Much has been said about the supposed shortage of US currency in Guyana’s market – both by the Georgetown Chamber of Commerce and Industry (GCCI) and the Central Bank in loaded statements. The issue was thought to be put to bed after the private sector met with the Bank and the Bankers’ Association to address the supposed hoarding by banks.
But recent comments by Chartered Accountant, Christopher Ram prompted clarification from Financial Analyst Joel Bhagwandin whose bottom line was that Guyana could trigger the Dutch disease, should it flood the market with foreign exchange (forex), a point that was also affirmed by Vice President, Dr. Bharrat Jagdeo.
In a letter, Bhagwandin argued that the forex issue is a temporary and microeconomic one. So, Bhagwandin noted that there is “no need” for a policy intervention from the government or the central bank.
He explained that the Bank’s primary purpose is to manage the money supply of the economy and implement appropriate monetary policy that synchronises with the fiscal policy stance or philosophy of the government.
“Moreover, there is a far more critical reason why the government or central bank cannot intervene in a major way (which is what the private sector had been pushing for), that is for the central bank to inject forex into the system. The government cannot afford to flood the market with forex because this will naturally engender the dreaded Dutch disease. If the market is flooded, there is a real risk of a sharp appreciation of the G$ against the US$,” he warned.
The Financial Analyst reasoned that more forex on the market will lead to an appreciation of the exchange rate, and will not bode well for local non-oil exporters.
“The end result, the non-oil export sector will die at the expense of the importers. The importers will get stinkingly richer and the exporters poorer. Imagine companies in the export sector going bankrupt, loss of thousands of jobs, aggregate demand will start to dwindle as a consequence, imagine what will happen to the broader economy. This demonstration is exactly what characterises the Dutch disease,” Bhagwandin wrote.
He noted that the hoarding of forex is both good and bad and needs to be managed carefully, which is why the government pointed the private sector to the Bankers’ Association.
The temporary shortage can be resolved in the short term, he explained further, because local banks are confident that drawdowns from Guyana’s Natural Resource Fund bring in more forex to meet domestic demand.
“With this in mind, it is through moral suasion―that the Government is confident that the forex issue can be dealt with and resolved because the alternative, which is to strong-arm the banks to release all those foreign exchange into the system, would be dangerous to the macroeconomy (Dutch disease),” Bhagwandin said.
