Tony Vieira's Comments
22 October 2017

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The Bank of Guyana
(Aired 5 September 2003)

    As a business man and one who has taken a large loan from the bank to buy the business premises in Quamina Street and to expand the VCT network to the Essequibo and Bartica over the past 8 years, expansions which have I am ashamed to tell you have been blocked by Sam Hinds deliberately, I think that I am in some position to tell you about the atrocities perpetrated on the Guyanese public by the commercial banks in this country. And I will put the blame squarely where it belongs at The Central Bank.

   To say that the Central Bank of Guyana is operating like a ship wandering in a sea of chaos and darkness is an understatement and probably a compliment.

    The Central Bank is supposed to set the fiscal policies for a nation, it is especially important for the central Bank to ensure that the commercial banks conform to some sort of reasonable fiscal policies with regard to its depositors, to pay them a proper percentage rate of return on their deposits [savings] and to ensure that those who have taken loans be given those loans at a reasonable rate of interest, a rate which is at some reasonable level above what the bank pays to those who have deposited savings monies at the bank.

   Giving a loan to an individual incurs some risk by the Bank the person borrowing to start a business or other enterprise may not be able to make the payments and defaults on some of those loans so traditionally commercial banks everywhere lends at higher rates of interest than they pay you if you have deposited monies as savings etc. So far it is all very simple and straight forward, in the US at this time the lending rate is around 6.5% whilst the rate for those who have deposited is around 1.7-2%: in other words the difference between the interest they pay you on monies deposited in the US banks, and the amount you have to pay if you borrow from those banks is around 4-5%, the bankers call this the spread, the difference between what they pay you as interest if you deposit money at the bank, compared to the interest you have to pay if you borrow from those same banks.

   In the US the central bank the Federal Bank sets the lending rate by encouraging the commercial banks to lend at whatever rate the Chairman of the Federal Reserve decides, by offering the commercial banks monies at the rate they want the banks to lend at. So when the US goes to war with Iraq the chairman of the US Federal Reserve even though it is war time and money is very short, wants to keep the domestic economic activity at a high level so he drops the federal lending rate to spur banks to lend at lower rates to help the business community. So in the two years following the beginning of the mobilisation of the US forces to fight terrorism the US FED Chairman Dr. Greenspan a much higher wattage bulb than the Chairman of our Central Bank, who is not even an accountant much less an economist, brought the fed down from around 4% down to 2% to encourage the business community to access loans at 5-6 % to higher investments and to protect those that will inevitably be adversely affected by the war on terror. That's how these matters are dealt with in the real world. And it has worked since in the past month business activity has started to recover and interest rates are beginning to soar.

    In Guyana it is no secret that this country has been at civil war since just after the 1997 elections. From that time to this, the central bank has done nothing to protect the business community from the inevitable drop in business due to the marching and civil unrest, they did nothing to help the rice farmers who were encouraged by the PPP to produce more and more rice since 1992 but were unable to obtain proper financing or markets for them to sustain it, bankrupting a lot of farmers in the process.

   Now ladies and gentlemen remember that outright bankruptcy does not mean that these same rice farmers did not lose several million of their own private investment dollars before they succumbed to outright bankruptcy and lost their property their homes and their lands. And even now several million dollars are being lost by them every crop, as usual President Jagdeo promised to help them but we all know what that means.

    Lest see what the 2002 Bank of Guyana report tells us is the interest rate paid to depositors and what the interest rates were to those who were forced to borrow money from the bank or had standing loans in 1997.

     In 2002 the bank of Guyana tells us that the interest rate for all banks were 16.3%; in 1997 it was 16.7 % no sign of fiscal adjustment to help the business class whatsoever here at all, but the rate the banks are paying its depositors was 4.3% in 2002, this is a spread of 12%; 3 times greater than the US spread.

    The Stabroek News of Monday September 1st 2003 features a new addition to that newspaper, the business sector, it is very well laid out and I want to congratulate Mr. De Caires on it. In one article written by Ramon Gaskin we see the following: in 2002 the total deposits by private individuals at our commercial Banks was 54 billion dollars, the interest paid to the depositors of this 54 Billion was 152 million, an interest rate of 0.3 percent and this has being going on for several years 93- 1.7%; 98- 0.6%; 2001-0.4% and 2002-0.3% so these banks were holding 54 billion dollars for the people of Guyana and were paying them 152 million in Interest but at the same time they had loaned a total of 50 billion dollars at 16.4 percent. Now you will see that this is 4 billion dollars less than the money deposited as savings which the Banks own figures tells they have been paying 0.3% on, so if these figures are right then the spread in Guyana is 16 % our banks are taking Guyanese's money, paying them 0.3% interest and lending the same money it to other Guyanese at 16.

    Now I come to a matter which most Guyanese do not understand but which Dr. Clive Thomas, Ramon Gaskin and Mr. Christopher Ram have been talking about for some time.

    Sometime in 1990 when the economy was not is so much chaos as it is now it was decided by the world Bank and the IDB that if there is a lot of money floating around in the country, what the banks call excess liquidity, then the banks would have extra money and that can lead to inflation so they [IMF/WB/IDB] decided that the Central Bank would issue treasury bills to the commercial banks which they are required to buy by law at a fixed rate of interest, to literally keep money short on the street. Now these Treasury bills, [T. Bills] are just sitting somewhere in the Central Bank doing nothing but the Central Bank has been paying the commercial Banks interest to keep this excess liquidity off the street, liquidity that could perhaps bring down the interest rate for the nation. Gaskin calculates that it has cost 60 Billion Guyana dollars so far in wasted money paid out as interest on these T-Bills and which is having the opposite effect of causing deflation rather than inflation today.

    Gaskin's article states that Bank of Guyana needs strong leadership, I have looked at and have enquired about the qualifications of the people who form the board of directors of the Central Bank and judging by the qualifications of these people, this is not weak leadership, it is no leadership at all, no wonder we are in such a complete fiscal mess in this country today. The entire board of directors should be put out to pasture in the Rupununi in a place where the grass is not so green, they have cost us a lot and the penalty for this type of incompetence should be severe. We need a proper person to head our Central Bank, this is certain and it is urgent, this person must be strong and knowledgeable an economist who understands international financing and under no circumstances must he/she allow themselves to be strayed by dunces from the Ministry of Finance who have no idea what has to be done and who have been interfering with the fiscal policy of the central Bank, Bharrat Jagdeo included, the philosophy of last year's or ten years' ago as to how to run the CB is not applicable today. Bring Asgar Ali to do it but do something! The people who are there now just can't cut it, so we should cut them out. In the mean time interest rates will continue to be high and our business community will continue to die.  

   There is one area where Gaskin and I disagree, in 1992 the total amount paid by the citizens as PAYE taxes was 23.5 %, whilst businesses were paying 74.1% of the total taxes, in 2002 this changed dramatically to individual PAYE accounting for 49.8% of total collection whilst the businesses accounted for only 43%, Ramon Gaskin attributes this to businesses not accounting fairly to the income Tax department as to their income, after speaking to most of the top accountants in the country, who know first hand how businesses are doing, I believe that the mutilation of the economic base of the business class since 1992, through poor fiscal policies, interference with the economic recovery programme and the unrest since 1997 have played an important aspect in the economic outlook for the country, reluctance to invest further, has caused this drop in collections from the companies and not I believe dishonesty in their accounting, too many of them are going bankrupt for this to be true. And business is bad all over and the business community has my sympathy.