Dear Editor,
I have followed the raging discussion in the op-ed pages regarding foreign exchange and would like to offer a perspective. The professional economists and the erstwhile “perpetual student” have struggled to adequately explain the issues in a way that the reading public can understand. As I understand the issue: There is a shortage of US Dollars in the Guyanese banking system which required the Bank of Guyana to inject US Dollars. The conundrum
for the professionals and the perpetual student to offer an explanation: why, strange as it seems, there is a shortage of US Dollars when everyday Guyana is earning millions of US Dollars from our oil?
First, the billions that Guyana earn from the oil does not enter the local banking system. Why? It is deposited in US financial institutions.
Second, the government has embarked on policies that cumulatively caused the current foreign exchange shortage: the cash grants, the 2 week “jankilaar wuk” program, the massive cost over run on projects [example: the over-priced and badly constructed road that Marco Rubio experienced] have injected billions of Guyana
Dollars into the pockets of recipients. When people get more money, some buy more stuff. In economic terms: demand goes up. Also, instead of patronizing our local tailors, Guyanese want imported clothes from Macy’s. In economic terms: the substitution effect.
Since, the commercial banks are buying at about $216 but the money changers on the street are offering $225 for the US Dollar [the real exchange rate]. The banks see their currency supply dwindle as people make the rational decision to sell their US Dollars on the street. Cumulatively, we have more Guyana Dollars in the hands of consumers chasing the limited supply of US Dollars in the banks to buy foreign products Imagine: Chobani yogurt in the supermarket at Skeldon!
Third, on the supply side: Guyana has not adequately expanded output. Why? Kesh Nandlal has not fixed the electricity problems. Imagine investing in millions of dollars in eggs for a hatchery and GPL goes down; all gone Lake! This is one of the main impediments facing local producers [not just chicken but anyone who need a stable and reliable power supply to run their operation]. So, instead of producing local chickens, we “import” and ask the Skeldon
ambulance to make an “emergency trip” to Georgetown or New Amsterdam markets.
Fourth, the government must recognize the good politics make bad economics: It must stop the cash grant programs and desists from intervening in the labor market. Nowadays, local producers cannot get Guyanese to work an entire month on a project-they down tools and head to the local government for their 2 week “jankilaar wuk” paycheck, and Kesh Nandlal ought to resign.
As improbable as it seems: the economy is inter-connected. The cash grants, the intervention in the labor market, Kesh Nandlal’s ineptitude, the cost overruns on shoddily built road, etc. all contribute to a foreign exchange shortage.
Sincerely,
Roger Ally
Fort Lauderdale
