Kaieteur News
Major foreign currency crisis looms
-banks feeling squeeze; remitting monies a growing problem
-gap between demand and supply widening
As Guyana continues to grapple with the loss of foreign correspondent banking, a major crisis
Finance Minister, Winston Jordan
is developing with the availability of foreign currency.
Yesterday, a number of local banks confirmed that for the first time in years, they are restricting customers who want to remit large sums of monies abroad to pay for services and goods, among other things.
Some of them are even calling cambios and each other for supplies.
The shortage has been exacerbated by a number of factors, not least among them the severing of ties of a number of foreign banks with local financial institutions.
A number of under-performing sectors; the fact that some of the neighbouring countries have been coming here to buy up foreign currencies and pressure on the illegal drugs trade have all been compounding a situation which can only get worse.
One local bank had just over US$350,000 to trade with yesterday and is being careful not to allow customers to send above US$10,000.
One businessman who wanted to send US$30,000 recently had to make do with US$10,000 and was told that he was being placed on a waiting list. There are many more stories like this.
Government recently unveiled the national budget for 2017 and the figures for big earners rice, sugar and forestry were dismal, to use words of the Government. These are the big earners that bring in large quantities of foreign exchange to the country.
From time to time when the need arises, Government, through the Bank of Guyana, has been releasing
Bank of Guyana Governor, Dr. Gobind Ganga
quantities to the local banks to steady the exchange rates.
With regards to exports that bring in critical foreign exchange that Guyana uses to buy goods and pay for services, the figures that have been coming out are worrying.
Sugar is expected to decline 18.7 percent this year to 188,000 tonnes, according to Finance Minister, Winston Jordan, in his budget presentation last week.
Last year, sugar exports were US$78.4 with Government targeting US$ 91M this year. The poor performance, blamed on dry weather in the first half and then strikes will instead see Guyana earning US$67M (or over $2B less).
Rice earnings also fell from US$220M to US$182M. Gold was the saviour with export earnings moving from US$501M last year to a projected US$778M this year. This would have been above the US$558.9 that had been originally projected for this year.
Forestry also contracted 33 percent for this year with Barama’s halting of log production and the UK’s restriction on greenheart logs originating from Guyana.
According to the number of business persons and bankers yesterday, while the huge earnings from gold should have placed Guyana in a safe position, the reality is that a significant portion of export earnings are not coming back here.
Where?
This is explained by the fact that two large producers are reportedly using part of their earnings to pay off overseas creditors, among other things.
Even the gold production of 644,814 ounces projected for this year, about 100,000 ounces last year, will not be helping the foreign currency shortage.
Cambio rates have risen as supplies run low, businesses say.
To compound this frightening situation, local banks are frantically searching for overseas banks to develop relations. This was after a number of big US banks, like Bank of America and JP Morgan Chase–big banks with many branches–decided to cut ties with a number of overseas financial institutions. Guyana and the rest of the region are badly affected.
The considerations of the mainly US banks are of costs and the headaches of ensuring that transactions are not coming from dirty sources.
A correspondent bank is a financial institution that provides services on behalf of another, equal or unequal, financial institution. It can facilitate wire transfers, conduct business transactions, accept deposits and gather documents on behalf of another financial institution. Correspondent banks are most likely to be used by domestic banks to service transactions that either originate or are completed in foreign countries, acting as a domestic bank’s agent abroad.
Some local businesses have been turning to as far away as England, to institutions like the Crown Agents Banks Limited, Surrey, to send money to the US- a sort of back door route.
“Not only has the costs of sending monies gone up because we are dealing with more banks, but there is going to be delays in receiving and sending monies. What we are also facing here is another factor of monies not coming in quickly enough or going out to pay for goods and services. This is a worrying situation and spell trouble for this economy unless fixed,” a bank official explained yesterday.
Central Bank
Bank of Guyana has been working to bring attention to the problem, reportedly even travelling abroad to woo new corresponding banks.
Several members of CARICOM states have raised the matter of the correspondent banks problems with the issue high on the agenda in a number of meetings.
But it appears that the issue has taken more urgency in Guyana where the delays in sending and receiving monies amidst tighter scrutiny are biting deep.
According to a few knowledgeable business persons and others familiar with the situation, Guyana needs about US$2B annually to comfortably handle the financial transactions.
This is likely to fall short by US$700M.
Another major problem that has been causing some trouble to supply of foreign currency in the banks is the dent to the drug trade which has been reportedly accounting for significant transactions in foreign currencies.
The US’ DEA presence here has been contributing to tough times for drug smugglers, it was pointed out yesterday. A number of operations have been busted in recent years with the spinoffs from the trade in Guyana taking a beating.
Global prices for commodities have been taking a beating with oil, rice and sugar among the products.
Guyana has fared well when compared to neighbouring Suriname, Trinidad, Venezuela and Brazil which are facing severe economic decline. Cambios were selling at $213 for US$1.
It was being predicted yesterday that if the current alarming situation continues, the exchange rates will go up. A $220 scenario not ruled out.
The rates have been stable for the last decade at around $206.
