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
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.