AFC’S irresponsible remarks

Nov 29, 2008 Letters

Dear Editor
I refer to the Alliance for Change (AFC) recent press conference at the Sidewalk Café on Wednesday 26, November 2008.

This AFC conference definitively suggested that, “Guyana is beginning to see signs of economic recession as remittances decline, the falling away of gold and diamond prices; the reduced world market demand and falling prices of Guyana’s primary products such as rice, sugar, bauxite and timber products and the marked decrease in spending power of the Guyanese working class; much to the consternation of the business community especially at this time of the year.”

In the Guyana context, ‘economic recession’, could be interpreted to imply a decline in economic activity for a year or more. In the American context ‘economic recession’ is generally used to describe a situation in which a country’s real GDP sustains a negative growth factor for at least two consecutive quarters.

But for the purpose of this letter, we stay away from the American definition. The AFC is incorrect in their assertion that we are on the verge of an economic recession.

The Bank of Guyana’s Half Year Report for 2008 clearly states the economy recorded a 3.8 percent GDP growth during the first half of 2008 after achieving a 5.8 percent growth in the corresponding period of 2007. The agriculture, mining, engineering and construction and services sectors were the leading forces for this positive growth rate. And, in fact, Guyana’s projected real GDP may be ~4%-5% at the end of 2008.

The Bank of Guyana’s Half Yearly Report also specified that the overall balance of payments at the end of June 2008 reached a surplus of US$47.6 million, when there was a deficit of US$12.3 million for the parallel period in 2007.

This surplus increased the foreign assets at the Bank of Guyana, due to improved foreign trade via higher capital inflows.

These foreign transactions grew by 25.1% compared to the parallel period in 2007; and this mainly happened through greater inflows of export receipts, remittances and capital transfers; a show of enhanced economic activity.

And so it may be disingenuous for the AFC to create panic among Guyanese by suggesting that we are on the verge of some economic recession.

It is also important to note an increase in credit growth, including credit from the private sector; again contributing to economic activity rather than decline!

The AFC overestimates the impact of the U.S. credit crunch. The AFC needs to decipher the nature and dynamics of Guyana’s commercial banks’ investments vis-à-vis the U.S. financial meltdown.

In August 2008, the Bank of Guyana reported that its commercial banks held foreign assets totaling US$197.5 million, 17.8% of the total assets. Inclusive in this dollar figure are deposits of US$75.7 million and US$121.8 million in investments.

Now while the US$ assets comprised 86% of the total foreign policy assets, direct involvement with the US financial market is 10% of foreign currency assets or 1.8% of total assets.

The Bank of Guyana believes that this kind of investment by Guyana’s commercial banks is not huge or even risky within the context of the U.S. financial meltdown.

The commercial banks in the Caribbean have greater involvement with the U.S. financial market, and therefore, their current efforts to seek cover are understandable.

But look, I am not suggesting that the U.S. credit crunch will not affect Guyana; there will be some impact. And so the Bank of Guyana, on a day-to-day basis, is keeping an eye on the U.S. financial meltdown.

In order to dilute exposure to likely troubled financial entities, the Bank of Guyana has begun to regulate the placement of its foreign assets.

The Bank of Guyana, also, regularly collects information from commercial banks as per the distribution of their foreign assets.

The Bank of Guyana continues to monitor the status of commercial banks’ relationship with others in the wider financial market that may influence liquidity or solvency.

We need to closely watch the U.S. financial meltdown. But we must not become gullible to political parties’ irresponsible remarks. The AFC’s remarks are reckless.
Prem Misir

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