There is a shortage!

Mar 16, 2017 Features / Columnists, Peeping Tom

One year ago, you could walk into any bank, place an order for US$5,000 and be almost sure that you would get it right away. Not anymore!
You can still walk into a bank and ask for foreign currency but nine out of ten times you will walk out empty-handed. There is now a waiting period at most banks for foreign exchange.
The banks simply do not have the amount which is being demanded and which, from all accounts, does not constitute a run on foreign exchange.
Businessmen need foreign currency to finance their purchases. They are finding it difficult to obtain this currency and many of them may be tempted to go to the informal markets to obtain funds.
There are reports that some persons are so desperate for foreign exchange that they are paying as much as $220 to US$1. This is sometimes the only means by which they can source foreign currency immediately. If you need money to do an emergency surgery overseas and it cannot be had in a timely manner, then there is little other choice than to raise the amount you are willing to pay. This represents a 5% devaluation of Guyana’s currency. The least thing that Guyana can afford at this time is an unofficial devaluation. This will hurt the economy further.
This will also lead to higher prices for imported goods which constitute a significant share of household expenditure. The cost of living will increase and so too will inflation.
The waiting time for foreign currency at commercial banks signifies that indeed there is a shortage of foreign exchange in the system. It is therefore time for the government to take off its blinkers and stop denying what is now undeniable
It is time for the government to admit that there is a problem with the availability of foreign exchange. The banks are not holding back on selling currency. They simply do not have the amounts that are needed to meet normal demand.
The banks are doing this country a favour by not allowing demand and supply to dictate the foreign exchange rates because then there would be a graver shortage of foreign currency as well as a soaring rate.
The reputations of some businessmen are on the line with their suppliers. These suppliers are accustomed to being paid on time. They are suspicious when they are being suddenly told that it will take some time for their payments to be remitted to them.
We also have a problem with correspondent banks which are refusing to conduct foreign exchange transactions. This is adding to the uncertainty and costs of foreign exchange transactions.
Consumers are hurting in this country. They cannot bear any more increases. The government can pronounce all it wants about higher disposable incomes but the reality on the road is that that higher disposable income is not the same for everyone and that the majority of people are feeling the squeeze of increased prices and the VAT on things which formally did not attract VAT. This is the reality.
There is a problem. Unless there is an acceptance that there is a problem a solution cannot be found.
Short-term measures such as limiting the spread between the buying and selling rates at the cambios and at commercial banks will not solve the problems with availability. It has not eased the problems of traders. It has reportedly helped to push some currency transactions underground.
The causes of the problem need to be investigated. The investigation needs to be done by an independent authority so as to remove any suspicion of politically contrived explanations. The government should ask the World Bank to send down a small team to look into this matter because it does have implications for the cost of capital which is already rising in the country.

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