Government will protect against run on dollar-- Jagdeo
By Gitanjali Singh
Finance Minister, Bharrat Jagdeo, has assured the private sector that if there is a speculative run on the Guyana dollar the government will intervene, given the multilateral agencies' approval. Speaking to Stabroek News after a media briefing yesterday, Jagdeo said he explained the role of the Bank of Guyana in managing foreign currency to the Private Sector Commission (PSC) delegation on Monday. The bank buys currency from the system when it has too much and sells back to it when there is a shortage. "I pointed out to them that the Central Bank released US$31 million on the market last year and $14 million so far for this year," Jagdeo said. Concern about the value of the Guyana dollar mounted recently as foreign inflows slowed, but Jagdeo told the media that persons with political motives were "down talking" the Guyana dollar and warned against this. He said that while export earnings had been reduced, the demand for foreign currency locally had also dropped because of the effect of the El Nino phenomenon on production, though not at the same levels. "There will be some exchange rate movement owing to economic fundamentals...less foreign currency earnings etc... and we anticipate once the dry weather pattern goes the country would rebound quickly. You would have increase foreign currency flows to the market and the situation would correct itself," Jagdeo said. Given the inflation rate and the other economic realities, Jagdeo said that there was no reason for the dollar to reach the proportions commentators claim it was at ($170 = US$1). He noted that other currencies of the world like the Japanese Yen experienced similar fluctuations because of demand and supply. However, the minister commented that some persons were making a killing from the situation, as while there has been an increase in the cost of the US dollar to consumers, the cambios were buying at a rate not much different from before. And countering charges of capital flight, Jagdeo said that while he could not deny that individuals might be shifting resources because of the political climate, deposits in the commercial banks increased from $46.9 billion last year to $48.6 billion this year. The over 600 foreign currency accounts at the end of January had $16 million as against $19 million in October last year. Jagdeo said a seasonal factor had to be added to the equation of scarce foreign currency. Rice and sugar were now being exported, he said, and he expected that when the receipts flowed into Guyana the foreign currency situation will improve "tremendously". The government, he said, expects US$60 to US$70 million in balance of payment support this year. He also explained that if the government ran down its reserves the private sector would be hard hit by the lack of suppliers credit and higher interest rates because the country's credit rating will fall. He said the gold held by the Central Bank was a part of its reserves and was pre-sold. The minister claimed that persons were attempting to set a panic train in motion in the currency market which would result in the rate sliding. "If the crisis prolongs... If we have a crisis induced by exogenous factors, then there is a strong case to make to the multilateral institutions for help in stabilising the currency," Jagdeo said. He also debunked the PSC's contention that Guyana will experience negative growth for the first six months of this year. "No. My budget predicts a positive growth for the economy," Jagdeo insisted, but refused to hint at the percentage anticipated. He, however, indicated that it would not be at the levels of the past years. The PSC in a review of the economy's performance for the first quarter of this year predicted zero or negative growth for the first six months and urged decisive action by the government to halt the slide and to restore investor's confidence. Jagdeo told reporters that his government was working to repair the country's image, which had been shattered by the aftermath of the December 15 general elections. However, he did not feel that the country's investment potential had been shattered, citing the forestry sector, where only recently a Canadian firm had shown interest and the palm oil industry which is attracting Malaysian interests. Noting the PSC's call for an incentive regime similar to Trinidad to be put in place to attract investment, Jagdeo pointed to differences in the level of the two countries socioeconomic development. Trinidad, he noted, had fiscal surpluses, a better budgetary situation, cheap oil and electricity, developed infrastructure and a sophisticated financial sector. "We are now trying to build those things in Guyana," he said. He told Stabroek News that he had also pointed out to the PSC the incentives the government had given to stimulate investment including a 70% tax free income for non-traditional exporters. "While we recognise the need for investment in Guyana we cannot jeopardise the macro economy," the minister stated. He said he explained as much to the PSC. 
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