Dear Editor,
Now that another international bank has bet against Guyana as it rapidly approaches First Oil in 2020, we might instructively say of the motivation behind and implications of that bet, “It isn’t about market share stupid; it’s about the Dutch Disease.” I’d rather suspect however that, stricken with a singular concern about concentration in the financial sector, the sector specialists at the Bank of Guyana and the Ministry of Finance would only be worrying that Republic Bank might want to purchase Baroda.
Actually, what ScotiaBank and the Bank of Baroda have done is not so much to bet against oil rich Guyana but to bet on an undiversified Guyana economy saddled with more and more regulations blissfully promulgated and introduced to stave off the corruption and dirty money that usually come with windfall oil revenues. On the latter score of regulatory creep, be not deceived Editor by talk of the EITI and the Natural Resource Fund, oil revenues (which fall within the classic definition of Ricardian rent) will not be mocked: Wherever there are rents there will be rent seekers and rent seeking behaviour!
ScotiaBank’s and Baroda’s prescience in recognising that the traditional sectors could decline with the windfall oil revenues might in fact be attributed to their attention to their profits – an attention that could become a self-fulfilling prophecy. Like other multinationals that shop around the world for the highest “expected” rates of return, international commercial banks weigh both the financial returns and the risks that would, if realised, impair their asset portfolios and profit streams. To the extent that Baroda and Scotiabank both invested in the agricultural, manufacturing and even mining sectors, both would be worried about the quality of these assets if the real exchange rate were to appreciate significantly; but even if they didn’t invest in those sectors, they will certainly be worried about an arbitrary, hawkish, cumbersome regulatory framework that makes it virtually impossible to conduct international transactions and makes potential criminals of all local investors, their customers.
Yours faithfully,
Thomas B. Singh
