Foreigners using local banking system to exploit domestic economy

Jun 17, 2022 News

By Gary Eleazar

Kaieteur News – Foreigners are currently in Guyana undercutting locals with regards the provision of goods and services for the country’s nascent oil and gas sector to the point where the local banking system is also being to exploit the domestic economy.

Vice President Bharrat Jagdeo

The development has since been described as concerning by Vice President Bharrat Jagdeo when pressed with the state of affairs during a press engagement at the Office of the President.
The Vice President was presented with a hypothetical state of affairs wherein a foreigner travels to Guyana, invests US$1M in the country, takes a loan from the country and repatriates that money back to his homeland.
To this end, it would mean that Guyana’s currency taken from its domestic banking system would now be used to carry on the business, earning more profits to be also be repatriated from Guyana.
Under the laws of Guyana, a foreign investor is prohibited from borrowing from the domestic banking system in order to invest locally, unless permission is had.
According to the Vice President, “I understand the concern, I understand it.”
He sought to explain however saying “when you operate and open economy in most countries, there are no restrictions on borrowing based on nationality; they are based on the project so it’s up to the bank to secure good projects and to make money available to people.”
Borrowing, he insisted is “not based on nationality, if that’s the case, a lot of our people may not be able to borrow. Like you go and invest in the US, you have a company here, they can do the same thing here, a Guyanese going to the US will be able to do the very same thing.”
He noted however, “I understand the point about people bringing in money if they are coming here, understand that point fully.”
Vice President Jagdeo elaborated further saying, “as a Guyanese, I subscribe to that but as Vice President and member of the government, it’s a different issue.”
According to Jagdeo, “when you run a country and an economy, you can’t make these prohibitions, if we do that then there is no reciprocity.”
Speaking to measures that have been taken to prevent foreigners undermining the local economy, Jagdeo pointed to the fact that in over two decades, there has been no issuance of Licences for Commercial Banks as against that of a Merchant Bank.
He explained saying that in the case of a Merchant Bank, it would have to use its own funds to provide loans and not take deposits.
“Since I was at the Ministry of Finance (pre-1999), we have not issued a new commercial bank license because that means if you issue a commercial bank license from a company from abroad, a bank they will come here and take Guyanese deposits and could put our deposits at risk.”
He said, “we have licensed a merchant bank where they can only bring money into the country; they are non-depositary taking institutions so they can collect deposits from Guyanese. They can only bring in money to lend to people.”
According to Jagdeo, this was because of the same reasons highlighted and cited as example the same thing happening in Jamaica some decades ago.
Elucidating further, Jagdeo used the occasion to recall that during the 80s and 90s, Jamaica “issued so many commercial bank licenses that they balkanize the sector,” and the government ended up with the debt because they couldn’t allow the investors to lose their money.
He told reporters that faced with such a situation, the Jamaican government ended up having to pay out some US$3B which ended up sapping economic growth in the country for some time.
As such, “we have been very cautious on these commercial bank licenses but we are a bit more liberal now on the merchant banking.”
According to Jagdeo, this was in reaction to the concerns raised, “putting our own depositor’s money at risk.”
He told members of the media, that there are some foreigners that have come to Guyana and have sought and received permission to secure loans from the domestic banking system
According to Jagdeo, there are presently many people trying to bypass the local content legislation but cautioned that, “The banks too want to lend to a lot of these people.”
He explained saying banks make money by lending, “they are looking for any project; they don’t discriminate.
The Vice President did express the view, “…would prefer people bring in capital but the reality is sometimes people do come and sometimes they do borrow here.”

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