keeping order
Guyana Banks on Fiscal, Monetary Stability for Foreign Investors “
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hen he was 19 years old, Lawrence Williams applied for a position at the Bank of Guyana. After four attempts, the persistent young man was hired as a clerk. Williams stayed for six months, then went off to university and came back in 1979 as a supervisor. Today, the one-time teller runs the bank. Appointed governor in 2005, Williams is now in his second five-year term, reporting to Finance Minister Ashni Singh and setting Guyana’s monetary policy. Notably, the Bank of Guyana was established in 1965 — making it older than Guyana itself, which got its independence a year later. “Like any other central bank, our role is fairly well established,” Williams explained. “We issue currency, provide advice to the government, and set policies that ensure that we can control inflation and at the same time make sure there’s enough credit available for the orderly development of industry.” It wasn’t always that way. In the 1980s, Guyana suffered from hyperinflation, a desperate shortage of foreign exchange, and an external debt exceeding $2 billion. “It was a time when we pursued an economic model that is completely different from the one we have now,” said Williams. “Debt servicing was consuming almost all our foreign-exchange earnings. A great deal of it represented arrears, and at one point, we just stopped servicing some bilateral debt.” Between 1984 and 1989, Guyana went through a series of devaluations that made the Guyanese dollar one of the worst currencies in the Western Hemisphere. “Naturally in that scenario, we were trying all sorts of modalities to stem the hemorrhage taking place,” Williams said. “After the president [Forbes Burnham] passed away in 1985, his successor [Desmond Hoyte] decided it was time to reverse course and seek accommodation with the IMF and the World Bank.” By 1989, price controls had largely been removed, the foreign-exchange market was liberalized, and the government began privatizing state-owned companies such as Guyana Telephone & Telegraph. “We remained in the clutches of the IMF from 1989 until 2006, then we exited the IMF program, by which time we were able to achieve some macroeconomic stability,” said Williams. Today, inflation is running about 3.5 percent a year, while interest rates have dropped from 30 percent to 5.7 percent. Money sent from Guyanese living abroad makes up a significant chunk of Guyana’s balance of payments. Last year, the country took in $420 million in remittances — more than half of that coming from the United States. “During the 2008-09 financial crisis, the level of remittances slowed, but not like the dramatic falloff we saw in other countries,” said the bank governor. “It may well be that members of the Guyanese Diaspora are employed in sectors of the economy that were not
April • May 2013
We issue currency, provide advice to the government, and set policies that ensure that we can control inflation and at the same time make sure there’s enough credit available for the orderly development of industry. — lawrence Williams governor of the Bank of Guyana
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LAWRENCE WILLIAMS Photos: Larry Luxner
affected negatively.” Still, inflation has taken its toll on Guyana, with the result that today, the highest banknote in circulation is the G$1,000 bill, introduced in 1996. That bill, worth $5 at current exchange rates, now accounts for 93 percent of all banknotes in circulation — which Williams says drastically exceeds international guidelines. To reduce the burden on merchants and consumers, the Bank of Guyana will roll out a G$5,000 banknote later this year. Nevertheless, Williams says the bank has no plans to either reform the national currency as did neighboring Venezuela and Suriname, or dollarize the economy, which is the solution Ecuador and El Salvador have adopted. “You can re-align the currency by knocking off a couple of zeroes, but we haven’t gone that route because it would be very costly for us. You’d have to do wholesale price readjustments and run sensitization workshops. There’s going to be the inevitable cost to the financial sector, and it could be disruptive to commerce, at least initially,” he explained. The other path, adopting the U.S. dollar as Guyana’s legal tender, was never given serious consideration, said Williams. “Our economists did some studies, but the general feeling is that going that route would be ceding monetary policy to another authority. This is not something we would want to embrace at this point in time.” Yet a third possibility might be the establishment of a common currency by the 15 members of the Caribbean Community (Caricom), which happens to be headquartered in Guyana. Some Caricom countries have fixed rates; others have floating rates. Williams said strong arguments exist favoring one exchange regime or the other, depending on where a particular country is at in its stage of development. “The OECS [Organization of Eastern Caribbean States] has had a fixed-rate arrangement since the establishment SPONSORED REPORT
of the Eastern Caribbean Central Bank, and it has served them well,” he said. “Studies have been done to see what sort of accommodation could be made. We may want to start by having a new currency.” For the moment, Williams said one of Guyana’s most important achievements in the economic sphere has been to liberalize the foreign-exchange market and lift its formerly onerous currency restrictions. “You’re required to declare only if you’re taking out or bringing in more than $10,000,” he said. “The removal of restrictions provides the investor with the incentive that once he invests, he doesn’t have to worry about administrative restrictions on repatriating his earnings. A lot of investors see this as an attraction.” Guyana is still a very cash-driven society, with rather limited use of credit cards and electronic payment systems. However, Williams would like to see that change. “The payment system is what drives economic activity, to ensure that as an economy we’re performing efficiently. So we not only look at a currency structure that will serve our needs but also actively promote the development of non-cash means of payment,” he said. “That’s not moving at the pace we’d like to see, because we still have this heavy cash orientation in the economy.”
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