THE GOVERNMENT NEEDS HELP

August 7, 2015 | By KNews | Filed Under Features / Columnists, Peeping Tom, Source

Banks have measures they take to prevent a run on their deposits. Some of these measures are intended to prevent persons from withdrawing large amounts all at the same time, because if this happens it causes a collapse of the entire banking system.

This past week, the Private Sector Commission (PSC) urged the Granger administration not to proceed with the withdrawal of what the PSC says is some $60B from the commercial banking sector. Even if the PSC has its numbers wrong, even a $10B withdrawal is going to present problems for the banks.

The PSC is offering sound advice to the government. It is saying to them to stop this wildness that it is engaged in, and start to think seriously about Guyana’s economy and what is happening to it at the moment.

The problem that the government faces is that it does not know and does not have the analytical skills to determine why since the May 11 elections, business has slowed down tremendously.

The government should seek to understand what is taking place. There is no shame in admitting that you do not have the capacity to determine what is happening with the economy. Not even the PSC itself seems to know the answer, so there is no shame or disgrace in the government seeking international help in trying to unravel the problems with the economy at the moment, and particularly the slowdown in business.

But even if the government does not have the ability to offer a full explanation as to why there is a downturn, it can look at some proxy measures to verify that indeed there is a problem with the economy.

The first thing that it can look at is the exchange rate. There should have been an appreciation of the Guyana dollar as a result of the elections. The opposite happened. The value of the dollar depreciated. So much for people having confidence in the new government!

The fact that the dollar has not improved under a new government that claims to be committed to transparency and accountability means that the market is not reacting to the political signals of the government.

The second measure that the government should examine is the movement of commercial credit. The growth in commercial loan borrowing was one of the main factors that spurred financial sector growth over the past few years. If this has either peaked or has declined, then this is likely to be one of the reasons for the depressed business environment.

This is all the more reason why the advice that is being offered by the PSC should be heeded. If you take out, at one time, billions of dollars out of the commercial banking system, this will represent a run on deposits, whichever way you want to look at it. The banking system cannot survive such a large run on its deposits, and it is going to collapse, plain and simple.

If the banking system collapses, people are going to starve in Guyana, because the country is going to return to those days when the shelves were empty of basic commodities.

The government has no justifiable reason to be moving monies held by statutory bodies, such as Commissions, corporations and semi- autonomous agencies, and placing these under the Consolidated Fund. Central government has no claim to these funds, other than that which is agreed by these agencies to pay to Central Government as dividends or as transfers. These funds belong to the agencies themselves and cannot be simply appropriated by Central Government.

Somebody should challenge the right of Central Government to move these funds into the Consolidated Fund. It is not for the parliament to vote on the use of these Funds. It is for the agencies themselves who have to decide on the use of these funds, and who may be holding these funds as reserves as well as for future capital works.

Somebody needs to challenge the government’s decision to move these funds to the Consolidated Fund. Somebody also needs to sit down with the Ministry of Finance and advise it that it will be on an ill-fated course if it withdraws billions out of the financial sector at one time.