a powerful moral justification for Fiji Government to fulfill their legal responsibilities to current pensioners, whatever is their pension rate.

Equally important for both Battle 1 and Battle 2, these interest rate subsidies to Government must now be ended by the FNPF Board and management.

For that to occur, both pensioners and current contributors need to fight Battle 3, which is to have an FNPF Board completely accountable to its members.

Finally, for real long term sustainability of FNPF pensions, all need to fight Battle 4, which is to have an elected and accountable government which respects the sanctity of all legal contracts, and constitutional law and order if there is to a restoration of investor confidence and economic growth, which is the ultimate guarantee for FNPF sustainability.

But Battle 4 requires a “Road to Damascus” enlightenment for many coup supporters, including some current litigants against FNPF, to recognize that all these battles are inherently linked: justice for one group requires justice for all.

FNPF battles linked to FNPF subsidy for Government
There are several battles going on, over the FNPF crisis, seemingly separate but inherently linked.


FNPF BOARD MEMBERS
FNPF members should note that every Fiji government has wanted to borrow for their budgets (for capital or recurrent expenditure, or to pay for their scams), whenever they wanted to, whatever funds were available at FNPF, and at interest rates significantly lower than that charged by the commercial banks, locally and abroad. No commercial bank can ever match this cash cow.

Every government has therefore maintained total control over the FNPF Board (the main borrower controlling the bank), which could not be allowed to be accountable to the FNPF members.

Fiji governments have also used the Reserve Bank of Fiji to force FNPF to bring back its interest earning overseas investments, which FNPF is then forced to lend to the Fiji Government at low interest rates, or leave the funds idle, earning no interest.

The difference between the average weighted interest rates charged by FNPF to government, and the average weighted commercial bank lending rates has usually been more than 1 percentage point, and often more than 2 percentage points.

Ask the FNPF Board and Management for this information (but don’t hold your breath waiting for an answer).

With more than 2 billions lent to Government, the subsidy from FNPF to Government annually amounts to more than $20 millions for every 1 percent difference in the interest rates between FNPF and the commercial banks.

Roughly, over the last forty years, this subsidy from FNPF to Government may have amounted to as much as $800 millions in today’s currency (give or take a few millions).

Government therefore not only has a legal obligation under the FNPF Act to cover any shortfalls for payment to existing pensioners, but it also has a moral obligation because it has enjoyed these massive subsidies in the past, and continues to enjoy now!

Common Solution to Battles 1 and 2:

If the FNPF Board were to end the ongoing subsidy to the Fiji Government and charge the same interest rates as charged by the commercial banks, this will immediately improve the revenues for FNPF, and enable the FNPF to

(a) maintain the payments to current pensioners and
(b) enable the FNPF to continue to pay the current 15% (or somewhere near it) to future pensioners, not the paltry 9% they are offering by military decree.
(c) end the huge distortion of Fiji’s financial markets, and also removing the incentive for Fiij’s fiscal irresponsibility.

It is the fiduciary and ethical duty of the FNPF Board and management to increase the interest rates charged for loans to Government, towards the commercial banks rates.

Will the FNPF Board and Management do so? Not a hope (as the correspondence between the Chairman of the FNPF Board and the CEO of Credit Corp clearly shows.

Indeed, the FNPF Board and management, despite their clear fiduciary duty of “full disclosure” where FNPF members’ interests are adversely affected by any Board decision, continue their shameless refusal to disclose all the relevant reports to the FNPF Members.

The fact that these FNPF Board members won’t resign either, speaks volumes for their lack of ethics and moral fiber or “balls” as Ross McDonald suggested to the Chairman of FNPF Board.
The personal interests of the management and board members (and for some, the interests of their companies or employers) too obviously depend on pleasing the Military Regime.

Will the legal case succeed?
The legal case by some pensioners may be given favorable hearing by the judiciary for two interesting reasons.

First, there are many prominent persons in the Military Regime’s hierarchy (it is a long list- you can draw it up) who personally stand to lose a lot, if the existing pension rates are reduced.

Second, allowing the pensioners’ case to succeed, could be good propaganda for the Military Regime, to show the world it respects “law and the judiciary”.

But the planned pension rate reduction for future pensioners is still likely to go ahead, simply because this Military Regime desperately needs the cheap cash to keep financing their irresponsible deficits.
And of course, the FNPF Board and management (i.e. the Military Regime) may go ahead with the illegal reduction of the current high pensions.

FNPF pensioners may protest that this is a denial of natural justice.
But this Military Regime has denied its citizens natural justice on a whole raft of cases, from the day it did the military coup in 2006. So what’s new?

How ironic that some FNPF pensioners are now appealing to an illegal President to have a Commission of Inquiry into the FNPF, when none of them ever asked for an inquiry into the coups of 1987, 2000 and 2006, which have done far more damage to the ordinary people of this country.

Common Battle 3
The interests of both current pensioners and current contributors could be better served if they, as the legitimate owners, could control the FNPF Board.

Will it happen? Not under this current Military Regime.

Common Battle 4
It is abundantly clear that FNPF’s financial problems would have been much smaller, had the Fiji economy been growing solidly, with solid growth of employment and new contributors to the FNPF, and solid growth of incomes and dollar values of all contributions.

This requires the restoration of investor confidence that has been shattered by the military coup of 2006 and military decrees stopping litigants from taking their grievances to court.

How ironic that the lawyers and leading pensioners now appealing to the “rule of law” to protect their pensions, themselves supported the 2006 coup which broke the fundamental laws of the land.

One former High Court judge who is vociferously calling for good corporate governance, conveniently ignores the biggest corporate malpractice in front of her: the FNPF Board and management shamelessly ignoring the wishes of the owners of the FNPF while obeying the illegal Military Regime she helped establish.

One lawyer who is currently fighting the case challenging the legality of the FNPF’s planned slashing of pension rates by appealing to the sanctity of contracts, was the Human Rights Commissioner who passionately justified the 2006 military coup, despite all its hollowness, illegalities, breaking of contracts, and Military Decrees denying basic human rights and natural justice to thousands of Fiji citizens.

There are also many prominent pensioners, currently challenging the legality of FNPF’s actions, who supported the Bainimarama coup and the NCBBF’s Charter Charade (with its first article proclaiming the supremacy of the 1997 Constitution).


All these legal cases against FNPF would not have been necessary if these “good” people had not instigated and justified the 2006 military coup in the first place.


FNPF’s other links
Those fighting to protect their interests in the FNPF need to also understand the linkages to major economic disasters and decisions which have led to excessive government borrowing from FNPF:


(a) the need to cover the National Bank of Fiji disaster (catalyzed by the 19897 coup) and the SVT government’s creation of the disastrous ATH monopolies, with an excessive price paid by FNPF.


(b) the numerous vote buying scams by successive governments resulting in wasteful government expenditure;


(c) the massive budget blow-outs by the military following the 2000 and 2006 coups;


(d) the massive investment losses caused by FNPF board decisions, all kept secret by the Military Regime, the media censorship and the Public Emergency Decree.


(e) the utter waste of large loans by Military Regime appointees, such as at the FSC, while callously rejecting a $300 million EU subsidy for the sugar industry.


(f) the senseless borrowing of $500 millions internationally at 9% interest when IMF was willing to lend at 2%.


There are other misallocations we still do not know about because of the Military Regime’s refusal to release the Auditor General’s Reports.


These are all linked to the FNPF malaise.


If those who are currently litigating against the FNPF, only fight their own narrow battle while turning a blind eye to the other injustices around them, there is little hope for the hundreds of thousands of poor Fiji people, for whom no lawyers are going to bat (for fee, or for free- if that might help save tarnished reputations).

Is FNPF the Road to Damascus?
Reading the above, it is natural for us to feel bitter and get into the “blame game” over FNPF, but that is not going to help FNPF, or Fund members, and the future generations.


Note that the current FNPF crisis is probably the first clear national issue which brings together all of Fiji’s ethnic groups, religious groups, divisions, political parties, genders, age groups, and even the members of the police and military forces.


But our people need to understand that all these battles over FNPF are inherently linked to national ideals of good governance and accountability.


There cannot be legal justice for just one group, and not for others.
Now that every significant political and social group in Fiji have bent or broken the supreme laws of the land (in 1987, 2000 and 2006), we are long overdue for a national “Truth and Reconciliation” process.
That requires all our leaders to have the humility and courage to admit error (as some “movers and shakers” seem to be doing, I hear), and genuinely ask for forgiveness from each other.


FNPF may well provide these erring individuals the opportunity to have their “road to Damascus” enlightenment.


Not taking such an opportunity will mean that our leaders will collectively drive another nail into the national coffin, and it is a long time since Lazarus was raised from the dead.

33 comments:

Anonymous said...

Great comprehensive report Dr Narsey!!!

Anonymous said...

agree with all these infor and suggestions..

Anonymous said...

Thank you Dr Narsey. So simply put. But alas, will the present regime take any heed for taking Fiji forward or will we continue to wallow in this miserable state. I can't see any changes happening.

Anonymous said...

Vinaka, Dr. Narsey!

Jieke said...

Bloody brilliant. Its up to the people of Viti to fight or lie down and wait for a slow painful death.

Anonymous said...

The Americans should drop the bomb at Delainabua. That will end all this unnecessary borrowings from FNPF by the government.


-Valataka na Dina.

Anonymous said...

No need to reconcile it's time for mass revolution to free Fiji and then educate the third world people about governance and justice for all

Stan said...

If FNPF does not lend at a lower rate to government then government amy go to commercial bank's to get the money. They would be more than willing to lend given the current high levels of liquidity and low demand for credit from the private sector. And if that happens FNPF will have nowhere to invest our money. They could invest overseas but that huge amount of money going out of the country will drain our foreign reserves and create new problems of us. I can't see how what Wadan suggested can be considered a good solution to our current problems.

Anonymous said...

We see yet again the brilliance of the man!

Vinaka Dr Narsey.

Anonymous said...

Jack says..

Stan....get your facts right ulukau.

The bottom line here Dr Wadan is saying is ....its because of the many coups Fiji is where it is today.

sa rauta mada na yaloca kei na veiqati ca (jealously) veikeda na kaiviti.

Just work hard and compete with everybody else. prove your worth in the same level playing field.

No more tall poppy syndrome..

Stan even you illegal FNPF CEO is sucking up to this illegal regime & kana loto falla & misleading the members.

God bless Fiji & protect it from the thieves such as Frank & family, Aiyaz, John Sami, Aisake taito, Naz Shameem & Shaista Shameem, Nur bano Ali, Aslam Khan, & co.

MYVIEW said...

Interesting indeed Dr Narsey....thank you for that. Offshore investment would also ensure a regular return back into foreign reserves. Mr Nasey was right in saying that previous offshore investments were recalled to fund the ongoing deficits. Lending the money to the commercial banks will generate better returns that is sure to increase FNPF's revenue base. Also FNPF should consider diversifying into the insurance cover business as recent reports have suggested that this industry is a "high return, low maintenance" one. Again this should add to the revenue base and ultimately the bottom line.

Anonymous said...

Dr.Wadan thanks for taking time and courage to throw some indepth facts about the ongoing issue.

The most important fact is that the illegal junta does not have anyone of this calibre to read and understand Dr. Wadans message.
They are a bunch of criminals at the helm of the goverment. One of the body guards should just be a true fijian to return the country to its normal status by just doing the right thing.Somr great scrifice has to be made and there will be losses and damages in a short term for long term stability and good future.
Dau cakava ga kemdoe na luvei viti kua na suka muri dau savata ga na ligamuni baleta na duka na muri kemode yani na gauna mai muri.

Anonymous said...

Its obvious that prof is a good spin doctor who is so used to giving text book solutions as he has never really worked. The facts are as follows for those that are non economist:

Debt is not bad if its sustainable and borrowing is for good use. Its the same for you, me guji businessmen or govt.

Fiji debt to gdp ratio is 60% which is not bad by devlopment country standards. It like you having a loan of $6000 if your income is $10000.

Had we not have the coups the ratio would have been around 40%.

On fNPF, people are wrong to assume offshore borrowing would give more returns. The current interest rate in US 5 year Treasury is less than 1%. Its less than 3% in NZ and around 5% in australia. What it gets in fiji is more.

If it invests in equity, the value of shares would be less than that in 2008. That is it would have losses.

Also, there are potential exchange rate losses.

Pls google and find how many pension funds lost money in the global financial crisis.


Offshore investment will not increase returns but just help diversify fnpsks portfolio.

Lastly, by allowing fnpf and others to invest everything offshore would mean that banking system would be high and dry. This means higher interest rates for businesses, our car and housing loans. The economy and we will suffer.

Anonymous said...

@Anon 10:39PM. A view from the real world at last...........

Anonymous said...

Narsey misses the point the FNPF reduction in pension rates by 65% is a scam plot to use FNPF monies to prevent the junta from going bankrupt to repay all the billions of dollars of loans it has taken.

Why should workers be victimised, its time for pacific international union sanctions on fiji junta.

Anonymous said...

Who in FNPF had the grand idea of bringing our members funds back from Australia and investing it in Fiji....this is where the problem started.

If our member funds were invested and left in Australia as done previously the fund will not be in the situation today.

Maybe someone can enlighten the members as to who was the chairman and board of FNPF and the Govt of the moment....who passed legislation to change all this.

THESE ARE THE ONES WHO SHOULD BE TAKEN TO TASK.

Anonymous said...

The end game for the junta and its tin pot pacific styled gadafi dictator is coming, he cant survive one week without the PER and future governments to roll back all the decrees and laws the junta has made.

Anonymous said...

To Anon @ 10.30pm. Your reasoning is very shallow as you simply do not understand the simple fact that the Fiji dollar is currently very weak the reasons for which are well known to you. Where did you get your figures and ratios from? Thin air? To minimise the risks and maximise the ROI for the hardworking FNPF members of Fiji it is prudent that these funds are invested offshore where the returns are high and the gains to the FNPF members are REAL. Also there are millions of investment portfolio baskets offshore where FNPF funds can be invested in to diversify and maximise the returns? It is simply spreading your eggs in more than one basket.Should there any hiccup it can be sustained. How can you guarantee the same return in Fiji in this current economic climate. Invest in Vodafone or FSC? The fact is this illegal regime is using FNPF funds to keep it floating through operating expenditure and to replenish the armoury and resouces in the barracks.

Anonymous said...

"One former High Court judge who is vociferously calling for good corporate governance, conveniently ignores the biggest corporate malpractice in front of her: the FNPF Board and management shamelessly ignoring the wishes of the owners of the FNPF while obeying the illegal Military Regime she helped establish.

One lawyer who is currently fighting the case challenging the legality of the FNPF’s planned slashing of pension rates by appealing to the sanctity of contracts, was the Human Rights Commissioner who passionately justified the 2006 military coup, despite all its hollowness, illegalities, breaking of contracts, and Military Decrees denying basic human rights and natural justice to thousands of Fiji citizens".

The shameless shameem sisters!

Peter said...

Heaven forbid it appears Dr. Narsey hasn’t even bothered to check the interest rates published by the RBF after every tender as to what the Government is borrowing from FNPF at! If so he would have seen that over the years these rates have been considerably more than bank lending rates. Much more!

He even to some extent admits this when he states - “The difference between the average weighted interest rates charged by FNPF to government, and the average weighted commercial bank lending rates has usually been more than 1 percentage point, and often more than 2 percentage points.”

Yes "more than 1% and ofter 2%". "More" not "less".

He still admits he really doesn’t know and is purely speculating when he says “Ask the FNPF Board and Management for this information (but don’t hold your breath waiting for an answer).”

The whole article is full of similar such basic flaws. Such superficial and sensational analysis at this time by someone who should know better is sad.

For the future of FNPF and members’ pensions in the years to come it is critical that the pension factors are lowered and the sooner the better.

Anonymous said...

Local investment especially if done correctly could have reaped great benefits. But as it is there has been a lot of corrupt deals eg with Natadola and Momi bay and now with Tappoos. We the taxpayers have lost lots of money and continue to lose money. This present illegal govt does not have the balls to be accountable and allow auditors to reveal to FNPF members how their monies have been used.
Enough is enough. We should get rid of this stupid government. They are corrupt to the bones and they can't help themselves. The only answer is to forcefully remove them.

As for investing overseas (@Anonymous 10:39) Rio Tinto of Australia made 260% profit last year. That's where FNPF should invest.


-Valataka na Dina.

Anonymous said...

@ 9.03 very good. It is good to see that what education to Fijians can bring a change in mindset.

But some are still greedy and want things for free without their own hard work.

Indeed you are a leader material...

Good on you for the new age mentality for the new error!

As for Wardan Narsey...you are absolutely correct. 2006 coup is based on intermingled errors of judgement of the past for some deaths of some who declared war on the state in 2006 chasing the headman through the cassava patch...leading to some temporary insanity during the terror placed directly on the head of the defence arm of the State.

Then you put same group into parliament and reward them to take a pick at him when that can be classified as friendly fire in US military terms.

Can Mr Narsey direct this message to those who want to see Frank & Aias in Naboro...because if it is their rewarding place for returning Fiji to democracy..then maybe Lazarus will not come to life anytime soon.

SA Sucu sa lutu

Keep The Faith said...

@ Anon 10:39

"Debt is not bad if its sustainable and borrowing is for good use. Its the same for you, me guji businessmen or govt."

- You are referring to a "good debt" situation that continues to elude Fiji and has done so ever since the coup of 2006.

"Fiji debt to gdp ratio is 60% which is not bad by devlopment country standards. It like you having a loan of $6000 if your income is $10000."

- If this GDP ratio is so good, how come international investors can't, don't and won't buy into this brilliant scenario?

"Had we not have the coups the ratio would have been around 40%."

- Exactly what Prof Narsey and many others have been saying consistently -- coups cost and we bear these costs AND pass the debt on to the future generations.

"On fNPF, people are wrong to assume offshore borrowing would give more returns. The current interest rate in US 5 year Treasury is less than 1%. Its less than 3% in NZ and around 5% in australia. What it gets in fiji is more.

...If it invests in equity, the value of shares would be less than that in 2008. That is it would have losses.

Also, there are potential exchange rate losses."

- Right. The GFC has bought that to bear but the Australian economy is still doing a bit better than the Eurozone and US economies. FNPF money is not earning a damn thing circulating in Fiji, again because there is no investor confidence (except for flakey chinese investments). The RBF Gov yesterday complained about excessive liquidity and is already hinting at "sterilizing" this liquidity -- does that sound to you like FNPF will be able to earn more money in Fiji?

"Pls google and find how many pension funds lost money in the global financial crisis."

- Only thing is FNPF did not invest offshore because of limits to its enabling legislation which it is trying to illegally and treasonously "reform", so it cannot blame the GFC.

"Offshore investment will not increase returns but just help diversify fnpsks portfolio."

Perhaps. But with FNPF's current fuck-ups do you really think its "captive" investors would trust the FNPF to make more sound investments without proper oversight? Highly doubtful and that is what Prof Narsey has also been saying.

Also your argument is very schizophrenic - are you saying FNPF should or should not invest offshore? You seem to be arguing for the sake of it and not having a clear point of view.

"Lastly, by allowing fnpf and others to invest everything offshore would mean that banking system would be high and dry. This means higher interest rates for businesses, our car and housing loans. The economy and we will suffer."

Currently the banking system is supposedly excessively liquid. What does that tell you? It means no one wants to spend -- even Tappoos "investments" are not their risk in totality. It also means that no one will care about hiked interest rates - even at the current commercial low interest rates, no one is biting.

Anonymous said...

Thank you Prof. Narsey for your revealing analysis of the terrible situation that looks like getting a lot worse before it is finnished.
---------------------------------
The comments from apologists for the Banana regime stand out by their contradictory stupidity.
---------------------------------
We wonder how long it will be before the military who are backing Banana realise that their pensions will be reduced. Their clouded, short term thinking will bring them down in more ways than just their pension. They are already sufferring in the minds of the people who see them as a bunch of trained monkeys ... "yes boss - No boss - anything you say boss" ... DUH! homer simpson intelligence.
What a pitty for Fiji - the laughing stock of the world - cookcoo coup land.
Fiji people want and deserve their country back again.
-Sydney tourist

Anonymous said...

Hmmmm - Notice the diclaimer:
"Editor's Note: These are the personal views of Professor Wadan Narsey, not those of USP where he is employed as Professor of Economics, but is currently on leave in Japan"

So does this mean the the current USP Vice Chancelor is so spineless that he does not want USP to be associated with Dr Narsey's excellent analysis of the Fiji situaation? Does he just want to kowtow to Bananarama & co just to keep his job?

Anonymous said...

this guy is too good.....not like our no school PM

Stan said...

@ Anonymous 1.47

Who's idea was it to bring the FNPF investments from Australia...well to tell u the truth the first time that was done was in 2005 and was by the former governor of the RBF Narube and the PM at that time was Qarase.

Anonymous said...

I vote for Dr Narsey to be the next democratic govt's Minister for Commerce and Finance. We need smart people like him in the govt..not like the 2 kukurus..

Stan said...

@Anonymous 1.25pm

That comment is written after all the publications done by academics...the writing done by academics is always all over the world the view of the academic alone and never the university's. The reason is because other staff at the university could have different opinions and the university would have to choose the official view. That does not happen in academia...what is true today could become false tomorrow.
Please educate yourself before yuo comment.

Anonymous said...

And for those who are not aware...our commercial banks have so much liquidity and have no need to FNPF money. So without lending to government FNPF will have no where to invest given the restrictions placed on offshore investment by RBF.

Anonymous said...

Thanks for the info Stan....and who was the chairman of FNPF then...who allowed members funds to be invested locally? Wasn't this the same time when ATH started...now the pieces of the puzzle is starting to fit into place. So its NARUBE....QARASE....and ???

Stan said...

@ Anony 11.06am

Does it matter who the chairman of FNPF was...if RBF directed them to brings the funds from offshore then they have to invest locally as they can't just sit with it and not earn any interest. And no ATH did not start in 2005 i think.

Stan said...

Oh i would love to Wadan in that seat...he thinks it's so easy...we'll see if he has the b....s to put such ridiculous and no practical ideas into action.Comment edited-C4.5