GuyAm Bank, Guyana’s only merchant or investment bank was established two years ago. It is yet to involve itself in any projects, but is looking at possibilities.

Meanwhile Managing Director, Graham Scott, says the fertile ground into which the bank has launched itself is corporate, financial and investment management services, offering advice to firms on restructuring and recapitalising all for a fee.

GuyAm Bank’s fee income attested to this, rising from $200,000 for the first nine month of operations in 2001 to $1.6M at the end of 2002.

The bank, which in 2002 secured an investment broker in the US, has seen its investment income climbing from $449,666 in 2001 to $21M at the end of 2002, and is now offering to invest funds for local institutions and manage their portfolio.

Scott says GuyAm Bank has enjoyed a reasonably blended return of 9% from its investments last year, which are free of taxes, whereas local investments in treasury bills would have yielded under four per cent and faced a withholding tax of 15%, now increased to 20%.

GuyAm Bank has secured a large client to invest its resources abroad and is working with a few others to manage their portfolios. During 2002, the bank moved $179M of its liquid resources from low yielding local bank deposits into US dollar bonds issued by the governments of Barbados, Trinidad & Tobago, Belize, Grenada and Jamaica. As a result, investment income increased by $20.5M while interest on bank deposits declined by $15.4M, a net benefit of $5.1M.

Geoffrey Bell, Chairman of GuyAm Bank in a recent interview, indicated that had the bank left its resources in deposits, it would have run at a loss, instead of the $12M profit it posted for 2002.

But while merchant banks are expected to take on risks and invest in equity and provide venture financing, GuyAm Bank has not done any such activities to date. Scott says the Bank is yet to find any bankable proposals but is looking at some simultaneously as it offers advisory services to firms. He said such projects have a long lead-time and are not developed overnight.

Bell said that the Bank was currently working to shore up its income and avoid “potentially risky projects” until it had established itself in business with an “ample” income stream. He indicated that the bank needed this to be able to do “other things” or it would face capital erosion.

“This conservative approach makes particular sense in a very difficult world economic and financial environment. Financial institutions around the world have been hit severely by falling equity markets, bad loans and a series of shocks both geo-political and financial in nature. Naturally, we have been careful in our selection of investments, placing a high priority on risk analysis and having a deep understanding of the areas of business in which we operate,” Bell told shareholders at the recent annual meeting of the bank.

He said that while risk was a part of everyday life for a merchant bank, controlling risks was fundamental for success in the long term. He noted in the interview with Stabroek News that the biggest increase in investment demand in the world right now was for a better return on fixed interest investments.

“The search for higher yields is tremendous. The best investments are seen in the emerging markets, and Caribbean bonds are doing very well as did other bonds,” Bell said, noting the volatility of Brazil, Jamaica and Argentina.

With the introduction of the new corporate, financial and management advisory services, he sees the bank as truly being launched and looked forward to GuyAm Bank playing a meaningful role in Guyana’s economic and financial development.

However, Bell restated an earlier position that Guyana ought to start the process of having a country rating so as to be able to go on the international market and raise capital. He reiterated that it did not matter if the country had a very low rating, as what mattered was the start of the process. He noted that Grenada, which was, rated BB- by Standard and Poor recently went on the international market to raise US$100M.

But a key point, which he underscored, was that international criteria to attract funding would be respect for rule of law and sanctity of contracts.

Bell said a Guyana with low growth; the issue of violence, civil unrest and kidnapping would not do any good for the investment image of the country. He noted that the entire world economy was also looking for investment capital and if Guyana had to battle additional problems, securing investments would be difficult.

And while Guyanese have been hearing much about the Berbice River Bridge, a hydroelectric project, a deep-water harbour and many other massive infrastructure projects over the years, Bell stressed that a very valuable service of merchant banks was saying to people what was not possible. He noted that private funding for large projects would have to carry attractive returns which possibly could not be borne by the country without government guarantees to make them attractive.

In the case of the Berbice Bridge, he noted that the crime situation had deteriorated to such a level that no one would want to drive to Berbice and with the traffic being insufficient to support the returns, the government would be required to provide some level of funding which may not be possible. A hydro-project costing US$300M would also be unable to secure private funding in the current economic environment.

As a result of the challenges facing project financing and the difficulties in finding bankable projects, GuyAm Bank is looking forward to the Securities Exchange becoming a reality so that it could participate fully and take advantage of business opportunities, which should arise.

The Guyana Securities Council licensed the Bank as a Broker and Investment Advisor on April 7th.

The Securities Exchange is being seen as a contributor to the broadening of financial markets and aiding economic growth. However, similar exchanges in the region have not boasted much success in this regard.

GuyAm Bank, a subsidiary of Secure International Finance Company, owned by the Beharry Family, says it is committed to playing its part as a facilitator in the economic development of Guyana.

The private sector arm of the World Bank, the International Finance Corporation, has a 20% equity stake in GuyAm Bank while the Guyana Bank for Trade and Industry holds a similar share.



Euro sets new 4-yr highs vs. dollar, yen, sterling

NEW YORK, (Reuters) - The euro rose to its strongest level in four years against the dollar, yen and sterling yesterday morning, underpinned by weakness on Wall Street and concerns about the U.S. economy.

Against the dollar, the single currency rose as high as $1.1288, its highest since February 1999, according to Reuters data. The euro also hit a new 4-year high against sterling at 70.27 pence, and set a new 4-year peak against the yen at 133.83 yen.

Despite a stronger than expected reading in a closely watched gauge of the service sector, traders said the market’s doubts about the U.S. economy’s weakness kept the dollar on the defensive, as did lackluster trading on Wall Street. (Back to top)





StocksView Greenspan’s no match for Nostradamus

(Pierre Belec is a free-lance journalist.

Any opinions expressed are those of Mr. Belec.)

By Pierre Belec

NEW YORK, (Reuters) - Don’t throw away your Alan Greenspan collectible dolls.

President George W. Bush raised some eyebrows among the shrinking ranks of Greenspan fans last week when he said the Fed chairman deserved a fifth term.

``The president thinks he has done a very able job as a steward of the economy, making certain that we had the proper monetary policies in place,’’ White House spokesman Ari Fleischer said.

The big question: Is Greenspan as smart as many people make him out to be?

You be the judge.

After a painful three-year bear market in stocks, people have discovered that Greenspan — the modern-day Nostradamus — was right when he warned in December 1996 that the Dow Jones industrial average, then at 6,000, was out of sight and investors had a bad case of ``irrational exuberance.’’

Investors were buying stocks regardless of the companies’ performances. Do-it-yourself investors lacked the ability to discriminate. Like a drunken gold miner in a boom-town house of ill repute, stock investors rewarded the winners and the losers alike, particularly in the high-tech sector.

New milestones in the Dow, the Standard & Poor’s 500 and the technology-laced Nasdaq composite begat more milestones as the market became ``bubblicious.’’

The Fed chief may not have been solely to blame for inflating the market bubble, which is still destabilizing the economy three years after it burst.

But his inaction extended the life of the speculative mania.

``Greenspan has maintained that he could do nothing to stop the stock market bubble because bubbles can only be known after they pop,’’ said Ray DeVoe, publisher of the DeVoe Report. ``With all due respect, I disagree. Bubbles are obvious to all who want to see them.’’



ALAN.COM

The Fed policy-makers played a major role in pumping up the Nasdaq to more than 5,000 by March 2000, DeVoe says. The master mechanics of the $10 trillion U.S. economy could have raised interest rates to cool things down, but instead, they chose to keep interest rates on hold and let asset prices skyrocket.

``Too many people invent rationalizations to deny that bubbles exist — a form of self-delusion since they really don’t want to see them,’’ DeVoe said. ``In telecommunications, the rationalization was the over-optimistic belief that demand for telecom services would double each quarter. Capacity was built on that assumption and demand grew, but nothing like those projections.’’

For the last three years, the telecom industry has been stuck in recession, with 98 percent of its fiber-optic network unused. The excess capacity hurt the entire economy, which is why Corporate America’s capital spending is at a standstill.

``With inflation low, money could be borrowed for very low — zero or occasionally negative rates of interest,’’ DeVoe said. “This resulted in a boom in business-fixed investment, particularly in technology, telecom and information technology.’’

Back in the late 1990s, investors made bets on the low risk that stocks would get bitten by a big bear market.

Much like the “Tulipmania’’ in Holland in the 1630s, when the price of tulips shot up by 6,000 percent, stock investors — speculators — made tons of money in the late 1990s.

Centuries ago, the wealth effect in Holland drove up the price of land and horse-drawn buggies. When the bubble burst, tulip prices crashed by 90 percent in less than a year as the ``biggest fool’’ script played out.

Trouble was, everyone believed in the same story: Tulip prices would rise forever and everybody would get rich.



HOUSING BUBBLE AHEAD?

Fast forward to 2003. Real estate is booming, thanks to the Fed’s manic rate cuts to get the economy back on track. The cost of borrowing is now at a 41-year low.

What’s happening is that real estate has replaced the stock market as a builder of wealth. Money is flowing into another pot of gold. People have gotten rich from buying homes and they’re extracting cash from rising home prices.

For the past two years, many economists have warned that home prices may be increasing too rapidly, in the same way that stocks were going through the roof in the late 1990s. The risk is another asset bubble.

The explosion in home prices may be distorting the spending decisions of millions of Americans who have been cashing out at a record pace. Under the ``cash out’’ feature, homeowners refinance mortgages and draw on some of the equity in their houses. The Fed estimates $200 billion in refinancing was processed last year and home equity loans totaled $130 billion.

Americans spent half of that refinancing money on consumer goods, which has supported the economy.

``If interest rates rise and housing prices stabilize or even decline, this contribution to the economy would be significantly lower,’’ DeVoe said.

Greenspan insists that a bubble in housing is ``unlikely.’’ He has assured Congress that ``the types of underlying conditions that create bubbles are very difficult to initiate in the housing market.’’

Says DeVoe: ``Well, if he was unable to spot a bubble in stocks until after it popped, he would be equally unlikely to see one in housing.’’

If the Fed gets it wrong, the economy’s long-term health will be at risk.

A housing crash may have more serious consequences on the economy than the slump in stocks because consumer confidence, i.e. household wealth, would be directly affected. Worth remembering is that consumer spending accounts for an awesome two-thirds of national economic activity.

There’s a real risk to the American dream of owning a home.

The enriching liquidity that has made home buying so rewarding may morph into impoverishing illiquidity.

The big difference between Greenspan and Nostradamus is that the 16th-century French crystal ball reader got it right more often than the Fed chairman, with all of his economic models.

Gov’t prefers secrecy in IMF dealings

-despite fund’s new transparency policy

The International Monetary Fund insists transparency helps economies function better and makes them less vulnerable to crisis but Guyana’s government is of the view that such openness leads to policy information ending up in the wrong hands.

President Bharrat Jagdeo indicated a few weeks ago that the unavailability of Guyana’s policy intention documents with the IMF, such as its Letters of Intent and Article IV Consultation, on the fund’s website, was deliberate as this information once in the wrong hands could get distorted.

However, Guyana falls within a minority of 14% of IMF member countries, who have not given the green light for their policy intention documents to be posted for public consumption. The IMF says 84% of its member countries have had no objections to their public information notices being posted following the Article IV consultation process.

“Greater transparency, in both economic policy and in data on economic and financial developments, is critical for smoothly functioning national economies and a stronger international monetary system,” the IMF said in a fact sheet published this month titled Transparency at the IMF. The IMF itself has taken a number of steps to provide more information on its own role and operations to a global audience. An Independent Evaluation Office has been created to review the operations of the fund.

“Greater openness on the part of member countries encourages more widespread discussion and examination of members’ policies by the public; it enhances the accountability of policymakers and the credibility of policies; and it facilitates efficient functioning of financial markets,” the April 2003 fact sheet said. The fund sees this greater transparency on its own part as allowing for a better understanding of its role and operations as well as increasing its accountability for its policy prescriptions.

In January 2001 the IMF took a decision to enhance the transparency of its operations and its executive board adopted a series of measures aimed at improving the transparency of members policies and data and to enhance the fund’s own external communication. As a result of the policy decision, member countries were given an option of having their policy information, in the form of their Letters of Intent, Article IV consultation and details of the adjustment programmes, published on the IMF website. However, Guyana has opted not to have its policy commitments published.

Guyana’s only publication of its Article IV consultation paper was on May 21 1999 and November 2000. No other publication of its Article IV consultation has taken place since then. The Article IV consultation for the current IMF supported programme concluded on September 13, 2002. The joint-staff assessment of Guyana’s Poverty Reduction Strategy Paper (PRSP) and the PRSP were published on the IMF website last year.

Recently, Geoffrey Bell, Chairman of the Guyana Americas Merchant Bank (GuyAm Bank) underscored the need for another set of eyes to monitor Guyana to allow the country to pursue prudent policies so it can gain an international credit rating and be able to raise money in capital markets abroad.

However, the voluntary nature of the IMF releases of country information is under review as it is being argued within the fund that moving to a presumed publication would strengthen the fund’s surveillance and the effectiveness of its programme in countries.

It is being suggested that efficient market operations can be facilitated by improving access to information and staff analysis thereby enhancing the capacity of markets to price risk properly. Policymakers would also be helped in mobilising support for taking timely and corrective actions to address identified vulnerabilities. The fund’s accountability for its policy advice would be increased as the public would observe and compare other countries’ policies. The quality of staff reports and analyses would also be subject to public and market scrutiny and risk associated with uncertainty would be reduced. There would also be greater ownership of staff programmes and increased accountability of the fund for its decisions.

On the other side of the coin, the arguments are that compulsory publication including publication of Article IV reports in delicate circumstances could trigger a crisis, while non-publication of a staff report for a member who had previously published a report could also be a problem. Other disincentives include authorities being dissuaded from speaking candidly with staff and deterring approaches to the fund for support at early stages of balance of payment difficulties.

The Executive Board is to discuss the merits of moving from voluntary to presumed publication of Article IV and other staff reports.

Since the IMF adopted a transparency policy, it is making available to the public more information about surveillance of its members. The fund said 84% of Article IV consultations have been published, providing information on the IMF executive board’s assessment of countries’ macroeconomic and financial situation. It also noted that 131 members published 258 Article IV staff reports between June 1999, when the board authorised release of these reports on a voluntary basis, and in March 2003.

The fund is also making available more information on countries’ IMF-supported programmes and has released Letters of Intent for 93 per cent of requests for, or reviews of, the Use of Fund Resources (UFR) between January 2001 and March 2003. Additionally, 57% of stand-alone reports on IMF-supported programmes were published between January 2001 (when the Board authorised their release) and March 2003.

The IMF also makes available financial data on members’ financial positions with the IMF as well as quarterly IMF financial and other statements and information including codes of conduct for IMF staff, Directors recruitment policies and procurement guidelines.

The Independent Evaluation Office established in July 2001 has already done an independent evaluation of prolonged use of IMF resources, with Guyana placing among those. It is now about to review the PRSP approach to reducing poverty in low-income countries.

The IMF began publishing the PRSP and the Poverty Reduction and Growth Facility (PRGF) (the Fund’s concessional lending window for low-income countries) in March 2002.

The Fact Sheet noted that in taking these steps to enhance the IMF’s transparency, the executive board has had to consider how to balance its responsibility to oversee the international monetary system with its role as a confidential adviser to its member.

Letters of Intent are prepared by member countries and describe the policies that a country intends to implement in the context of its request for financial support from the IMF. Memoranda of Economic and Financial Policies are also prepared by member countries describing the policies that a country intends to implement in the context of its request for financial support from the IMF. Policy Framework Papers prepared by the member country in collaboration with the staffs of the IMF and the World Bank describe the authority’s economic objectives, macroeconomic and structural policies for three-year adjustment programmes supported by ESAF resources, as well as associated external financing needs and major sources of financing. The Policy Framework Paper series ended in January 2000 but these documents are all available on the IMF website by agreement with member countries. (Gitanjali Singh)





Asian firms with better governance outperform - CLSA

HONG KONG, (Reuters) - Asian firms with better corporate governance practices outperformed domestic equity market benchmarks by an average of 35 percentage points in the past five years, a report by CLSA Emerging Markets said yesterday.

``Over short periods, the outperformance of high-scoring stocks is tenous,’’ said the report, which was authored together with Asian Corporate Governance Association (ACGA).

``But over the the past five years, stocks in the top 25 percent of the CG (corporate governance) survey outperformed their markets by an average of 35 percentage points (ppts), while those in the bottom 25 percent underperformed by 25 ppts,’’ it added.

The report, which ranked 380 companies in 10 Asian economies, said among large regional capitalised stocks — HSBC Holdings, Infosys Technologies, TSMC, KT Corp, BAT Malaysia, Public Bank, Singapore Press Holdings, ST Engineering and Standard Chartered were those having high corporate governance scores.

CLSA said Singapore, Hong Kong and India are seen as offering investors the best corporate governance environment, whereas Indonesia, the Philippines and China are the riskiest.

``For their part, Korea and Malaysia have seen the highest improvement in our macro CG scores since we began these in 2001,’’ the CLSA report said.

The report said Asian companies were improving their record on corporate governance but the depth of their commitment is still not yet clear.

``In all markets however, cases abound of egregious transgressions. Still investing in companies with good CG gives investors some safety in avoiding the worst blowups,’’ the report said.

Amar Gill, CLSA’s head of Hong Kong research, said there was improvement in regional regulatory and enforcement standards, but avenues for redress by minority shareholders remain lacking.

Analysts say Asia has come a way since its 1997/98 regional financial crisis and put in place stricter rules and many companies enacted codes of best practices to lure investors.

But opaque family-controlled business structures, off-balance-sheet liabilities and lack of minority shareholder rights are issues still dominating most Asian markets.



Barama adapts to environmental and commercial concerns

Gives Guyana high marks for forest management

By Patrick Denny

Barama’s commitment to practising sustainable forestry management has put it in good stead to penetrate the “green market” for wood products in the European and North American markets and to be first in line at the plate when the now depressed plywood market recovers.