Jagdeo is looking at incomplete data

Aug 29, 2023 Features / Columnists, Peeping Tom

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Kaieteur News – In an attempt to dismiss concerns over the depreciation of the Guyana dollar and the scarcity of the US dollars,  Vice President Jagdeo, two weeks ago, made mention that the Japanese dollar was being traded at over 100 yen to the US dollar.  Jagdeo was trying to imply that the value of a country’s currency does not translate to a weak economy.

No one said that the Guyanese economy was weak. What was being suggested was that the country’s foreign exchange market was experiencing hiccups, and this was a sign that the influx of oil revenues was not boosting the dollar’s value.

Had Jagdeo been paying greater attention to foreign currency markets around the world, he would have known about the concerns and even alarm at the weakening of the Yen. In June, the Japanese yen plunged to a 7-month low, prompting the country’s Finance Minister to indicate that the government will intervene if there is excessive weakening.

The recent attempt by Vice President Jagdeo to downplay concerns over the depreciation of the Guyana dollar by citing the value of the Japanese Yen relative to the US dollar raises important questions about what is happening in Guyana in relation to the value of our dollar.

Vice President Jagdeo’s assertion that the Japanese dollar’s strength does not mean that the Japanese economy is weak is not entirely unfounded. Japan, as the third-largest economy globally, boasts technological innovation, a high standard of living and a robust manufacturing sector.

However, the value of a country’s value remains an important indicator of its economic stability and competitiveness. When the yen depreciates, it causes ripples in stock markets around the world.

When the Guyana dollar depreciates, it causes belly pains because the cost of imports increases. But exports coffers swell as exporters smile all the way to the bank.

Unfortunately, Guyana’s monetary policy has been myopic and is based on ensuring a windfall of Guyana dollars for its exporting industries, including rice and sugar. The fear within the PPP/C government has always been that if the dollar appreciates, it would harm export competitiveness and export earnings denominated in Guyana dollars.

Contrary to Jagdeo’s argument, recent events have highlighted the potential implications of a depreciating yen. The yen’s depreciation may not directly imply a weak economy, but it can signal underlying economic challenges. For instance, as the yen depreciates, imported goods become more expensive, leading to potential inflationary pressures. This situation can erode consumers’ purchasing power and impact domestic demand, thereby affecting economic growth.

The weaker the Guyana dollar becomes, the higher will be the cost of imports. These higher costs will be passed on to consumers thereby fueling inflation which is already hurting the pockets of workers.

The weakening of the Guyana dollar amidst the influx of oil revenues could raise concerns about Guyana’s financial stability. Foreign investors might shy away from investing here due to concerns about the stability of their investments in the face of currency volatility.

Jagdeo’s government is on a borrowing spree at present.  Currency depreciation can lead to negative perceptions among international lenders. A declining currency might be interpreted as a sign of economic uncertainty or policy mismanagement. Consequently, this perception could lead to higher borrowing costs for the government and businesses, which ultimately affects the overall economic environment.

Jagdeo has missed an opportunity to reset the country’s myopic monetary policy. But perhaps he is waiting on some international report from the IMF to make up his mind.

He did mention in his press conference that he has received data from the Central Bank concerning the demand for and purchases of foreign currency. But if he was attuned to the realities on the ground, he would know that much of that data would emanate from non-bank cambios and that collectively the data from non-bank cambios are not likely to reflect the true volume of currency transactions.

Today you can walk into many non-bank cambios and change money and you are not asked for identification or given a receipt. Most transactions are done in the absence of receipts. As such any data which Jagdeo’s obtains from the Central Bank is not likely to capture the full extent of foreign currency transactions in the economy.

It is also not beyond some of the major players in the market to purchase foreign currency at one price and then offload it at much higher price, thus profiteering excessively from an artificial depreciation of the dollar.

The APNU+AFC had attempted to stem this practice by limiting the spreads between buying and selling rates of forex. But no sooner had the PPP/C entered office, it abandoned this sensible policy. And given how the PPP/C operates, any policy measure initiated by the APNU+AFC is going to be shunned and rolled back, regardless of whether it can help the economy or not.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

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• Guyana, Guyanese, Peeping Tom, scarcity, US dollars

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