STORIES

Interesting...to say the least.

 This headline is legendary...

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Withdrawal of $$$ from commercial banks…Transfer to Consolidated Fund will help reduce deficits

– Finance Minister  Concerns continue to mount, especially among members of the Banking Association and the Private Sector Commission (PSC), given government’s decision to no longer allow its monies to be held in commercial banks. This was indicated to the media on Wednesday via a statement by the Commission. The entity did not however, indicate what reasons government might have provided to them for taking this decision.

Minister claims $60B will finance budget deficit

Seems like the reporter at Guyana Times had a better take...propaganda notwithstanding .

Another reporting media:

Withdrawal of $$$ from commercial banks…Transfer to Consolidated Fund will help reduce deficits

– Finance Minister Concerns continue to mount, especially among members of the Banking Association and the Private Sector Commission (PSC), given government’s decision to no longer allow its monies to be held in commercial banks. This was indicated to the media on Wednesday via a statement by the Commission. The entity did not however, indicate what reasons government might have provided to them for taking this decision. However, Finance Minister, Winston Jordan sought to bring some clarity to the issue yesterday. Jordan said that during a meeting with the Banking Association, he explained that government would be moving to have the funds held by agencies such as the Guyana Geology and Mines Commission (GGMC) and the Guyana Forestry Commission (GFC) placed into the Consolidated Fund. These agencies, among others, have been collecting monies on behalf of the state and have held them in accounts in some commercial banks. The Finance Minister emphasized that he made it clear to the association that these monies would not be moved until the forensic audits into these agencies have concluded.

Finance Minister Winston Jordan

Jordan said that this sentiment was also communicated to the Chairman of the Guyana Manufacturing and Services Association (GMSA) Norman McLean. He said, however, that McLean expressed some reservations about the decision, and opined that should the administration go forward with such a decision, then it would lead to some problems for the commercial banks. “I told him that it is government’s money and it makes no sense having it in the commercial banks when it really belongs in the Consolidated Fund. The Fund is in overdraft and putting the monies where they belong will help to reduce some of these deficits,” Jordan said. The Finance Minister said that at no time did he specify that $60B in total was being removed from commercial banks. He added, “I don’t know where they got this figure from. It is inaccurate. I never said that.” As for businesses complaining recently that their profits are being affected by the decline in economic activities, Jordan said, “They know that they are operating in an environment where they make a profit one day and can end up one day making a loss the next day.” The Finance Minister stressed that he explained to the business community that a combination of activities led to the current situation. He said that it was explained to the Private Sector Commission that sugar and rice, two of the country’s biggest revenue earners are in dire straits while the gold sector is now crying about a decline in production and is calling for concessions. Jordan added, “How do we expect the economy to be as per normal with these situations before us? The issues affecting sugar and rice are not solved and may loom even larger next year. We have a plan in place, however, that will, as I said earlier, address the current situation.” The recent decline in economic activities prompted a meeting between the Commission and some businesses where they shared their concerns and discussed the impending and immediate effects of the situation. The Commission had said that already, some businesses have been forced to trim their staff size, while foreign and local business partners have been left with no other choice but to put some of their investments on hold. The discussion between the two dealt with matters ranging from employee retrenchment to the sudden increase in crime, as well as spending on Government projects, and matters related to how the clearing of goods and the processing of investment agreements are affecting them. The Commission had said that business representatives mentioned that they have noticed a decline in consumer spending and expectations, and noted that projects are being delayed and/or suspended due to the cessation of payments. The entity had said that the business community is also concerned about the persistent “bottlenecks” when doing business with the Guyana Revenue Authority (GRA). “It is the view of the business community that GRA needs to expand its taxpayers’ bracket and focus on those individuals who have been evading taxes for too long. To this end, Minister Jordan was written to, and meetings were held with the top brass of the GRA and the PSC,” the Commission had added via its missive to the media on Wednesday. The body also noted that it is concerned that the current situation can lead to a high level of non-performing loans. The PSC also expressed concern about the intended removal of Government funds that are deposited at the Commercial Banks. It said, too, that there is an increased level of defaulting loans being recorded in some sectors of the economy. The PSC is of the opinion that once there is a decline in consumer expectations and spending, it can create drops in sales and profits. This development it said, would force businesses to put a hold on hiring and inevitably the retrenchment of employees. The PSC had said that while it commends the actions taken by the Government and the Guyana Police Force in the solving of recent crimes, it believes that more should be done to prevent and detect crimes and restore the confidence in law enforcement. It had said that there has been a call for stronger police presence in and around the city as businesses are concerned about their employees and customers being robbed in the streets and at their homes. The Commission had indicated that it has also recognized that the economy has taken a downturn since 2014, but the present administration has an opportunity to restore this confidence, by releasing a budget that would stimulate spending.  Additionally, it opined that the Government needs to ensure the efficiency of GRA and to restart spending through issuance of contracts, etc. The Commission had said that it urged the Finance Minister during a meeting on the 2015 budget, to consider a stimulus to boost the economy, since there has been a slowdown in business. The Minister had given his commitment to consider this proposal.  He also committed to ensuring stability of the currency through appropriate monetary policies. The discussions between the two also focused on a number of areas, such as the urgent need for liberalization of the telecommunications sector.

The Money was left there by the PPP.

You have been quiet about the whole damn situation.

Tell that I am wrong. When the Government  withdraw all the money, they leave themselves without collaterals for future loans. 

There are consequencies to this venture.  Do you know what impact will it have on the economy?   

The Finance Minister emphasized that he made it clear to the association that these monies would not be moved until the forensic audits into these agencies have concluded.

Jordan said that this sentiment was also communicated to the Chairman of the Guyana Manufacturing and Services Association (GMSA) Norman McLean. He said, however, that McLean expressed some reservations about the decision, and opined that should the administration go forward with such a decision, then it would lead to some problems for the commercial banks. “I told him that it is government’s money and it makes no sense having it in the commercial banks when it really belongs in the Consolidated Fund.

G$60 bill in Consol Fund is about US$290 mill...the new govt has to explain whether this amount is reasonable after adjusting for corruption.

The lack of finance will you open for economic blackmail by the US and Canada.

Who blackmail whom? Yuh sounding like papa Cheddi dey .

The US and Canada will blackmail Guyana into borrowing money they will not be able to pay back.

Yea...dem dey put a gun pun dem head. Sounds like papa Cheddi .

Papa Chedi knew what he was doing.  Just ask your buddy Sase.

The question is "why the bank cannot use private money to offset that 60 Billion? Give back to the Govt their money, and encourage Private Savings,

All they will have to do is increase the "Deposits of Savings Rate"

Banks Deposit Savings Rate in Guyana is .75 %, This does not encourage Guyanese to save: Increase this .75 to like about Five to Six Percent then you would be surprise to see, how many will run to the bank with their billions.

The Banks are just greedy, wanting to use other people money in financing their business.

So is this a good or bad thing?

I am a boat man so if you want talk about boat, I ready.

However I did go to school and in my high school economics class at CXC the told me that a deficit is reduced by:

1.  cutting spending - reduce expenditure

2.  increasing collection of taxes - increase income;

3.  Economic growth - meaning the pie gets bigger and this has to be led and driven by the private sector - not the government.

Isn't this cash already captured in the government accounts as accounts receivable of the government?

I think this Minister lil confused.

Are you asking them to reduce the spread? If the spread of what they pay to depositors and what they charge borrowers is maintained, it will impact the economy negatively. This will tighten money, raise the interest rate, reduce investment and thereby growth, increase inflation. How will government get the banks to cut the spread when there is a government guarantee that they will not interfere with private enterprise Ability to make profit.

I am thinking that most of the Banks do have a high spread, that is the depositors are given .75 percent interest, whilst the Banks take interest at 12 to 14 percent..........just look at the spread: You are paying me interest of .75 percent and investing my money at between 12 to 14 percent. In other words I am given nothing for my savings whilst the banks take in

12 to 14 percent.

So what I am saying is that it is good that the Govt will take back that $60 billion, means that when they do, the banks will need to compete for G$ to make up that shortfall of 60 Billion:

In order to compete the Interest Rate paid to Saving Deposit will eventually increase.....Depositor now getting .75 will now command a higher percentage as the competition guides.

There should not be such a high spread, which the bank is pocketing greedily.

Take a man with G$40 Million, he would not invest this at the bank, but would possibly go for Treasury Bill which have a yield higher than that of bank or even speculate on properties. The idea is that he will be least interested in the Bank's .75 percent:

G$40,000,000 at .75 percent = 25,000 per month

G$40,000,000 at  6 percent   =200,000 per month

He would be a happier man if the Bank would need his money and they pay an interest rate of 6 percent, whilst the Bank would Invest his money at a rate of between 9 - 12 percent:

I feel that is a reasonable spread: of between 3 to 6 percent.

I say let the Government take back their $60 Billion Dollars: Let the bank compete for their own money.

TK, what do you think?  Who is right here - Govt vs businessman and banker?

I certainly agree with you that the spread is too wide, that competition for deposits SHOULD reduce the spread. I am not certain that there is a really competitive market for funds or the spread would have been lower. i do not know what the T bills pay, but it is obvious that the yield has to be greater than that paid by the bank if the government needs to acquire funds. One question is if the current yields of T bills are greater than those offered by the banks, then why are rational human beings bot buying T bills instead of depositing their savings in the banks? It will be important what the Bank of Guyana does in terms of the monetary policy as it relates to the short term because that is where problems of liquidity will result.

There seems to be a dispute over the number, not whether there will be a withdrawal. The Bankers' Association may know the correct number, thus the G$60 bill. The new govt will be uncomfortable with such a high number after all the cries of corruption. I have never doubted the PPP was CARICOM's most corrupt govt, but it is much more nuanced than the cries of thieving Indos coming from some quarters. The corruption was off the books and through kick backs and favors. Of course, I am more interested in the policy because of the potential monetary implications.

I thought that an argument was made that there are lots of these "commercial bank accounts" and this was a way to foster corruption because money was siphoned from some of these accounts after they were left dormant for a while.  So the government spin would be that they PPPites wanted to steal this money eventually.

The question is that since the money was "discovered" should it stay in the commercial banks or be transferred to the consolidated fund?

I don't agree with the religion of the Consolidated Fund. I can see much merit in using these accounts as a form of sterilization or injection depending on the demand for liquidity. Indeed, this idea is well known in monetary economics literature. But I know the lawyers and accountants believe in the absolutism of the CF. The state auditors knew these accounts exist.

I guess people are not buying the T bill because there is no confidence in the Guyana economy.  The Guyana government word is not the same as that of the US government.

My father-in-law was paid GY$3,000 pension total by NIS for working 30 years at GNSC.  Because he lives in NY he is given the royal run around by NIS.  His paper work keep getting lost etc.

[Finance Minister, Winston Jordan sought to bring some clarity to the issue yesterday. Jordan said that during a meeting with the Banking Association, he explained that government would be moving to have the funds held by agencies such as the Guyana Geology and Mines Commission (GGMC) and the Guyana Forestry Commission (GFC) placed into the Consolidated Fund. These agencies, among others, have been collecting monies on behalf of the state and have held them in accounts in some commercial banks. The Finance Minister emphasized that he made it clear to the association that these monies would not be moved until the forensic audits into these agencies have concluded.]

I will assume it will be better financial management,

moving the money to the Consolidated Fund.

Was there talk recently that some commercial accounts were established to "foster corruption" or I read it incorrectly?  Or was it just coalition propaganda if as you said the auditors (honest I assume) knew about them?

Guyana is a society of rumors...but they are not good at pinpointing the plausible rumors.

I just got confirmation that the withdrawal will be a lot less than $60 bill...so let's wait and see after budget.

You never realized that until after May 12.

Quote Zed "One question is if the current yields of T bills are greater than those offered by the banks, then why are rational human beings bot buying T bills instead of depositing their savings in the banks?"unquote

There is a reason that I can think of, we know that for T Bills one has to tender for same. Most ordinary people are not aware of the system and do not know the 'how to' in order to get involved in investing in T Bills; so most of the Banks, Insurance companies, Big Business, would gobble up the amount offered by the Government, and that would have taken care of the Excess Liquidity in the System, so it is very hard for the ordinary person to get involved in T Bills.

Bank of Guyana would explain it as re:

After submission, bids are accepted on a competitive basis.  The higher the offer price, the lower will be the discount rate and thus the more competitive will be the investor’s bid and the greater the chances that the bid will be accepted. 

As an illustration, let us assume that the Government offers G$1.0 billion of 91-day Treasury Bill to the public and there are three investors; investor A, investor B and investor C each bidding for G$0.5 billion.  Let us further assume that investor A, investor B and investor C have submitted offer prices of G$97.01, G$95.51 and G$93.21 per G$100 respectively.  From the authorities’ standpoint, based on the formula for the discount rate presented above, investor A would have submitted the most competitive bid, followed by investor B.  Since bids are allocated to the most competitive bidders until the amount offered is exhausted, only these two investors would be successful and would be allocated the amounts bid for.
 

The above means that a  91 days T Bill; where we have 3 tenders for G$500,000 million or half of a billion:

Tender A who bid at 97.01 This meaning that for every $100 tender A will pay 97.01: so A  gain is  2.99 for every $100

Tender B who bid at 95.51 This meaning that for every $100 tender B will

pay 95.51 so B gain is 4.49 for every $100

Tender C who bid at 93.21 This meaning that for every $100 tender C will

pay 93.21 so C gain is 6.79

In looking at A, B, and C you will notice that A is the most competitive:

meaning that if the Government accepts A bid they will pay out 2.99 for every $100; and for B they will pay out 4.49; and for C they will pay 6.79

So we see that A Bidding is more competitive as it will cost the Govt 2.99 for every $100. Whilst B and C is higher: Govt will readily accept A bid:

So not everyone who bids, can expect their bids to be accepted.

Too much of intricate calculations involved here, one of the reason why ordinary people would not want to invest. And then if ordinary people has their money in bank they can take it out any time, not with T Bills you have to wait for that 91 days:

As I see it now, the Govt will take back their $60 billion and will use up this, and then they will need more.....so I see T Bills playing an important part. And the Banks will need more G$, meaning that once there is that demand............eventually interest will go up, in the Banks and even with Govt Treasury.

Rass, I can go back to Guyana and set up a business

How much doberman you will have as watchman,them

bandits have guns,chainsaws,and rammer to break in

you house, on top of all that with all the iron works

your home is like a prison.

T-bills are offered on a competitive basis?

Interesting.  So in this example, A, B, and C total bids would be $1.5 billion ($0.5 each x 3)?  So only A and B will qualify to cover the $1 billion?  What price would A and B pay?  Maybe I am reading you explanation incorrect, but I am interested in gaining some knowledge.

Excellent points with which I agree.

Yes it is, lets say if the Government is offering one billion dollars:

Let say that the Bank A (bid for 500,000) you still have 500,000 remaining

so they go to bank B the next competitive bid

Let say that the Bank B (bid for 250,000) you would still have 250,000 remaining

Let say bank C also have bids (for 250,000) now that One Billiion would now be allocated for.

The Bank of Guyana will now accept the most competitive bids, if there are more money remaining they will go to the next competitive bid

Any yet if more money remains, they will go to the next bids.