by GHK Lall
News reports and commentaries have indicated that local foreign currency reserves are under serious pressure. What is really happening here? Why? Who are the financial authors? Addressing these questions calls for some delving into history, and local contexts and developments, so that the picture becomes clearer, more sharply pointed.
The year was 1981, the place France, and Francois Mitterrand at the helm. Being a good socialist, Mitterrand made spirited attempts at implementing policies dear to the heart of the political left. He soaked high income earners with increased taxes and nationalized those still non-state-owned banks. In terms of the latter, the new leader immediately collided with a windmill powered by a hurricane. Unrelenting disapproval from the currency markets compelled the French government, a global power no less, to retreat, do a U-turn, and get out of the banking business quickly. Three harsh devaluations changed Monsieur Mitterrand’s heart. Though there were other fearsome resisting forces, in some respects, this can be called the democracy (or tyranny) of visible free markets and the work of less visible hands. If a powerful government with a clear parliamentary majority can be forced to capitulate on a major ideological plank in this manner and pronto, then what about this heaving, struggling republic groping to find itself?
What is the problem with these foreign currency shortages in tiny unruly Guyana with its single currency (US dollar for all intents and purposes) driver? How does the local world change in three short years (quite possibly less than two) from overflowing levels in the street and officially to one of staring at the reserve cupboard and finding it continually unnerving? That is, nearly bare? Why are there suspicious whispers and sometimes public claims of what amounts to currency corners? And to whom belong the not-so-invisible hands involved? I will keep this simple; subtle, too.
In 1981 France, President Mitterrand came with his socialist bag of economic programs. In 2015 Guyana, President Granger arrived with his administration’s near parallel of new taxes and tax implementation; it was the first stone. The effective tax rate climbed for the evaders, never insignificant people. The anger and resistance were quick in coming. Citizens with sudden billion-dollar tax debts screamed. They struck back, too.
The second deadly sin of the Granger government-in effect, a boulder to the head-was the comprehensive regulatory squeeze embodied in anti-money laundering policies and procedures that were increasingly enforced. As in Mitterrand’s France, the daggers came out with the hitherto undocumented, nontransparent and unaccountable rich most displeased and intensely hostile. In the memorable words of that business maestro from a century ago, J.P. Morgan, the government of Teddy Roosevelt wanted business to transform from deep pockets to “glass pockets.” Transparency and accountability are nice things; but only in the abstract or when demanded of the other fellow. The same Guyanese glass pockets pursuits caused the funny money, hot money, dirty money, and smart money, all previously unfettered and untouched, to all disappear like the denizens of a bordello just before a raid. In conjunction with taxes, AML became like socialism: too intrusive, too exposing, too sanitizing, too profit destabilizing, and too much government too, the likes of which were never experienced. What was that one again: source of funds?
So let’s get real: what is the Guyana currency market? It is that cartel of closely knit private money interests that are up in arms against the tyranny of taxes and anti-money laundering regulations. This domestic cartel has declared war on the state through squeezing the supply of the foreign dollar, which it caused to evaporate almost overnight. As Marcus Tullius Cicero sagely noted thousands of years ago, “the sinews of war are infinite money.” In this very real Guyanese war for the returning dominance of a certain way of life, the previously infinite supply of currency is now redirected through an old-fashioned Mafia strangle to weaken and bring to the knees. In the parlance of markets, a corner for predetermined outcomes: push the rate, stagnate the economy, threaten the government to walk back (like Mitterrand) through relaxing these stringent regimes. Or else….? In street language the money cartel withdrew and withheld; supply spigot tightened. It is the wisdom of applied mathematics that probes for relief (and also command and control) through government reversal of now established policies and programs. If a powerhouse like France had to back down, what chance does fledgling Guyana have in this currency war? Especially when the assembled opposition-political, establishment, arrivederci, civic, and financial-is so formidable and resourceful? And loaded, too. A war it is.
Well, the Granger government has its own arsenal that comes with its own irrepressible vernacular: A-B-C-F-A-T-F. For those curious about the missing D and E, add the munitions of blacklisting and extraditing. And since I have gone all the way to T in that string from the alphabet, V should not be left out, as in visa. Revocation is now the damning stamp of the devil and right on the forehead. In response, the powers have retreated into the woodwork; they also took their stashes of previously free-floating US dollars with them leading to a currency crisis and a crisis in government. This has gone beyond brinksmanship; it is serious men with serious money who inflict serious damage. AS Herbert Hoover said, “The problem with capitalism is capitalists. They are greedy.” To that, one can add powerful and very calculating.