FORMER water and housing minister Dr Karl Blythe, while admitting yesterday that the creation of the Financial Sector Adjustment Company (Finsac) was necessary, said that its operation was a grave injustice to debtors.

Blythe was giving testimony at the ongoing enquiry into the 1990s collapse of financial institutions under heavy non-performing loan portfolios.

He blamed the financial sector meltdown on the high interest rate regime prolonged by the People’s National Party (PNP) Government of the 1990s in which he served, arguing that no legitimate business could have survived rates moving from 18 to 20 per cent to above 60 per cent.

“The Government ought to have been aware of this situation,” said Blythe, who is also a Finsac debtor.

He added that Finsac’s role was to prevent the total collapse of the financial sector and restore it to stability and growth. “I believe then, and I believe today, that the creation of Finsac was necessary,” Blythe declared yesterday.

“Where Finsac erred, as well as the Government of which I was a part, was in not monitoring the tabulation of these debts,” Blythe told the Commission of Enquiry at the Jamaica Pegasus Hotel in New Kingston.

He argued that commercial banks turned over the debts to Finsac, but debtors were never given a chance to certify the accuracy of these debts.

“An accounting firm should have been in place to certify that these debts being turned over truly reflected that which was owed by the debtors,” contended Blythe.

“Debtors could not get a printout showing interest rate charged and details of the statement of account for the period of time that the loan was with Finsac,” he said.

The former PNP vice-president added that the injustice was continued when the then Government sold the debt to the overseas-based Jamaica Redevelopment Foundation (JRF).

“The unkindest cut of all came when Finsac sold the debt to JRF for some 17 cents in the dollar,” Blythe told the enquiry.

According to Blythe, offers were made by debtors far in excess of 17 cents in the dollar but were refused.

“Had Finsac offered these debts to the debtors for say 20 cents to 30 cents in the dollar and they refused, then no debtor would have a leg to stand on,” said Blythe.

Blythe also insisted that it was a “serious mistake” to have given the JRF the right to act as a commercial bank, where it relates to charging of interest.

According to Blythe, this was an error “especially since the company was not under the control of the Ministry of Finance, the Financial Services Commission, the Banking Act or the Bank of Jamaica Act”.

He said that the Government’s action placed the JRF in a position to abuse debtors with absolutely no recourse, but to beg for mercy or take matters to court.

But, he argued that there was no way that debtors were able to afford to pay “high-profile lawyers for prolonged periods to fight the case all the way to the Privy Council”.

“None of the debtors, including myself, who believe we ought to challenge the constitutionality of anyone giving the right to this company JRF to charge this type of interest rate as well as the right to act as a commercial bank can afford the legal expense to conclude the matter,” said Blythe.

“This is a grave injustice. The debtors were not treated fairly,” he added to objections from Sandra Minott-Phillips, attorney-at-law representing the JRF. “He has no authority to speak on anyone else’s behalf,” charged Minott-Phillips.

However, Commissioner Worrick Bogle instructed that Blythe be allowed to give his statements and said that points of objection could be addressed during cross-examination.

Blythe was invited to give testimony at the enquiry after he made damning statements that both former Prime Minister PJ Patterson and former Finance Minister Dr Omar Davies should admit that they made errors handling the economy during the 1990s.

Blythe will be cross-examined by lawyers for Finsac and JRF when the enquiry resumes next week Thursday.