The traditionally reserved Bank of Guyana (the Bank) has found itself increasingly drawn into public statements and appearances over the uncertainty surrounding the foreign exchange market and the deterioration of the exchange rate of the Guyana Dollar. Of course, the Bank is in fact discharging one of its statutory functions under section 5 of the Bank of Guyana Act. i.e., “fostering domestic price stability through the promotion of stable credit and exchange conditions.”
An analysis of the causes of the current state of the foreign exchange market will require far more data than is currently available. Hopefully, the Bank will make every effort to soon publish the 2017 first quarter statistics, including foreign currency flows, and transactions with the non-bank and bank cambios. Not only will we be able to see hard evidence of anecdotal reports of foreign earnings by the agriculture sector, flows from exports and imports as well as remittances and imports, but hopefully, we can see the role and extent of some major but less discussed players in the foreign exchange market.
We have heard stories of hoarding, control over the use of credit cards, the spread between the buying and selling rates of foreign currency and increasingly witnessed finger pointing and accusations between the authorities and segments of the private sector. Of course, none of these actually helps to augment the stock of foreign currency in the market or contributes to confidence building which is so important to a strong economy.
The Governor and the directors of the Bank have a tough challenge on their hands but I believe that the stability of the exchange rate over more than a decade may have contributed to some complacency on their part. In addition to its principal function for price and exchange stability, the Bank is also licensor and regulator of the financial sector. Additionally and inexplicably, the Bank of Guyana was assigned responsibility for the insurance sector following the collapse of CLICO. That combination is simply too unwieldy, takes away from the real focus and strength of the institution and therefore needs to be revisited sooner rather than later.
Yet, it was reassuring to hear that the Bank proposes to review the operation of the Foreign Exchange Retention Account facility permitted by the Bank of Guyana to certain business houses to retain for their official use. There are no available statistics on how much foreign exchange is held in those accounts and it would be interesting to learn whether the Inspectorate Division of the Bank of Guyana carries out any test to see that these accounts are used for approved purposes only and whether the Bank robustly enquires into forays by holders of such accounts into the foreign exchange market.
Another potentially huge problem in the foreign exchange market is the operation of the banking segment of our three major conglomerates – Banks DIH Limited which has a 51% stake in Citizens Bank Limited, the Beharry Group which indirectly controls the Guyana Bank for Trade and Industry Limited, and Demerara Distillers Limited (DDL) in which there is common control with Demerara Bank Limited. DDL is of course a special case. There is no “significant shareholding” relationship (by law, 5%) between DDL and Demerara Bank Limited but the two entities share three directors – Messrs. Yesu Persaud, Komal Samaroo and Harry Parmesar, all leading accountants.
Prevailing circumstances make it a matter of national interest to ascertain how the banking arm of these groups of companies treats the other group companies in respect of foreign currency. Are the foreign exchange requirements of Banks DIH Limited, for example, procured from Citizens Bank Limited with which it shares a Chairman, and if so under what conditions? The same questions will apply to the Beharry Group of Companies and to Demerara Distillers Limited which is both a holding company and an operating entity.
I believe that such transactions should be formally and separately identified in the periodic reports by the respective banks to the Bank of Guyana. The intervention in the currency market by Banks DIH Limited when it repurchased its shares in Guyana Dollars and then went out to buy billions of Guyana Dollars’ worth of US Dollars may never have happened but for its control of Citizens Bank!
The Bank of Guyana as regulator should undertake checks of such reports to identify any self-dealings and preferential treatment by these commercial banks. The Bank of Guyana should also enquire why the sale and purchase of foreign currency is not disclosed in the financial statements of the banks and their respective associated companies, clearly a requirement under International Financial Reporting Standards. Accounting standards are not there to be narrowly construed and selectively applied.
For me, there is a bigger and more fundamental problem with these conglomerates. While the concept of conglomerates is entirely normal, the question of whether any of them should include a bank in any of its forms is one that needs to be critically examined. The existing arrangement is full of incestuous conduct and it would require an inordinate amount of time and resources by the Bank of Guyana to police them.
The Government needs to consider very seriously whether financial institutions should be allowed to continue to operate as part of any group of companies.
Of course, the same kind of self-dealing which the conglomerate arrangement permits exists in those companies and groups which are granted non-bank cambio licences. In so far as cambios can be justified, they are licensed to carry on trading in foreign currency, not self-dealing. The Bank of Guyana as the licensing authority needs to address this problem.
The recent actions and statements by the Bank of Guyana may lead to a more efficient and transparent foreign currency market. In the short term they may also help in more money being released into the system. In the final analysis however, in terms of the exchange rate, that is a function of the fundamentals of supply and demand for currency, reflecting in part, the confidence of the business community, investors and persons acting rationally to secure the value of their savings. The relationship between the Government and the private sector needs to be strengthened; the demonisation of the entire business community sedated; and the bigger players in the foreign exchange market paid far more attention, rather than the individual seeking a US$500 to purchase.