Affordable housing the expensive way

Shameful

The loan by the Guyana Geology and Mines Commission (GGMC) to the Central Housing and Planning Authority (CH&PA) raises once again the concern about the conscious mismanagement of the resources of the Guyanese people by the PPP/C government. Guyanese expect their government to promote and protect their financial interests as stewards of the nation’s resources. But quite often there are revelations of what looks like deliberate attempts by the government to undermine good governance and to thwart the will of the people. The laws that are applicable to this case expose the depths to which the government would go to take advantage of the resources of this nation in an attempt to preserve its self-interest and to hold on to power in this country. To get a good sense of this shameful conduct one has to bring together multiple parts of the GGMC Act and then link them to the public financial rules. This is obviously a task for the lawyers. But this writer believes that even without legal credentials, one could see that the government may have ignored the most important restraints on the ability of the GGMC to make a valid loan to the CH&PA. In addition, this article intends to show that the government by taking a loan from GGMC undermines the very rationale that it used to justify the decision by choosing an expensive option to do so. Irrationality is commonplace with this government but so is subterfuge in its actions. One therefore cannot discount all the other corrupt reasons that might have persuaded the government to make such an indefensible move.

Circumscribed

A discussion of this nature cannot take place without reference to the GGMC Act, the Housing Act and the Securities Industry Act, for they have all been implicated by the comments made on the matter of the loan by GGMC to the CH&PA. A reading of paragraph 10 of the GGMC Act should make it clear to all and sundry that the GGMC did not have the right to make the loan of the kind that it made to the CH&PA. Due diligence by the Commissioners under an act of fidelity would have alerted them to the fact that the loans that GGMC can make are circumscribed by the words “in the performance of its functions” that appear at the very end of the said paragraph. That phrase in the mind of this writer says that paragraph 10 must be read in conjunction with paragraphs 4 (1), and 4 (2) which deal with the general and specific functions of GGMC. The three subparagraphs of 4 (3) and the two subparagraphs of 4 (4) leave no doubt like the previous two paragraphs that the functions of GGMC are about mining and its related activities. It has nothing to do with a general housing programme.

Unless there is hidden meaning in the language of the six subparagraphs of 4 (1) and the three subparagraphs of 4 (2), GGMC has acted outside the authority given to it by the Act. There is nothing written in those paragraphs that suggests that GGMC could lend money for housing development or for any purpose outside of the role it is required to perform. To make matters worse, the housing development for which the money was ostensibly lent will not be taking place in any mining area or district. By the government’s own admission, the housing development is on the East Bank and East Coast of Demerara.

Investments

Further, there has been an attempt to justify the loan as an investment by GGMC. Any attempt to do so would bring paragraph 8 of the GGMC Act into play and would also activate the relevant provisions of paragraph 57 of the Securities Industry Act. The requirements of these Acts expose the irregularity of the loan deal and the apparent contempt for the laws of Guyana should the GGMC insist that the loan was an investment. Paragraph 8 of the GGMC Act says that GGMC can invest in securities. Securities are generally understood to mean equity and debt instruments that can be bought and sold on a market like the Guyana Stock Exchange. In other words, the expectation is that GGMC would buy and sell shares of stock or buy and sell bonds. The bond which is a loan would be the type of security in which the GGMC could invest. However, for the loan to CH&PA to have qualified as a bond, the CH&PA would have had to issue it in accordance with paragraph 57 of the Securities Industry Act. To do so, the CH&PA would have had to use an underwriter who was registered with the Securities Council. Unless that happened, GGMC cannot claim that it made an investment in a marketable security. To date, there is no evidence that CH&PA took such action.

Expensive option

The irregularity of the GGMC-CH&PA deal brings to mind the other public management issue of how the government borrows money. The government borrows money on a regular basis and at rates that are usually below that of the private market. The Government of Guyana usually borrows money in the domestic market by issuing debt securities known as Treasury Bills. Many governments issue Treasury Bills which can have maturities of any duration from 30 days to 364 days. In the particular case of Guyana, Treasury Bills issued by Guyana, according to the Bank of Guyana (BOG), usually carry maturities of 91, 182, and 364 days. According to news reports, the duration of the loan that GGMC gave to CH&PA is one year, which means that the CH&PA could have asked the government to issue Treasury Bills of 364 days duration on its behalf. Treasury bills are usually bought by the commercial banks, even though they are available to households, and other interested buyers.

According to the BOG, the most recent issue of 364-day Treasury Bills had an effective interest rate of 2.35 per cent. That is the price that the government was likely to pay if it had decided to borrow the G$3 billion using this mechanism. However, the government did not do that. Instead, it chose to take money from the GGMC in contravention of the law and with scant regard for affordability. It means that at 5 per cent the government agreed to pay more than twice the amount it would have cost had it used the most common method of borrowing. Yet the government chose to use the most expensive means by which to acquire the money for a so called affordable housing programme. The house lots will be sold to taxpayers and in choosing the most expensive option, the government has decided that taxpayers, who are given no choice in this matter, can afford to pay the higher price. It is clear from the foregoing that the loan decision and housing programme are not about affordability.

No emergency

There is something too about the choice of priority for which the money is to be spent and this is best understood by examining the interconnection between public management and public interest that is often found in the budget. As such, the budget is not merely a document that allocates money. It is an important policy document which contains, upon approval, agreed policy positions. The government therefore cannot take it upon itself to assume that what might have been agreed in a past budget, including the level of spending, was agreeable automatically today without parliamentary input. The government contends that the money would be used to meet its housing plan. The housing situation might be dire, but it is not an emergency. It was likely to take a long time before whatever lands are being acquired can be readied, allocated and built upon. Such a matter that is not of a life-and-death nature ought not to be the subject of urgent and highly irregular extra budgetary action. For it cannot be assumed that the need for housing which could have a long lead time is greater than the immediate need for maternal and child healthcare. It cannot be assumed that the need for housing is greater than the immediate need for life-saving drugs. It cannot be assumed that the need for housing is greater than the need for drainage and life in a highly sanitary environment in a clean city. In the immediate circumstances, house lots cannot be a justification for ignoring the more pressing human needs of Guyanese.

There is a concern that GGMC and other government entities hold too much money. The view is that all monies collected by such entities should be transferred to the Consolidated Fund. This demand has been resisted by the government without reasonable justification. Readers should ask themselves the question, why does a business hold on to money that it earns. The ‘going concern’ concept of a business offers an explanation and leads us in the direction of three things. One is that the business needs to hold money to finance daily operations. This is often referred to as working capital in the world of business. Two, as an entity that wants to grow or actually grows, the company holds on to money to seize investment opportunities to increase its market share. Sometimes that requires acquiring additional production capacity in order to meet the increased market demand. It is often cheaper in a competitive environment to use interest-free funds to operate the business. So, it is quite understandable why a private business would want to hold on to the excess money that it earns and not withdraw or distribute all as dividends.

Mandates

GGMC has two broad mandates. One is regulatory and the other is productive. The productive activities of GGMC as could be seen from the functions that are listed in paragraph 4 of the Act requires it to hold money so that it could operate and expand its business activities. In this sense, it was created as a business and could be seen as a going concern that needs to retain some income. GGMC is also required to maintain a Reserve Fund by law. GGMC also executes regulatory duties. As a regulator, it could be seen as carrying out duties on behalf of a third party, the central government. It would appear reasonable then that any money collected for the third party should be passed to that party. In paragraph 4 (3) of the Act, GGMC collects tolls, levies, rents, fees, royalties, and such income as part of its regulatory duties. One should expect that these monies should be turned over to the Consolidated Fund since they are not generated from the business activities of GGMC, but rather as part of its regulatory function.

Greater scrutiny

Therefore, GGMC cannot pick and choose what it sends to the Consolidated Fund. It must send the money that it collects under its regulatory mandate to the Consolidated Fund. To the extent that these monies are being comingled with those from mining operations that GGMC undertakes or manages then GGMC could be in breach of the Fiscal Management and Accountability Act. One needs to know which of the two mandates generate the greater share of revenue to determine if the amounts transferred to the Consolidated Fund are consistent with the financial collections by that entity. This matter deserves greater scrutiny and ought to be pursued to the fullest.