The wolves circling FNPF
Sat Mar 14, 2009 8:55 pm
Fiji National Provident Fund contributors and pensioners should be concerned. Perhaps worried. Perhaps frightened. Because our FNPF life savings are under threat.
Fijian Holdings Limited tried to borrow more than a hundred million from FNPF when private banks had refused. Thankfully, the FNPF refused.
More ominously, the Interim Government wants to borrow hundreds of millions, basically to sustain their increased recurrent expenditure and military over-spending.
The private banks, local or overseas, will not oblige. Should FNPF oblige? Will FNPF oblige?
If FNPF continuously gives in to such lending pressures from Government, without economic growth, it will only encourage inflation to rise in the long term, thereby slashing the real value of everyone’s savings and pensions.
And if ever pensioners totally lose confidence in FNPF, it may become insolvent, with future pension rates slashed, and even existing pensions reduced in dollar terms.
The key issue is that the FNPF Board is now controlled by an unelected Government’s appointees.
We the FNPF contributors who own the savings do not have a single direct representative on the FNPF Board who can be accountable to us. Why don’t we?
We remain quiet at our peril.
Fiji’s life savings
Annually, by law, some 16 per cent of our wages and salaries, is deposited into the FNPF.
The FNPF is therefore the depository of the bulk of the life savings of most people who work in Fiji’s formal sector, amounting to more than $2.5 billion.
The assets are supposed to be worth more than 3 billion. Bigger than the assets of all the commercial banks put together.
From the outset, with successive governments controlling the Board, the bulk of FNPF funds have been lent to Government, at interest rates much lower than that demanded by commercial banks.
Since 2000, to shore up Fiji’s foreign exchange reserves, successive Governments and the Reserve Bank of Fiji have forced FNPF to bring back its foreign investments, thereby losing FNPF revenue.
Worse still, with idle funds in Fiji, FNPF is also forced, in the absence of bankable private sector demand, to lend even more to Government, as currently.
Some FNPF savings are invested in property. But significant amounts have now also been lent to investment projects such as at Natadola, Momi and GPH, the returns on all of which have been delayed, largely because of the 2006 coup.
The FNPF rate of return has been going down for a decade. It will go down further if the FNPF Board makes more mistakes.
The circling wolves
For decades the borrowing wolves have been circling the easy money at the FNPF.
Recently, the FHL board and management, which were revamped after the military takeover, tried to borrow more than a hundred million from FNPF, to finance the purchase of British Petroleum South Pacific at the massive price of $190 million.
An Indian company would first take out its own management fees from the revenue, with the remainder then being available for loan repayments, other costs and dividends.
Not surprisingly, the commercial banks won’t touch this loan. And thank goodness that the FNPF Board has also apparently refused.
But the FNPF Board may not be able to withstand the Military Government’s pressure to lend hundreds of millions more, to finance Government’s budget deficit and spending plans.
And that could be as damaging as the FHL loan.
Government deficits and killer inflation
There is nothing wrong per se with FNPF financing the Fiji government’s budget deficit. As long as the borrowed funds are spent on productive capital expenditure, which leads to increased economic growth, incomes and tax revenues for government.
But with an unelected Military Government in place, we are unlikely to see the required economic growth, income and increased tax revenues, which could repay the loans.
All that is likely to happen, is an increase in the money supply, increased imports, reduced foreign reserves, bigger public debt, and an upward pressure on inflation.
Since December 2006, Fiji has suffered total inflation of 10%, by which most people’s real incomes have declined in real terms.
Worse, everyone’s savings and pensions have lost 10% of their value since December 2006.
The bad news is that every bit of future inflation, very quietly and secretly working through higher prices in the market, will continue to steal away our savings and pensions.
And it will be a horror story, if inflation is accelerated by a devaluation.
If our economy does not grow enough with new jobs, FNPF will not see the required growth in employee contributions and neither will government see increased tax revenues. If the economy deteriorates enough, Government may not be able to repay their FNPF loans on time.
The rate of return to FNPF shareholders will keep dropping. FNPF may have to further reduce the pension rate to future retirees.
And in the worst case scenario, if retiring people lose their confidence in the FNPF, and simply withdraw their savings in lump sums rather than take the pension, then FNPF may face a liquidity crisis and could even become insolvent, i.e. bankrupt.
Current pensioners may then not be paid on time or, horror of all horrors, may have their pensions illegally reduced.
Imagine the suffering. Let us hope it never comes to that.
But it may, if this Military Government continues to hold on to power and is fiscally irresponsible.
Question: who should be held responsible for any future destruction of our FNPF life savings?
FNPF and unelected Governments
If mistakes are made by an FNPF Board appointed by an elected government, the voters must ultimately take responsibility.
But if mistakes are made by an FNPF Board appointed by an unelected Military Government, then the military themselves (the Interim PM and the Military Council including most of the former Military Commanders) and the board members appointed by the Military Government, must be personally held responsible.
Also responsible will be all the coup supporters who volunteered, after the 2006 coup, to help run the Military Government and boards: the Fiji Labour Party and their stalwarts Chaudhry, Vayeshnoi, Tom Ricketts, Koroi and others.
Also responsible will be those who supported the NCBBF/Charter/electoral reform excuses for the 2006 coup: Archbishop Mataca, CCF’s Jone Dakuvula and Akuila Yabaki, Kamlesh Arya, Jo Serulagilagi, Finau Tabakaucoro, Lorrini Tevi, John Samy, Kevin Barr, David Arms, Francis Narayan, Robin Nair and others, now also including FIT’s Mahendra Reddy.
While some claimed to be serving the President’s Mandate, they disappeared without any reference to the President, when they were booted out by Bainimarama.
FNPF Board and us
FNPF decisions are now being made an FNPF Board controlled by the Military Government.
We, the FNPF contributors and pensioners have no representation whatsoever on the Board.
If thieves came into our house and stole a thousand dollars from the drawers, and took the family jewelry, we would be outraged and screaming for the police.
But people with guns have taken over the government and control of tax revenues and public expenditure, reduced our incomes by more than a billion dollars in the last two years, and now, are mounting attacks on our FNPF which could erode our life savings.
Why are the FNPF contributors, including FMF soldiers, police, civil servants, and blind coup supporters, all staying silent?
This article serves notice: if our Fiji National Provident Fund suffers because of forced irresponsible lending to government and other carpet-bagger companies, this military government and the coup supporters must be held primarily responsible.
But also jointly responsible with be every FNPF contributor who chooses to stay silent in the face of this impending disaster.
We will not be able to wash our hands, like Pontius Pilate, if our FNPF cow ever ends up in the slaughter house.
As a minimum we must demand direct representation on the FNPF Board to protect our interests. And FNPF must also be allowed to invest overseas to maximise return to shareholders, and diversify its portfolio.
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* Professor Wadan Narsey is an economist and an independent writer who occasionally contributes opinion pieces to FijiLive |
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