OPINION: Dr. Jagdeo: the question is not why interest rates, but the rate Exxon charges

Last Updated on Monday, 26 June 2023, 14:52 by Denis Chabrol

By GHK Lall

I keep trying to help Vice President Jagdeo.  The more he tries to tighten his interest rate narratives, the more his slip is showing.  It is not an appealing picture.

Brother Jagdeo: it is agreed that investors have to get a return for their money; that is as basic as a, b, and c.  Guyanese know.  I agree also that whether the invested capital comes from bank loans or company equity, the people behind the investment must get something for their efforts, from their borrowings or their use of company capital.  Further agreement comes with a handshake for Brother Barry’s position that is “the cost of doing business.”  What Dr. Jagdeo may think he is doing as a favor to his inquirers in the media, or to the wider world of interested citizens, is as commonplace as the color of the PPP and PNC flags.  There is no mystery, no great conceptual discovery, unique to Brother Jagdeo, which he now so generously shares with his fellow Guyanese.  All those things that he said are as ordinary as the trees in Guyana’s vast rainforest canopy.  I urge brother Jagdeo to pause in the remote hinterland wilderness the next time he happens to be there and open his storm-battered mind to listening.  He may hear the voice of God.  He may hear also that he is neither fooling nor educating most Guyanese.

Guyanese know that interest is the cost of money, that investment returns are the “cost of business”, just like he said.  For Dr. J’s edification that is Common Entrance commerce.  Guyanese have mortgages, car loans, personal loans, and hire purchase loans, so they are too familiar by far with interest rates and interest charges and interest costs.  What they may not be so fully familiar with is how much the companies extending the loans (credit) for washing machines, stereo sets, and exercise machines, tack on to their borrowing costs as the final interest rate that their customers pay.

If any of Dr. Jagdeo’s feverish and well taken care of defenders are of the mind that this is to strip man and leader of his halo, nothing could be more alien to the truth.  I am committed to helping him and, while at it, to putting fellow citizens in a place of clarity so that they can think for themselves.

It is a standard practice for companies to tack on a few percentage points to their borrowing rate, and pass the total on to their customers.  For example, they borrow at 5%, and they lend (invest) at 7%.  It is that seven percent that they collect on loans from which the lending institutions are repaid their 5%, leaving the company to pocket the remaining two percent for themselves.  I call it profit on profit; brother Barry got more fancy with his cunningly convoluted business about “returns” and “cost of doing business.”  Thanks, but no thanks, skipper.

I present Guyanese with another free morsel to chew on, it is an easy exercise.  When companies use their own money (equity) instead of taking loans to invest, they have the clearest ideas about what others in their sector are charging (if they have some spare billions to invest), and what projects of like kind are carrying in terms of an interest rate.  That is their benchmark, their guiding star, their decision playbook.  So, when I hear this curious development about a “standard rate” that Guyana is paying, the first question that comes is what is “standard” and how is that decided?

For sure, all things being equal, there could be such a standard, which would have some fluidity.  This is said because the package of risks for investing in Guyana would be different from investing in, say, Ghana or Gabon or Greece.  Political risks, sovereign risks, and recovery risks, to name a few, all have different weights attached depending on circumstances in the host country, and as they are assessed by the company doing the investing.  What could be standard for Nigeria or Venezuela may have no relation to Guyana.  It could be better or worse.

But Jagdeo could have spared himself the effort, and Guyanese the irrelevancies of his lecture, which were more about leadership sorcery rather than interest rate theory and simplicity.  The question put before him was not how or why companies charge host countries interest on loans taken out against their liquid collateral, or their multibillion dollar advances from their equity petty cash kitty.  Rather the question was how much is the interest rate that Exxon is charging Guyana.  There it was plain and straight, with nothing simpler, and no hidden tripwires to cross-up and cause tumbling.  I repeat so that this registers with everyone: what is the interest rate that Exxon has levied on Guyana?  Nothing more is asked for, many Guyanese can take it from there.

All that brother Jagdeo’s knitting and stitching does is expose him still further regarding how his political life (relationship with Exxon) depends on ducking the question.  His ducking creates more ripples, and he continues like this a tsunami could result and wash away all these antics of his.  Recall the butterfly effect, please.