Problems with the economy

May 18, 2016 Features / Columnists, Peeping Tom

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Disappointment and disgust are just some of the words that can be used to describe the analysis that the reason why disposable income is on the decline, is because of the reduction in the drug trade in Guyana.

That sort of jazz may be passable to some of the diehard supporters of the ruling party who are not prepared to accept that their government is not perfect and is experiencing some serious challenges in managing an economy which is in fairly good condition, and which has enjoyed ten straight years of economic growth.
If ‘dirty’ money was driving the economy, economic growth would have contracted. The reduction of dirty money does not explain the growth in 2015 or the projected growth for 2016.
It is an insult to the captains of industry to be making such assertions at this time when business has clearly slumped and investor confidence needs to be boosted, not be speculation, but by measures that would promote greater private sector credit.
It is an insult to intelligent Guyanese to be claiming that the decline in business can be traced to the falloff from ‘dirty’ money. Perhaps, the government believes that. Perhaps the government lacks the answers. Perhaps the government is experimenting too much with a small economy.
If dirty money was being reduced, one would have expected to see a decline in drug interdictions overseas for shipments coming from Guyana. That is not the case. Just recently, there was a major haul in the United States. Nothing spectacular has happened on the anti-narcotics front, and therefore it is hard to accept that less dirty money is in the system.
An important indicator as to what is happening in the economy will be the growth of the rate of credit and not simply the growth of credit.  It would be very surprising to learn that the rate of growth of credit has increased. Credit will increase, but the rate of growth is likely to decrease, and that will be a sure sign that it is investor confidence rather than dirty money that is causing the problems with business turnover.
Another important indicator to examine would be imports. Capital imports would give an idea of how new investment or reinvestment is increasing. Consumer imports attest to the purchases of consumers.
All things being fixed, the inflation rate would suggest that purchasing power need not decline once the same levels of income are being earned. A decline in consumer imports could mean that inventories were running high, but it most likely would mean that consumers are not purchasing as much as before. This seems to be the source of the problem, according to many private sector businesses. They are complaining that people are not buying.
The greatest disturbing sign has been the decline in the profits of two indigenous banks in Guyana. This is worrying because even in the hard times in Guyana, and the present government would have some memory of that, banks always were increasing their profits. When commercial banks begin to show a reduction in profits, it is a disturbing sign, because in any healthy economy this often does not happen.
What is the answer? The answer has to depend on the diagnosis, and that must include improvements in the release of statistical information on the performance of the economy. We were promised changes in the way in which statistics were collected.
The numbers would give a fuller picture, but if consumers are holding in on spending, it could be that they are simply following the cue of investors who may be holding back on investments to see how government policies will shape.
A great many people out there are worried about the economy. They want some certainty. They want assurances of fairness in the awards of contracts and in the protection for their investments. A number of persons have lost their jobs with the change of government. They may not be spending as much.
A major logging company has begun to lay off workers. This will have a ripple effect. The previous government would have recognized the danger and would have worked out some plan to save those jobs.
GuySuCo is downsizing. Workers from Wales will go home this year. Others at LBI will be affected with the changes that will take place. Those developments are not good for spending in the economy.
A major hardware store has been destroyed by fire. Billions have been lost. An electronic store in the city has a closing-down sale. And guess what? They are still getting less customers than the Passport Office.
Housing developers who can turn the economy around overnight are cautious, because they do not know whether the deals they made with the previous administration are going to be respected. There is that uncertainty all around, and therefore people are holding back on spending. And that is most likely affecting business.
People need answers not talk about dirty money.

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