THE FALLING DOLLAR
Something is terribly wrong in Guyana. The value of the currency has plunged. But then again, this has been a trend dating back more than four decades. This is happening because we remain primary producers even as the world makes huge profits from primary products and return the refined product to the producers of the primary products.
It is critically important to understand precisely what makes the economy tick, and how different components must work with each other to produce positive outcomes. The Finance Minister was crucial to the budget presentations during the previous administration. When the situation worsened he was there when the then President Bharrat Jagdeo opted to close two sugar estates—at LBI and at Diamond.
It did not boost public confidence when some commercial banks proclaimed that they would be applying an exchange rate of G$230 to US$1. This was pushing the limits in the same way the previous government pushed the limits from $125 to the United States dollar to $206 to the dollar when the government changed. It was a cause of concern for all, especially for the Guyana Manufacturing and Services Association (GMSA).
According to the GMSA, imported items will become more expensive and transferring the cost to the consumers lowers spending and thus reduces retail sales which in turn could devastate the economy. But there is no need to import some of the items that we now consume. The argument is that if we so desperately want something then we must be prepared to pay,
Yet the movement of the local currency is an explosive situation. The pressure is on for the regulatory bodies to stabilize the value of the dollar.
In order to remedy the situation, The Bank of Guyana and the government must inject funds into the system because the exchange rate is being driven by the simple economic formula of supply and demand. Almost two years ago, a number of things have happened. The clampdown on gold smuggling and the reduction in the trafficking of illegal drugs, especially with the assistance of the US Drug Enforcement Agency, has reduced the amount of cash floating around, which in turn has caused reduced spending. In other words, the underground economy has shrunk.
In addition, production in a number of key sectors, including rice, sugar and bauxite have fallen. They are failing to bring in foreign currency needed. Forestry and fishing exports have fallen by 30 percent and while the economy has been helped somewhat with the record-breaking gold production which reportedly brought in US$800M last year, it is not enough to offset the losses in the other sectors. Remittances have also decreased by some 22 percent in the last year.
This is not the first time that Guyana has been in this situation. In fact, the rest of the world is experiencing an economic downturn but Guyana is cushioned to an extent. The International Monetary Fund has predicted economic growth at over three per cent but this is slow.
Everyone wants the government to take measures to halt the slide of the Guyana dollar. Venezuela was asked to do the same and those measures have proven to be very unpopular. No people would support a reduction in imports to save foreign currency unless those imports are considered wasteful.
Forbes Burnham once introduced import restriction with some beneficial results that are enjoyed to this day. We may consider re-examining the nature of our imports. This would save foreign exchange for many of the very importers who are complaining about the rising exchange rates. It will also stabilize the local currency.