Ramson’s opinion as AG was solicited on a private lottery not a government lottery

Unusually for Guyana, Mr Charles Ramson SC uses the honorific ‘Justice’ to subscribe his letter ‘Solicited opinion that the government share of the Lotto funds does not have to be placed in the Consolidated Fund has now been given the blessing of a High Court judge’ (SN, January 15).

Despite having occupied such an exalted position, Mr Ramson still seems unable to accept certain basic facts as well as the relevant constitutional and statutory provisions in the entire Lotto funds issue, including the case to which he refers. Let me try to clarify some salient points for him.

In 1996, some time around which Mr Ramson had his first stint as Attorney General, the Government of Guyana and Canadian Bank Note Ltd signed an agreement under which the company’s wholly-owned subsidiary, the Guyana Lottery Company Inc, was granted permission to operate a lottery in Guyana. Under the terms of the agreement, the company pays to the Government of Guyana a licence fee of 24% of gross revenues, decreased by the amounts of any additional fees and taxes.

The question which the court was asked by Mr Desmond Trotman to address in the Lotto case is whether the 24% is subject to Article 216 of the Constitution of Guyana. That article requires that:

“All revenues or other moneys raised or received by Guyana (not being revenues or other moneys that are payable, by or under an Act of Parliament, into some other fund established for any specific purpose or that may, by or under such an Act, be retained by the authority that received them for the purpose of defraying the expenses of that authority) shall be paid into and form one Consolidated Fund.”

In what he keeps repeating is a “solicited opinion” given by him on May 19, 2010, Mr Ramson as Attorney General advised that the funds received from the Guyana Lottery Company were not required to be deposited into the Consolidated Fund.

It is more than surprising that Mr Ramson who holds such a high opinion of himself and which he thinks is shared by others would make the elementary mistake of not properly and adequately checking the Government Lotteries Act Cap. 80:07. This Act, which permits and regulates Government lotteries provides the following unambiguous definition of “Government lottery”:

“Government lottery” means a lottery organised and conducted by the Government Lotteries Control Committee under the provisions of section 3 of this Act“ (emphasis added).

But instead of staying faithfully with that definition, Mr Ramson refers in his opinion to the Auditor General the following definition in the agreement:

“A lottery organized and conducted under the provisions of Chapter 80:07 Laws of Guyana.”

No clumsy, procrustean or perverse attempts to circumvent the Guyana Lotteries Act could succeed since only a lottery “organised and conducted by the Government Lotteries Control Committee” comes within the definition of the Act. The lottery on which Mr Ramson’s opinion was solicited is one organised and managed by the Guyana Lottery Company Limited, a private company. It could not therefore be a government lottery, even by Mr Ramson’s strained definition.

But this was not Mr Ramson’s only error. In referring to a Development Fund of Guyana to buttress his flawed opinion, he does the opposite and actually weakens his case. Had he done basic research he would have realised that there is no such fund in Guyana, nor has any been in existence since 1966 when an earlier Development Fund set up for the colony of British Guiana was abolished.

With a modicum of diligence, Mr Ramson would have discovered that there is no Development Fund of Guyana whether under the Constitution, the Financial Administration and Audit Act Cap. 73:04 or the successor provisions in the Fiscal Management and Accountability Act No 20 of 2003. The latter makes it pellucid and mandatory that all public moneys raised or received by the government must be credited fully and promptly to the Consolidated Fund. The only exceptions, none of which applies to the 24% received from a private company, are:

(a) moneys credited to an extra-budgetary fund set up under enabling legislation establishing such a fund;

(b) moneys credited to a deposit fund established by the Minister into which public moneys are paid pending repayment or payment for the purpose for which the moneys were deposited; and

(c) any fund established for any specific purpose by or under an Act to be retained by the authority receiving the money to be used for the purpose of defraying the expenses of that authority.

But Mr Ramson’s most egregious error was his failure to recognise that the Constitution is the supreme law of Guyana and its provisions, including Article 216, cannot be swept aside by the terms of any agreement however clearly or ineptly drafted.

Unfortunately for Mr Ramson, he did not stay silent even with the embarrassment of such elementary errors. Without the benefit of a written decision of the judge or his presence in the court when Justice Diane Insanally gave her ruling on a preliminary point, Mr Ramson claims that his opinion “has been given the blessing of a High Court judge.”

If Mr Ramson would exit the fantasy land in which he “sedulously sought refuge” he would realise that the learned judge did no such thing: she simply ruled on a procedural point only; and he would also learn that that ruling has been challenged. Incidentally one of the grounds of appeal is the judge’s reliance on what is considered a flawed point handed down by Mr Ramson himself while he sat on the Court of Appeal.

Unhelpfully for his legacy that was the closing case Mr Ramson included in his book In Pursuit of Justice – A Collectanea which he thinks secured his expertise as a legal mind.

Twenty years later – part 3

Introduction
Today I return to and conclude the topic started on December 16, 2012 to mark the 20 year anniversary of Business Page. I chose the banking sector to mark the occasion because that sector was in the inaugural column, and I thought it would be useful to see how the sector had performed over the two decades. Twenty years ago the Government played a big role in the banking and financial sectors in Guyana. It owned and operated the Guyana National Co-operative Bank (GNCB) and also had major interests in the National Bank of Industry and Commerce (NBIC) and the Guyana Bank for Trade and Industry (GBTI). The only other commercial banks operating in Guyana twenty years ago were the Bank of Baroda Ltd, an Indian-owned multinational, and a branch of the Canadian-owned Bank of Nova Scotia. Other players in the financial sector were the Guyana Co-operative Agricultural Development Bank (GAIBANK) and the Guyana Co-operative Mortgage Finance Bank (GCFS), both wholly-owned Government entities, and the New Building Society Limited.

Twenty years later the government is completely out of commercial banking, GNCB and GAIBANK are no more in existence or operational while two new domestic banks are closing in on their own twenty years of operation. In other words, there is only one additional operator in the commercial banking sector and no new international bank in the twenty years since 1992. The ownership structure is one of concentration and control with one of the international banks (Scotiabank) still operating as a branch and the other (Baroda) a wholly owned subsidiary. RBL, GBTI and Citizens Bank are all subsidiaries with a majority shareholder, while DBL’s ownership structure is somewhat more complex, with its annual report disclosing that there is no shareholder whose interest exceeds 5% but whose annual general meeting, among the commercial banks, is probably attended by the least number of members.

In the tables in today’s column we see that those banks have all done extremely well, surpassing the growth in the economy many times over. Let us take profits before tax. From nothing the Demerara Bank Limited and Citizens Bank Inc. recorded pre-tax profits in 2011 of $1,279 million and $1,389 million respectively; the National Bank of Industry and Commerce which was renamed the Republic Bank (Guyana) Limited and acquired the operations, liabilities and certain assets of the GNCB has seen its pre-tax profits increase from $335 million in 1991 to $3,175 million in 2011, an increase of 847% while the GBTI which reported pre-tax profits of $571 million in 1991 saw those profits rising to $1,961 million in 2011, an increase of 243%. The performance of the Bank of Nova Scotia was no doubt equally impressive although under then prevailing laws that branch was not required to report on the performance of its domestic operations.

While the growth of the economy, inflation and the scale of their services would have contributed to the increased profitability of the banks, they would inevitably have benefited from the barriers to entry in the sector with the government very reluctant to grant further banking licences. There is no study of which I am aware into the operations of the sector to examine the effects on the economy, beyond some fierce competition for market share, which the concentration of ownership can facilitate.

This kind of research which goes well beyond a newspaper column, is what one should expect from the Bank of Guyana and the University of Guyana, and it would be helpful for a better understanding of the sector and the formulation of policy initiatives if such a study, or indeed studies were undertaken.

What is clear, however, is that while in the years immediately following 1992, it was almost obligatory for the Minister of Finance to comment critically on the high spread between the rates of interest charged on loans and advances and those paid on deposits, that no longer happens. Moreover with a number of the banks taking up membership of the Private Sector Commission the question of spreads seems completely off the table.

The following two tables show some indicators in the landscape in which the commercial banks have operated. Inflation has declined dramatically; the banks’ prime lending rate has been halved while the rate of interest paid on savings accounts has fallen much more steeply. Meanwhile and counter-intuitively the exchange rate of the Guyana dollar to the United States dollar has fallen from $122.75 to $203.75.

Table 1

2013.01.13_Table1

Source: Bank of Guyana publications

Some aggregate numbers
The banks have become bigger, much bigger. Measured in Guyana dollars, their assets have increased by 1,218%; deposits by an even larger 1,338%, loans and advances by 1,780%. The comparable US dollar percentages are 694%, 766% and 1,033%. As noted above and shown in Table 4, growth has translated to handsome profits.

Commercial Banks

Table 2

2013.01.13_Table2

Source: Bank of Guyana publications

Market share
While concerns may be expressed about the conduct of the commercial banks in a wider sense, there is no doubt in my mind that there is intense competition for loans and advances to customers.

There appears to be far too restrictive policy on making loans to non-resident companies which almost invariably have to bring money into the country on the mistaken ground of crowding out rather than borrowing from the local banking sector. At December 31, 2011 loans and advances by the commercial banks were less than 50% of their deposits which many consider are not growing as fast as they can because of interest rates that deter rather than encourage savings.

The banks however face some countervailing challenges when it comes to the economy. Some of the main players in some of the fastest growing sectors such as gold, construction, the narco-sector (which has earned special mention), the still huge underground economy and the Chinese and Brazilians, seem more interested in shipping money out of Guyana rather than borrowing from the commercial banks.

As a result of the restrictive lending rules and the nature of key sectors of the economy, market share in the banking sector, and more especially in their hugely profitable lending operations, is vital to profitability. This is how the banks stood in (2011), the last date at which figures are available. These numbers are more than just instructive.

Table 3

2013.01.13_Table3

Other Income & Salary Ratios

Table 4: 1991 and 2011 comparatives for NBIC/RBL & GBTI and 2011 for Citizens Bank (Guyana) Inc. (CBI), Demerara Bank Limited (DBL) & Bank of Baroda (BOB).

2013.01.13_Table4

One area of concern about the banks are the charges they impose on what might appear to be their miscellaneous services such as foreign exchange operations, letters of credit, returned cheques, copies of statements, etc. Interestingly, while in the case of NBIC/RBL, the percentage which such other income bears to its other income and net interest income has increased from 22% in 1991 to 27% in 2011, in the case of GBTI that percentage has fallen from 27% to 24%. Comparable percentages for the other banks are Citizens Bank 25%, Demerara Bank 28% and Bank of Baroda 33%.

Another interesting statistic is that in every bank, the salary and related costs are more than covered by other income alone, maybe strengthening the argument for more favourable interest rates, subject to the usual rules applying to risk levels.

The future
The picture for the banking sector looks rosy.

The sector will continue to be driven by technology and the banking licence – which has no carrying value on the balance sheet – will continue to be the most valuable asset, a licence to make money. While some entities will pursue the bricks and mortar strategy at least one other will see that as not the smartest approach to banking in an increasingly technologically driven environment.

Technology will play an even greater role in the sector as mobile money takes root and measures to strengthen controls and prevent increasingly clever and daring frauds continue.

But then the future is never certain. While money laundering will continue to play a significant role in the economy, with the non-bank cambios prominent, the commercial banks’ risk will not be helped by the tepid supervision of money laundering. This is likely to increase as the distributive trade continues its evolution.

There is no new legislation on the horizon and the principal regulator of the sector will continue to pursue conservative, non-interventionist policies.

Without some kind of revolutionary thinking and approaches neither the consumer nor the labour movement will exert any influence on the sector.

The tragedy of NICIL – Act 1

Introduction
If NICIL – the National Industrial & Commercial Investments Limited – was a play, it would be one that challenges Othello and King Lear for the dubious distinction of saddest tragedy ever written. And this is how the dramatis personae would be introduced:

Chairman of the Board: Dr Ashni Singh has the distinction of reporting to himself; credit for the undermining of the last vestiges of confidence in public accounting; lead authority on the use and mostly abuse of the Consolidated Fund and its offspring the Contingencies Fund; and credit for the largest financial sector failure under his watch;

Director: Dr Roger Luncheon, who thinks running a government and country is an opportunity to display verbosity and jest; who has merrily led the country’s National Insurance Scheme to the brink of the cliff and then casually denies reality; and who cannot distinguish a government company from a private company;

Executive director: Winston Brassington, who has been the architect or centre of almost every concoction or government initiative in the past fifteen years – the Queens Atlantic Investment Inc and its illegal tax holidays (later accepting the assignment to teach a private sector icon about the country’s tax laws); railroading the most costly financial package in setting up the Berbice River Bridge Company Inc and inducing and bribing investors with generous tax incentives; and the longest transitioning from the public sector to the private sector in Guyana’s history;

Auditor General: the benign Deodat Sharma, who moves from the stream of auditing (or not auditing) government transactions to the ocean of auditing where statutes on taxation and governance rule; where familiarity with deferred taxation and ever-changing IFRSs challenge the most seasoned accountants; who audits some of the country’s largest (government) companies in accordance with the Companies Act 1991 which does not recognise him as qualified to do such audits;

Regulators: such as the Registrar of Companies who was frightened off from demanding annual returns from the company for close to twenty years; the Commissioner General of the Guyana Revenue Authority who has not been able, for more than twenty years to collect a penny of Corporation Tax from Dr Luncheon’s “private company” despite several billion dollars of profit before taxation; or Property Tax despite the company owning at various times some of the most valuable state assets; or Capital Gains Tax despite the company acquiring premium assets at nil value and disposing of them at market value (except in the case of some friendly sales); and the national accounting regulator who has sat on two complaints for the equivalent of one year, unable or unwilling, maybe because the financial interest of its members, to pronounce on alleged egregious breaches of ethical and accounting rules and the Companies Act.

Making hay of delay
Apparently the Institute, applying a logic best understood by them only, decided to treat with the two complaints sequentially. From follow-up enquiries on these complaints, there appears some equivocation or evasion on whether or not this approach was reversed following stalling tactics employed by counsel retained by Ms Gitanjali Singh to deal with the complaint against her on the fundamental question of conflict of interest. After all, more than Ms Singh’s conduct is at stake here and it was no surprise that she resorted to Senior Counsel.

Minor players whose names or faces are supposed to lend credibility to NICIL: These include former Chairman and Minister of Finance Mr Saisnarine Kowlessar who would hardly have suspected how the company would come to define and represent some of the very values he represents; Mr Geoff DaSilva, Head of Go-invest, Ms Sonya Roopnauth, Budget Director and Ms Marcia Nadir-Sharma, NICIL’s Company Secretary, ever ready to sign corporate documents and defend the most offensive of corporate practices.

Ms Nadir-Sharma we recall was on television in September 2012 on the NCN’s outstandingly ironic debate on corruption, vociferously denying that NICIL had been in violation of the Companies Act and then rushing just over one year later to sign off on the statutorily mandated directors’ report for nine years – 2002 to 2010 inclusive – bearing no date but only the month: November 2012. Consequently, what NICIL and its directors could not and did not do in years could suddenly be done in just two months, a demonstration of political expediency trumping the law and governance. It is probably more than idle speculation that NICIL might have been taking advantage of the craven slothfulness of the Institute of Chartered Accountants which has delayed any consideration of a number of issues on the financial statements of the company and the conflicts of interest between the company and the Audit Office.

The plot
More important to the players however is the plot to take an entity established by the PNC government of Desmond Hoyte to oversee the privatisation process and make it in an instrument of circumventing the Constitution and other laws of Guyana. More specifically, it ensures the ignoring of Article 216 of the Constitution that requires all government revenue to be placed in the Consolidated Fund and bypass Article 217 which requires parliamentary approval for all public expenditure. The plot is devilish in its simplicity: vest state assets in the company which it then sells and uses as its own money to do as it pleases, whether to develop Pradoville 2, divert sewerage or mismanage road contracts or build a hotel.

Sitting in the pit of the theatre of the absurd are the politicians, including the main opposition party APNU, demonstrating a failure to understand or appreciate the deviousness with which their concerns over NICIL and other financial issues have been circumvented, and announcing in late 2012 that the government had become “more accountable”; the professional class more concerned about their economic well-being or about being victimised for their courage rather than standing up and speaking out for the financial well-being and fiscal rectitude of the country; and the public bewildered and bemused that the kind of maladministration for which NICIL has become a poster child continues to this day.

Financial summaries
Against this background Business Page commences a review of the financial statements and directors’ reports of NICIL for the years 2002 to 2010, the last year for which annual reports have been tabled in the National Assembly by Dr Ashni Singh. To carry out this function Dr Singh seamlessly changed hats from being the Chairman of NICIL to that of Minister of Finance. Here is a summary of the financial statements of the company – not the consolidated accounts of the group – for the ten years 2001 to 2010 as disclosed by the audited financial statements.

Statement of financial position

2012.01.06_Table1

Statement of the Comprehensive Income

2012.01.06_Table2

Statement of Cash Flows

2012.01.06_Table3

However, before addressing and analysing these I will use next week’s column to conclude the twenty year review of the banking sector in Guyana which I started last month. I do apologise for the untidiness of not completing that review before beginning the examination of NICIL’s financials, but my own efforts at data collection and research were less efficient than I had anticipated.

Beware of the triskaidekaphobiacs (fear of the number 13)

Introduction
It is that dreaded time of the year when columnists are expected to look into and engage in attempts to predict the future. You would think that in Guyana that would not be too hard – every pessimistic prediction since 1961 about our political parties failing to act in the national interest having been proved right. But you do not understand how accountants operate.

Their eyes are at the back of their heads so they can look back with no discomfort, and organise and manipulate historical accounting data to show that two and two can be whatever the CEO wants the result to be.

The feature of such year-end pieces has been a combination of levity, hopes for the new year and some not-too-serious predictions which in my case are invariably wrong. In fact so wrong that it will take up much less time and space to highlight the few obvious correct forecasts than the litany of failures. Here are two I did get right: I can claim some credit for predicting in the January 1 2012 column that the world would not end on December 21, 2012, a claim attributed to the Mayans but based on no written or scientific evidence. In fact, December 21, 2012 marked the end of one of the cycles in the ancient Mayan calendar at the winter solstice, not the end of the world.

Despite the successive failure of Armageddon to materialise (remember the year of the Rapture), this will not deter other nuts from predicting the end of the world, though ironically not in 2013 which otherwise arouses triskaidekaphobia (fear of the number 13).

The second success was that Barack Obama would be re-elected President of the United States of America with the help of his wife Michelle. In fact it was with the help of both his wife and Bill Clinton, an omission that can be explained as one of detail rather than substance.

Apologies to Usain Bolt for saying he could not repeat his Beijing triumph in London. I forgot we were dealing with a superman and a legend of Greek proportions. And yes, I note that the United Nations has responded to my plea on behalf of vegetarians by naming 2013 as the Year of Water Co-operation and also the International Year of the Quinoa, a vegetable. Thank you Mr Ban!

No place for levity
For me Guyana is a place from which levity has taken flight. Look at our cartoons and all we see is a decadent form of political atrophy that even allows APNU to claim credit for making the government more accountable, itself nothing short of a joke.

Perhaps their spokespersons forgot that Article 216 of the Constitution of Guyana is violated on a daily basis; that the Minister of Finance sticks his thumb at them over NICIL, the Marriot and the Contingencies Fund; that every initiative is upended by misguided resort to the courts; that an agreement between the Government, APNU’s leaders and those of Region 10 over a month-long protest in which three lives were lost are still not effectuated; that they have allowed several parliamentary sessions to be dedicated to a single Minister not for what he has or has not done, but according to a PNCR Central Committee member, for being “a symbol of what the PPP/C government represents”; that slush funds multiply in number and value to finance secret spy operations, discontinued offices and the employment of special advisors to do party political work. And that the PPP/C and the APNU are collectively responsible for the failure to hold local government elections guaranteed by the constitution and postponed each of the past sixteen years.

2012 as the year of the Ds
For me the year 2012 will go down as the year of the Ds – Donald, David and Disappointment, all with capital letters. Maybe I was being overly optimistic when I wished that in 2012:

“President Ramotar will reverse his prior commitment to more of the same and will:

“Demand that the Public Accounts Committee perform its parliamentary duties with greater competence.

“Push legislation to improve transparency by appointing a new Ombudsman, establish the Public Procurement Commission, revise the Access to Information Act and introduce anti-corruption legislation.

“Revisit Jagdeo’s pet projects like the Kingston Marriott, the fibre-optic cable, Amaila and the specialty hospital.

“Order the Cabinet-infested NICIL Board to bring its accounts up to date for independent audit. “Declare the implementation of VAT was a rip-off but have a change of heart and compromise on a reduction in the rate to 10%.

“Instruct the Guyana Revenue Authority to increase the volume of lifestyle audits of workers to try to understand why, like Leona Helmsley said, only the poor pay taxes.

“Get rid of the deadwood in the Office of the President, otherwise known as presidential advisors, by the application of an integrity detector test and the ability to stay awake during meetings.”

Do-Nothing Parliament
Optimism at the beginning of 2012 was I believe rational and justified. The combined opposition controlled the National Assembly for the first time in the country’s history; they took both the offices of the Speaker and Deputy Speaker; they directly or indirectly controlled the committees of the National Assembly.

Then they proceeded to become one of the most do-nothing parliaments in Guyana’s history. The Tenth Parliament has embarrassingly exposed the weakness in the country’s list system where loyalty to the party leader has proved to be far more important than competence.

With just one exception no member of the National Assembly stood out favourably; no piece of legislation could be considered truly path-breaking and substantive; no new prospect identified; no campaign promise made to the electorate only months before kept; no attempt to change the constitution; the poor getting poorer and the rich and the powerful smug, satisfied and inert. While more than two dozen MPs from the opposition made no contribution to the Assembly or the people of Guyana, the failure of Mr Trevor Williams, AFC MP, to attend a meeting of the PAC which confirmed the appointment of several unqualified persons in the Audit Office who did not merit confirmation for years must surely earn him the wooden spoon as the MP for the year.

The positives
On a positive note the domestic economy continued to do well, led by gold, massive government expenditure financed by taxation and transfers, the agenda of the Chinese and tax evasion.

Companies in all sectors continue to report record-breaking profits, while paying out huge dividends to shareholders. No wonder then that the private sector hardly bothers to remind President Ramotar that his first action as President in announcing the establishment of a Tax Review Committee has not moved a single step.

Standing out too was the series of cuts to the 2012 National Budget initiated by the Alliance For Change and supported belatedly by the APNU which saw attempts to rein in government excesses in both policies and spending.

With Government controlling the purse strings of state instrumentalities like the Gold Board and government companies like NICIL, many of the cuts were undermined by the Minister of Finance, restored by the National Assembly, or confused by a ruling of the court at the preliminary stage of an action brought by the Attorney General.

Indeed that ruling is not only hard to fathom but does great harm to the concept of governance by asserting that if the National Assembly finds a project or programme – for whatever sum – unacceptable, it has to reject the entire budget. That is surely beyond logic, common sense, or even good law.

It is bad for the country’s jurisprudence that this case was not taken to finality and the absurdity of the all-or-nothing premise resolved. Watch for a reprise with the 2013 Budget.

Civil society
But the performance of civil society was equally poor. A new entity successively named Occupy GT and the Peoples’ Parliament flattered then fluttered, and at the end of the year finds itself trying to find its feet, let alone its wings.

The best that can be said of the trade union movement is that remnants of it still exist but with decreasing relevance to all that is taking place around its various elements. Both the TUC and FITUG must accept part of the blame for the state of the National Insurance Scheme, plagued by poor governance, weak management and enforcement and catastrophic indecision.

The consumer movement is all but dead with nothing to take its place, at a time when it is most needed. The Private Sector Commission seems satisfied with the status quo raising its head only when it thinks that its members’ profit-earning machinery is under threat. Meanwhile the country’s accounting regulator, the Institute of Chartered Accountants of Guyana, after several months, is still to pronounce on a number of complaints involving high-ranking members of the profession.

With all of these it should not be too difficult to appreciate why there is so much disappointment and loss of confidence in the institutions in Guyana.

Transparency Institute of Guyana Inc – of which I am not the driving force – seems to have established itself as a credible and potent force in the struggle fight against the quagmire of corruption.

Help and Shelter must wonder what else it can do to reduce domestic violence, a mission shared with Red Thread which, with little support from other key segments of the society, has so far made little progress in its efforts to reduce cost of living and improve earnings. The Catholic Church which for a number of decades had led the democratic charge with liberation theology established the Justice and Peace Commission aimed at enhancing the society. There has been no reaction from the rest of the religious community.

On crime, Commissioner of Police Henry Green died in office after his statutory retirement age was extended, leaving a society in which the Customs Anti-Narcotics Unit seems to be far more successful than the Police Force in tracking drugs.

With the substantial resources at its disposal, one might expect the Police Force and the Director of Public Prosecutions to ‘engage’ the persons arrested rather than have them passed through the Magistrate‘s courts where they hurriedly plead guilty to protect their bosses.

The world
Like the December 21 non-event, the global economy did not experience any apocalyptic turbulence and in fact performed almost as well as had been expected with the IMF forecasting that global output in 2012 would grow just 3.3 per cent, down from a July estimate of 3.5 per cent.

That would make 2012 the slowest year of growth since 2009 when the world was struggling to pull out of the global financial crisis. According to the IMF, “familiar” forces were dragging down advanced economy growth: fiscal consolidation and a still-weak financial system, the same problems that have plagued the world since the global financial crisis exploded in 2008.

Part of the problem is that as family sizes decrease and life expectancy increases, the number of workers to those too old to work is decreasing putting a strain on the economies as health care and retirement costs rise in proportion to taxes and available pension schemes.

Less than seventy-two hours before the end of 2012, the US cannot decide whether to allow reason to trump insanity or economics to triumph over politics and stave off what is perhaps with exaggerated drama, referred to as the fiscal cliff.

If no agreement can be reached between the House of Representatives, the Senate and the White House, taxes will increase and automatic cuts will be applied to spending. Not surprisingly, economists disagree on the precise impact these will have on the US economy but the stock market has already taken a big hit as a result of the loss of confidence in Washington to manage the affairs of the country. This will hit the rest of the world for which the US is still the largest domestic market measured by spending power.

2013
In terms of predictions it is safe to say that we will not have campaign financing legislation or legislation regulating political parties. The Public Procurement Commission will not be set up while the Integrity Commission and the Ethnic Relations Commission will remain dormant.

There will be no constitutional reform or amendments while the parliamentary agenda of the AFC and the APNU will remain closely guarded secrets. The Government will push back any efforts at tax reform and there will be further delays in holding local government elections. Georgetown will qualify for the prize as the worst city in the Caribbean while car sales will spike as MPs cash in on their duty-free entitlements.

The odds are less than even that there will be local government elections, the bringing into law of the Judicial Review Act or the discovery of oil.

But they are marginally slightly better for the naming of an Ombudsman. And finally let us not rule out the possibility of fresh elections, either forced by the rejection of the 2013 Budget or called by President Ramotar unwilling to tolerate and adjust to a National Assembly he does not control.

Still, or because of these, best wishes to all.

Twenty years later – part 2

Correction, addition and appreciation
In last week’s column I stated as the year in which the Government of Guyana took over the assets, liabilities and operations of the Royal Bank of Canada as 1994. In fact the year was 1984. And I omitted to note that the percentage of the shares in the Guyana Bank for Trade and Industry Limited (GBTI) held and sold in 1994 by the Government of Guyana to the Beharry Group was 30% at a price of G$15 per share.

Finally I would like to express my appreciation to the Republic Bank (Guyana) Limited, GBTI, the Bank of Nova Scotia and Demerara Bank Limited which responded to my short survey for information for this column. I find it particularly disappointing that Citizens Bank Limited, the principal banker of Ram & McRae did not respond to the survey. I thank as well Mr Rajendra Rampersaud of the Bank of Guyana for making available information from the BoG’s library.

Finally, to the readers of this column warm wishes for a merry Christmas and 2013.

Introduction
Last week I noted how the regulatory and statutory landscape for banking has changed over the past twenty years. The changes have been more than evolutionary, affecting both the operations of the banks as well as the environment in which they operate. Shortly before 1992, the Hoyte administration had removed practically all exchange controls and had made trading on foreign currency with the introduction of the non-bank cambios with several paper controls but little meaningful supervision and enforcement, not unlike the money laundering that takes place openly in the country.

For more than a decade this column has drawn attention to the operations of these non-bank cambios arguing their usefulness and the objectives which they were expected to serve had ceased to exist. More than twenty years later, these non-bank cambios are seen as a fixture of the foreign currency landscape.

It was no surprise to me that Republic Bank noted as a concern of the earlier decades the question of security. In August 2006 the Rose Hall branches of RBL and Demerara Bank were victims of one of the most daring robberies in the history of banking in Guyana, traumatising the staff of the banks for a considerable time thereafter. I recall going up to Rose Hall immediately after the robbery to collect staff members of Ram & McRae who had to lock themselves in a washroom of RBL during the episode. They were still visibly shaken.

Wherever located, banks are now protected by armed guards and high quality electronic cameras monitoring all their perimeters and every movement by customers and staff. In fact so paranoid have the banks become that they no longer allow the use of mobile telephones in the banks, something that is still permitted in the USA.

Death of the consumer movement and advocacy
Part of the landscape then was a fairly active consumer movement and a willingness by the government to challenge the banks on what were considered exorbitant charges, unreasonable spreads between their buying and selling prices for foreign currencies, and the spread between their cost of funds and the rates of interest they charge on lending those funds. In those days, Ministers of Finance Asgar Ally and later Bharrat Jagdeo would rail about the interest spreads on funds. Now there is no consumer movement to challenge the plethora of charges imposed unilaterally by the banks while the government seems willing to extend every conceivable tax shelter to the commercial banks, even where they do not ask for such concessions.

In other words in respect of taxes the government has become the banks‘ major lobbyists and no longer analyses let alone questions the operations of the banks. In fact sometimes the relationship between the banks – or at least one of them – is so close as to allow what this column considered an improper foreign exchange transaction in a particular case.

I recall some years ago then President Jagdeo expressing surprise and alarm when I drew his attention to the effective rates of taxes paid by some of the banks. Yet, nothing has been done.

The banks’ best friends
Banking is indeed a regulated business but it is also a closed business with the government refusing to allow new entrants and allowing existing players to operate more like price-fixing cartels than genuine competitors. By the very regulations, the sector is largely protected from the vicissitudes and developments around the world, prompting Mr Jagdeo to refer, with some hyperbole, to a ring-fencing of the economy. Any detailed study of the history of the two entrants to the sector since 1992 will almost certainly show that the investors had recovered their capital within a few years, protected by a tax system that allows dividends to be paid tax-free and any capital gains arising from the disposal of shares in those companies to be exempt from taxes. On the other hand, the government sees no problem with charging at the rate of 20% the capital gains on the sale by a retired worker of her only house.

Bricks and mortar
Let us now compare the operations of the commercial banks twenty years ago and what now prevails. Rather than just accept, or rather than rely on, the words of the bank managers who provided some very useful insights into their operations in 1991 and 1992, I also went back to the financial statements and annual reports of two of our major players as well as of the Bank of Guyana for those years. In 1992 commercial banking was mainly about bricks and mortar – the customer wishing to transact any business would present herself to the bank, whether to make a deposit, withdraw money or negotiate for a loan. And more to the point, the banks had their branches mainly in the cities and towns and customers would have to travel some distance to do their business.

In fact the annual report of GBTI shows that it was not until 1992 that that Bank opened its Regent Street branch in the heart of the city. It seems fair to say that the bricks and mortar concept still largely drives commercial banking in Guyana both among the pre-1992 banks as well as those that came after. GBTI now has some nine branches and a new multi-billion head office adorning the Kingston skyline – almost all since 1992.

Republic Bank too has seen an explosion in the number of branches and the construction of a new head office since 1992. Like GBTI, Republic Bank also has nine branches. Demerara Bank has its head office and main branch in Camp Street Georgetown and five branches, including one in Essequibo and two in Berbice. Like Demerara Bank, Citizens Bank has its head office and main branch in Camp Street Georgetown and three branches.

Lethem in Region 9 is currently served only by GBTI but one should expect that others will follow to exploit the opportunities offered by the Brazil-Lethem trade link. Bartica, now more than just the gateway to the interior is served by both the Bank of Nova Scotia and Citizens Bank. Corriverton and Diamond on the Georgetown-Timehri corridor are both served by three of the commercial banks and by the New Building Society, the country’s only real building society. None of the banks disclose the profitability of their branches or have indicated the rate of return they expect in order to establish a branch, but the traffic flowing through many of these branches indicates that the driving factor might be less the volume of business than to keep up with the competition.

Changes, changes
If we were to form conclusions purely from the banks’ annual reports, we might think that the range of services has remained fairly unchanged since 1992. The balance sheets of the banks twenty years ago disclosed deposits in the form of savings, current and fixed deposits; lending in the form of loans and advances, mortgages and overdrafts; and investments mainly in government securities. The income statements reflected these items in the form of interest paid and received; investment income and other income mainly from foreign exchange transactions.

The survey and empirical evidence indicate however that the banks have moved away from a focus primarily on asset-based core lending and deposit products and now provide a suite of products and services designed to meet “specific market’s needs.” One bank indicated that its products and services have been enhanced to cater directly to segments such as commercial and small business versus retail.

The customer wanting to withdraw money does not have to rush to the bank before it closes, often before lunch, but now has a choice of Automatic Teller Machines available twenty-four hours per day seven days per week. Twenty years later it is normal for banks to offer internet banking, debit cards, local dollar credit cards and international credit cards. Customers of Scotiabank have seen their passbooks replaced by ABM cards and the PIN.

Technology and law
Many of the changes, while driven by customer expectations and a desire for instant everything, were made possible by changes in technology and telephony. Twenty years ago the Chairman of GBTI included as a highlight under the caption Computerisation “extensive research … towards upgrading our Management Information Systems” and the expectation that “the network to be fully operational by the end of 1993.” In 2012, technology rules.

Dramatic changes have also been witnessed in terms of statutory obligations in which even routine company functions like the paying of a dividend has to be sanctioned by the Bank of Guyana which also requires more and more frequent reports; new rules of accounting so that in 1991 notes to the financial statements of NBIC ran to a mere four pages compared with forty-four pages twenty years later. In fact even the auditor’s report has seen its own growth, increasing from five lines twenty years ago to twenty-one pages currently.

To be continued