Public Report on the Vanuatu National Provident Fund housing loan scheme - December 17, 1997 - Emalus Campus
The Vanuatu National Provident Fund, established in 1986 under the Vanuatu National Provident Fund Act, has a duty to collect 3% of earnings from workers and 3% from employers in Vanuatu, to hold the money in trust and invest the money for the eventual benefit of individual workers on retirement. The primary criteria for investment of the funds are the interests of the members who are the beneficial owners. A secondary criterion is the promotion of balanced social and economic development for Vanuatu.
The General Manager of the VNPF is responsible to an appointed board of directors, members of which act as the trustees and provide overall direction to the VNPF. The Government has no legal status to direct the management or individual investment decisions of the VNPF.
In August, 1993 a housing plan wherein the funds of the VNPF would be used to finance the purchase of houses was promoted by the Minister of Finance, Willie Jimmy. Further, the Minister “instructed” the Board that the interest rate would be reduced from 10.5%, which had been recommended by consultants, to 7.5%. The Council of Ministers decided on other particulars of the housing loan scheme. They ignored lending guidelines of the VNPF (which were commercially sound) that any loan not exceed an amount where repayment would be in excess of 35% of the borrower’s monthly income. Further, theCouncil of Ministers waived insurance requirements,, allowed the refinancing of existing loans, reduced required down payments, and established special privileges for Government officials.
Members of the VNPF Board at the time were political appointees who lacked any business, accounting or financial expertise. Although, the Board of the VNPF had the legal mandate to reject “instructions” from the Council of Ministers and the Finance Minister, and make decisions in accordance with their status of trustees and the VNPF Act, they did not do so. It was pressured to accept political directions and pressure and acted accordingly.
The housing scheme went into effect early in 1994 and continued until March 1996 when it was cancelled by Mr. Barak Sope, the new Minister of Finance. By May 1995, the total funds of 8331,616,627 which has been set aside were exhausted. During the operation of the scheme, no administrative system was put in place to operate the scheme, nobody was trained and nobody was trained in connection with the scheme and nobody was hired to administrate the scheme. The first priority was the disbursement of funds and the last priority was the repayment of funds. Eighty-one percent of borrowers did not make timely payments. It took more than 2 years before the first reminders were sent out to borrowers in arrears. Records of some loans went missing.
Although there are 33,000 members of the VNPF fund and there were 784 applications for housing loans under the scheme, only 150 people benefited. The majority of these were Ministers, Members of Parliament, VNPF Board members and staff, UMP party supporters (the UMP was the dominant party in Government at the time), political appointees and families of these groups. Many people submitted applications that were not considered while many of the favoured groups had loans approved even before submitting applications and after the amount set aside had been officially exhausted. Strong political favoritism was exercised in lending.
In lending money in the housing scheme, a number of rules for VNPF lending were routinely breached in favour of certain borrowers. These included:
Supplemental loans to borrowers, including supplemental loans to VNPF Board members and staff for the purchase of furniture
Lending for commercial purposes rather than family residences
More than one loan to particular persons, in particular, Mr. Josias Moli the General Manager of VNPF
Loan decisions based on chiefly and political status
Lending in an amount which required a monthly payment in excess of 35% of a person’s income. In some cases the amount was as high as 155%. In other cases, the borrower was unemployed.
Conflict of interest was pervasive and particularly glaring in several instances. Mr. Samson Toara. Chairman of the VNPF Board in 1995 chaired the meeting in which his application for a loan of 16,000,000 vatu was approved. The amount of this loan exceeded the guidelines of the Board. Mr. Kalorib, Deputy Chairman of the VNPF Board made an application and sat as a Board member to approve his own application. In one instance, a personal debt of Mr Kawai, the Vice President of the UMP party, was repaid out of VNPF funds by the General Manager of VNPF Mr. Moli.
Findings of the Ombudsman, in addition to the above included:
· The Council of Ministers acted beyond their authority and illegally in reducing the interest from 10.5% to 7.5%.
· The Council of Ministers acted corruptly, illegally and in breach of the Leadership Code with respect to their participation in the housing scheme.
· The VNPF Board breached its duties as trustees. Their decisions in some cases amounted to theft, misappropriation and fraud.
· The VNPF Board was also negligent, incompetent and corrupt in the consideration of loan applications and not having in place an administration system for the scheme.
· The VNPF Board members acted in Breach of the Leadership Code by acting in conflict of interest and personally gaining from their office.
Many further findings of misconduct are made with respect to individuals involved with the scheme.
The housing scheme met none of the criteria for investment of VNPF funds. Approximately one third of the total funds of the VNPF were lent in the scheme. Estimated losses to the VNPF as a result of the housing scheme exceed 50,000,000 vatu.
· That the VNPF Act be repealed or amended to provide for professional trustees.
· That Former Minister of Finance Willie Jimmy resign and not seek public office or be employed in a position involving public money in the future.
· That Former Prime Minister Maxime Carlot Korman and all other ministers who were involved in approving favourable loans to themselves and appointees resign.
· That a Leadership Code Act be passed.
· That the Police and Public Prosecutor consider prosecutions in relation to the lost and stolen money and the conduct of particular persons involved in the housing loan scheme.
Written by Edward R. Hill
UNDP Governance and Accountability Project
© Ombudsman of Vanuatu
Published here by University of the South Pacific, School of Law Web Site - www.vanuatu.usp.ac.fj