Companies thinking of large scale investment in Guyana are likely to face a credit squeeze because of the global financial crisis and remittances from Guyanese abroad could also be constricted, President Bharrat Jagdeo has warned.
Jagdeo, at a press conference he held at the Office of the President yesterday, also said he has suggested to the Chairman of Caricom, Antigua and Barbuda Prime Minister Baldwin Spencer that Caricom convene an urgent Heads of Government summit to discuss this issue and how it would impact on the region.
He said that fortunately for Guyana because it relies on a “provincial type of banking system’ which is not heavily integrated into the world’s capital, money or bonds markets, it is isolated from the impacts of the crisis that has hit the global money markets. If the local banks were investing large sums of money in those markets they would have been affected and if Guyanese were investing in the stock exchanges they would have seen the value of their stocks falling.
“Our banking system remains essentially sound… isolated from the immediate impact and depositors’ funds should be safe here,” he said.
In terms of the insurance sector, the President said that he has met with representatives of the insurance companies and they have assured him that they were not very exposed. However, he said that companies which have reinsured abroad may run into difficulties but from the assessments they have made they would be able to pay out on people’s policies here.
“We will keep watching this,” he said adding that he was not afraid of the immediate impact on Guyana’s financial sector.
What he was more concerned about, he said, was the impact on the rest of the economy because if credit costs rise around the world investor companies such as RUSAL and BOSAI, which are thinking of large-scale investments in Guyana and which go to these financial markets to raise capital could all be affected and many projects, including hydro electric power projects, could be delayed.
“Once the world economy shrinks you are going to have a reduction on global demand,” he said, noting that already stock market prices are falling steeply as well as the price of oil, metals, wood products and a range of other commodities which Guyana exports, including rice which is now seeing increased production on the world market. If there is a fall in prices of commodities and a shrink in global demand for those commodities, Guyana may be affected.
Remittances
Remittances, too, may be affected to some extent if there are massive layoffs, he said, noting that unemployment in the USA had in recent times skyrocketed to about 6.1%.
In his meeting with Cabinet yesterday, he discussed the issue and will also be meeting with various stakeholders to continue the discussions to see what kinds of national response there would be “to build a fire wall for ourselves against some of the most negative impacts of the crisis the world has ever seen…”
Giving examples of banks going bankrupt and governments bailing them out, he said that had anyone suggested that three months ago a government should nationalise a bank, such a move would have been seen as a socialist phenomenon. Today, he said, nationalization was happening routinely. Governments are also making available large sums of money to intervene by not only purchasing shares in banks but in supporting the liquidity provisions by purchasing assets, including bad assets sometimes from some of these institutions.
Because of the uncertainty of the financial markets, he said that the credit market has frozen and when banks cannot lend to each other and the interest rates in inter-bank lending goes up, credit becomes less available. “If they can’t borrow to meet depositors’ obligations and debt obligations then they are in serious trouble because they can’t redeem depositors money.”
He said that it was already being predicted that there will be a fourth quarter decline in Gross Domestic Product in the USA. The financial crisis will not be confined to the USA, he said, “It is going to spread like wildfire.”
