Dear Editor,
SN’s September 30th editorial “A filthy business” said much. Yet much more is not known by the general population of how this national enterprise works. I can assist. The Guyana Gold Board (GGB) has existed from the early 1980s with a curious culture that compelled it to function with a well-practiced formula, and operate within well-defined boundaries. In the tightest terms and sequence of events, this is it:
1. GGB buys metal from miners
2. GGB pays miners for metal that meets requirements
3. GGB obtains its payment funds from Guyana Government agencies
4. The Finance Ministry first advanced GY$108M in 1981 to kickstart the institution
5. When the Treasury stopped doing so, the Bank of Guyana filled the breach
6. GGB incurred decade-long deficits at both the Treasury and the BoG
7. Gold bought is accumulated, processed, and exported
8. All the foreign exchange (FOREX) earned returns to Government
9. Pre-oil, and as other crucial sectors struggled, gold was the leading FOREX earner
10. GGB purchases were not part of any gold reserve aggregation and retention program
11. Gold export proceeds keep things floating, and helps address the multibillion deficit at the BoG
12. The multibillion-dollar Treasury deficit stayed largely untouched -no free funds
13. The written record (and conversations) of both the BoG and Treasury reflect push for deficit reduction
Editor, there are several other surrounding issues that impact the GGB’s operations and its viability. First, gold is accumulated for shipping, which could be monthly, or otherwise, depending upon intake levels. Second, while the market price of the commodity fluctuates, the GGB could come out ahead, or be left with a big financial hole. Therefore, timing and hedging have their roles. Efforts to introduce derivative hedging strategies (even to earn income) were neither practiced, nor favoured. In sum, the GGB was subject to the volatility of market prices. In 2012, there was, to put politely, betting that the upward spiral of gold prices would continue indefinitely, and huge upside recorded. Instead, prices plummeted, and gold bought and paid for at around US$1900 an oz stagnated in inventory, while new prices languished hundreds of American dollars per ounce below what GGB purchased for, and was left holding. It is key to note that the 100,000-ounce inventory (approximately) was not part of any gold reserve per se of the State, but held in the expectation of market conditions improving, selling, and earning FOREX, only for the opposite to occur.
It would be an instance of rare truth on the part of the PPP Government, if this whole truth is shared so that citizens understand what went wrong under its stewardship, and where the GGB was left. To insert deceptive narrative about reserves, or any such thing, is the height of inaccuracy through deliberate and not-so-skillful misrepresentation. In street lingo, it is called plain old-fashioned lying. A big gamble was taken with almost 100,000 ounces, and great losses ensued. The mandate has always been to buy gold, export, and bring back much-needed FOREX. I doubt if this practice has been discontinued. Meanwhile, it should be noted that the BoG multibillion-dollar (double digit) deficit still existed on GGB’s books, and senior Central Bank officials were dogged in their pursuit of reduction. Simultaneously, top officials inside the Finance Secretary’s office were also calling for their billions to be addressed. That is, GGB paying back some money. At no time, on no occasion, was there any policy, any program, any push for retaining GGB purchases (inventory) as reserves. Full stop. The emphases were for FOREX earnings, with the next being the deficit reduction, getting the books in order. On a few occasions, the subtle word from the Central Bank was that continuing advances to the GGB (to operate, buy from miners, and pay them) may be a problem. Further, there is another issue requiring ventilation.
There is an ancient preset formula that the GGB is held to, which works like this. It buys and pays for gold at the daily London “Fix” (the conventional pricing mechanism), but the reimbursement exchange rate that it receives is less. The GGB’s receiving rate is the average of the US$:GY$ rate paid by the six commercial banks less GY$4.25. The six commercial banks’ average rate is always more than what the GGB has historically received from BoG, for exported gold sold. Moreover, all parties (benefiting) speak of some mysterious document supporting this longstanding average rate arrangement, but nobody can produce anything. In effect, this means that the GGB lives with two harms: first it could lose through buying at the market price of the day (Fix), and selling at price (after export and refining) that could be lower than what was paid to miners; and second, losing out again given the FOREX setup that has been in place for the last two decades (commercial banks average rate less GY$4.25). It should be noted that no organizational costs (fixed or operational) are mentioned. There was nothing coming from any source for those. Moves to correct the FOREX practice (formula) that conflicted with basic business practices met with fierce resistance from mining powers, and their escalating the issue. The practice continued.
To be clear, the financial result of this particular regime of buying and paying at an international price, and collecting at the lower local level, is that the GGB lives under a regime of losing money for every single ounce of gold that it buys and exports. Of course, the selling price could be advantageous, but cannot be waited upon, or taken risks with, for FOREX needs are always pressing, the BoG wants deficit reduction, and business turnover continues. To summarize, at every level, presences in the gold sector, with few exceptions, embody incomparable self-interest. Those contributing to it, those piloting it, those standing above it. People previously associated with the GGB have gambled and lost big using taxpayer money. People standing over the GGB have falsified and deceived. Gold in this country is not just filthy, it is monstrously ugly, with people in the PPP Government to match. Sharing facts, allegiance to truth, could be difference-makers, just don’t expect either from the government.
Sincerely,
GHK Lall