Budget Review and Analysis

2011  Economic Growth

Continuing an impressive streak of growth that has now run for six consecutive years, Guyana’s economy turned in another stellar performance last year, growing by a rate of 5.4 per cent.

This overall favorable economic environment is reflected in the performance of the Georgetown Chamber’s member companies. In a recent survey of members, 84 per cent indicated they either broke even or recorded a net profit in 2011. Echoing the larger economic trend, a large majority also are highly optimistic about this year’s prospects for Guyana’s economy and their businesses.

The bulk of current growth arises from the primary commodities and agriculture sectors with mining and quarrying, as a whole, registering a 19.2 per cent rate of increase in 2011.  Most notable in the agriculture sector was the 11 per cent increase in the rice industry. Guyana’s sugar industry grew at a similarly robust rate of 7.1 per cent even though total production levels were lower than what could have been expected, given the country’s potential capacity for this industry.

While these numbers are strongly encouraging, we cannot afford to become complacent and rely too heavily upon these primary goods sectors as the basis for our principal strategy in extending our streak of economic growth. Such excessive reliance could leave us exposed and starkly vulnerable to volatile external price shocks and fluctuations in these sectors.

Thus, we must capitalize upon our current positions of robust economic growth to invest in and diversify other sectors, especially manufacturing and the services industries. As a starting point, we must have more engaged conversations that address lifting the constraints inhibiting the manufacturing sector as well as implementing wider measures to make Guyana’s services industry more globally competitive. 

Some might argue (including myself) that most of the prescriptions dealing with issues of diversification have already have been outlined in the National Competitiveness Strategy (NCS). Therefore, now is the ideal window to accelerate the deliberations process and move toward implementing the programmes of the National Competitiveness Council (NCC). Facilitating this process would, however, require a professionally enhanced and independent National Competitiveness Strategy Unit  (NCSU), which has been tasked with administering and implementing the policies of the NCS and the NCC.

We’re certainly within striking distance of having all of the tools in place to sustain and expand our recent trend for economic growth. In the past decade, Guyana’s government has prudently supervised and managed the major macro-economic fundamentals that drive our economy. This judicious approach has led to reductions in the public debt burden and has unquestionably strengthened the foundation for the favorable economic environment that prevails today.  However, within the last few years, Guyana’s national debt also has been on the increase. In order to achieve this complex objective, the government will have to strike an appropriate balance in pursuing essential economic projects while not slipping back into a debt trap that plagued Guyana in the past and which today has rattled even the most developed economies in Europe and North America.

Budget Debates and Cuts

Impassioned debate, prudent deliberations and fully engaged discussions comprise the hallmark of a well-functioning democratic body politic.  These elements also most often lead to fractured and contemptuous environments of public dialogue, as widely divergent views and ideas percolate, come to dominate, and then fade within a continuously regenerating cycle of political positions and proposals. In Guyana’s parliament, the situation and circumstances are no different.

This year represents the first time since Guyana gained independence that we have a parliament where the ruling government must work closely with the minority parties in the House who hold the key to building successful coalitions for legislative majorities. The outcome of last year’s general and regional elections consolidated this unprecedented political environment so it should surprise no one that the opposition parties were not going to automatically agree to every budgetary proposal as advanced by the government.  The debates present Guyana’s best opportunity for ensuring our long-term economic health and also represent a defining moment in Guyana’s history and one that is good for the country moving forward.

As it turned out, the main opposition negotiated with the government and effected increases from $8,100 to $10,000 in allocations to senior pensioners.  This example precisely represents the ideal spirit of compromise and maturity essential to making the new parliamentary dispensation as effective as possible. However, any hope of continuing this spirit of dialogue was dashed recently when the government and opposition parties could not agree to a compromise on the budgetary allocations. This led to the combined opposition voting to remove some allocations until the government met certain conditions.

Among the largest allocations in limbo is approximately $18.4 billion for numerous economic and social development programmes in the Low Carbon Development Strategy. In addition to initiating small- and micro-enterprise development and strengthening the institutional agencies connected to the strategy, these programmes include the Amaila Falls project, Amerindian Land Titling, Amerindian Development Fund, the Cunha Canal rehabilitation, and the hinterland electrification project to install 11,000 solar home systems in 150 communities.

While the opposition parties have argued that funds for these proposed allocations have not been earmarked in the contingency reserves and are conditional programmes, few, if any, would deny the intrinsic value of these programmes for stimulating economic growth that potentially reaches to all corners of society.  Some of these projects should have been funded and allocated in the budget, regardless of whether or not the government had met the requirements to access the Guyana REDD+ Initiative Fund (GRIF).

The two most notable initiatives that immediately affect the private sector are the Amaila Falls project and the small- and micro-enterprise development allocations. No further elucidation is required to expound on what these two initiatives would mean economically to the private sector. Notwithstanding, it is not too late for both sides of the House to discuss the potential benefits of these and other proposals with the aim of having supplemental provisions funded, a more satisfying alternative to the political posturing that has become the norm since the budgetary removals were announced.

Allocations and Targets

In terms of final targets and allocations projected for 2012, the government appears to have taken the modest case scenario in its forecast, anticipating a growth rate of 4.1 per cent. The expected 1.8 per cent increase in the mining and quarry sectors is especially modest. In fact, the sectors likely will turn in a far more robust performance given what we are witnessing in the gold industry along with large-scale investments in other mining projects such as manganese.

Inflation – which is projected to be 4.6 per cent – will require especially careful attention by the government to ensure it does not balloon out of control. In the survey, virtually every Chamber member cited the rising operational costs of business as a major constraint, which would then be passed onto consumers and trigger eventually a chain of other socioeconomic problems.

Also, the budget cuts will have an impact upon final economic projections. What would be helpful is for the Finance Minister to make public his opinion as to if and how the budgetary cuts will revise original growth forecasts and what those updated projections will be. Such transparency will be helpful to all parties in the public and private sectors as they continue to fine-tune their own economic plans for the remainder of the year.

US Outdated Diplomacy

The only true revelation that emerged from the wikileaks cables is that the US practices an outdated and antiquated foreign policy towards Guyana.

In 2008, I wrote a letter to the editor where I argued that the US should cease accepting applications for business and tourist non-immigrant visas if the processing system at the time was maintained. Under that system, the local embassy issues those visas without the aid of any supporting documentation or evidence to determine whether an applicant satisfies Section 214(b) of the Immigration and Nationality Act (INA) of the United States, where the applicant has to show that he or she has a permanent residence in his/her home country and which he/she has no intention of abandoning.

This practice borders on absurdity and the interviewing officer merely goes with instincts and guesswork in determining who qualifies for a visa.

Unfortunately, that system is still in place today. Fast forward to the wikileaks cables and we see a similar type of unsubstantiated approach being played out in how the officials of the embassy arrive at conclusions in official foreign policy correspondence with the State Department. These cables form the basis on which US foreign policy decisions are determined towards this country.

One would have thought that the US government would have had a resolute system of verification to determine whether data and information received meet the minimum threshold of validation. However, this does not seem to be the case and the officials go with whatever rumor or wobbly evidence that is presented to them and make dead set conclusions there from.

As it relates to commercial diplomacy towards Guyana, I would echo the sentiments as expressed by Secretary of State Hillary Clinton during her remarks at the U.S. Global Leadership Coalition on July 12, 2011, in which she asserted to the audience: “we need to up our game,” in relation to achieving an effective commercial diplomacy that would enable the US to become more globally competitive in light of a new international economic landscape.  

I sincerely hope that this call for an elevated level of economic discourse is heard loud and clear in Kingston, Georgetown.  Only recently, I had approached the embassy through the Georgetown Chamber of Commerce about the possibility of investing in the US and I’m yet to receive a response, after more than 5 months, from the commercial officials stationed there. This type of lackadaisical approach towards our business community is unsatisfactory.

The new US Ambassador has to reassess some of the current systems in place at the embassy and work towards implementing ones that are based on mutual respect and engagement between the peoples of the US and Guyana.

Synergy Contract should be Rescinded

(Letter to Stabroek News September 2011)

Dear Editor:

The Government needs to rescind the contract awarded to Synergy Holdings Inc, for the construction of the road leading to the site of the Amaila Falls Hydroelectric Project, and retender with the aim of securing a competent contractor to rectify the shortcomings as identified in the report by international consultants BBFL Caribbean Ltd and Earth Investigation Systems Ltd (see “Guidelines for design of Amaila Falls road poorly done,” SN September 11, 2011).

It is hardly a secret that one of the main constraints for the development of Guyana’s economy has been the high cost and unreliability of electricity. From a consumer and citizens’ welfare standpoint, this scourge has afflicted many damages and costs for as long as memory would permit. Similarly, businesses, and in particular our manufacturing industry, have had their development obstructed and handicapped by this.

Recognising this, the government should make every effort to ensure that initiatives aimed at improving reliability and lowering costs of electricity are treated as high priority and the highest level of professionalism applied. This does not seem to have been the case with the awarding of this particular contract to Synergy, a disappointing reality considering the potential spinoffs and benefits of the Hydropower project. 

Clinton Urling

EU Debt Crises and Guyana Lessons

The European integration process is in tatters as the once-strong economies of Spain, Italy and Belgium stand precariously to follow the path that already has dramatically weakened Greece, Portugal, and Ireland. Moreover, the European Union’s (EU) larger, more economically developed economies – most notably, France and Germany – are increasingly hesitant to intervene and provide the leadership and resources necessary to avoid the demise of the integration movement. 

This fear stems partially from the potential for a cascading effect that would drag the union’s strongest economies into insolvency. This economically calamitous period was exposed when Greece admitted that it couldn’t service its enormous public debt and the EU subsequently forced, albeit with great hesitation, to call an emergency summit for approving funds to bailout its delinquent member. 

This is now followed by revelations that Spain and Italy, the region's third and fourth largest economies, are on the verge of not meeting their debt commitments. As a short-term remedy, The European Central Bank has intervened, buying government bonds in these countries to provide much needed capital in order to avoid default.

This is not a sustainable strategy and without enormous financial booster shoots from the richer economies along with ongoing prudent financial and austere management of the respective economies, both countries face even greater risks of insolvency.

In the end, the richer economies will provide the financial injections needed to avoid regional and, in an interconnected world, global catastrophe.

There are pertinent lessons here for Guyana and its own integration efforts with CARICOM. If the region is to pursue the deep levels of integration as envisaged by the Caribbean Single Market and Economy (CSME), then we risk making all of our economies vulnerable to the array of credit, market and financial problems that will hit in one or more of the region’s countries at any time.

When this happens, the region does not have an ‘undisputed leader(s)’ – or, more formally, financial hegemon(s) – to provide essential resources to avert or remedy economic crises.  We end up in a situation where small, poor economies are asked to bail out their equally small, poor regional peers.  This does not constitute pragmatic policy and I don’t see leaders in CARICOM countries lining up to bail out anyone.

We can already cite examples of this dynamic being manifested. For example, when Jamaica recently ran into economic difficulties, the country turned to the International Monetary Fund (IMF) for assistance. Where was Trinidad, Guyana and Barbados – the so-called More Developed Countries of the region – or the Caribbean Development Bank to provide the necessary assistance for it struggling counterpart?  A second example arises from the natural disasters that are prone to occur in the region. The current Trinidad Prime Minister said her country cannot be expected to play the roles of  ‘godfather’ and ‘ATM’ for the region when such unfortunate events occur.

These examples reflect just one element (see my previous letter titled “Regional Integration is Impractical,” Stabroek News, 27 February 2011) of what makes the CARICOM project untenable. Foremost, it lacks an undisputed regional leader(s) to advance the process for region-wide benefit. 

Guyana must reassess earnestly its involvement in the CARICOM integration process and should direct its meagre financial and technical resources toward other integration efforts, that are more likely to succeed or adopt a unilateral strategy open to regional economic cooperation with the entire global community. 

Guyana Should enhance Relations with Suriname

Guyana needs to strengthen its diplomatic efforts with Suriname in order to capitalize on numerous opportunities that exist between the two nations.

In 2010, Guyana imported approximately US$96 million in goods from Suriname – which roughly equals the value of imports from Venezuela and is significantly much higher than the amount imported from Brazil (about US$21 million). Meanwhile, Guyana exported goods approximately worth US$6 million to Suriname, according to numbers from the government’s bureau of statistics.

I would suggest that if trade data were captured for the value of goods not declared with the revenue agency, the totals for Surinamese imports and exports would have been significantly higher.  It is no secret that smuggling is rampant at the borders between Guyana and Suriname, which is exacerbated by the infamous ‘back-track’ operations that, have for the most part, become an accepted practice between the two countries (see “Suriname to Reopen ‘Backtrack’ Route,” SN 08.24.2009). However, Surinamese officials would prefer to see this situation ‘regularized’ but this has been strongly resisted by their Guyanese counterparts (see ‘Gov’t declines proposal to regularize Suriname “back-track” route,’ SN 03.10.2010).

Therefore, it was no surprise to read recently that the Surinamese are contemplating funding a bridge that would link the two countries (see ‘Suriname may fund Corentyne River bridge,’ SN 07.17.11). Suriname would like to capitalize on the enormous trade opportunities available with Guyana as both countries can be considered ‘natural trading partners’ because they both export a wide variety of goods to each other. In fact, the data obtained from the Guyana’s bureau of statistics show that, in terms of imports and exports, Guyana offers the most diverse basket of goods with Suriname than what is possible with any of its South American counterparts.

At present, the high cost of acquiring fuel from the international market represents one of the most significant constraints in Guyana’s economy.  As Suriname is an oil-producing nation, Guyana can negotiate a bilateral arrangement that could result in the Surinamese offering the country lower rate costs to acquire petroleum. Additionally, Guyana should engage the Surinamese’s private sector and government to learn from their experience regarding the construction, development, and maintenance of the Afobaka hydropower plant that supplies the majority of Suriname’s electricity. 

Another issue requiring prominent diplomatic focus is Surinamese President Desi Bouterse’s renewed claim of the New River Triangle area and his contention that his country will pursue a ‘friendly settlement’ of this issue by way of international law and norms. Suriname’s position is baffling and ambivalent as this matter was already settled through an international judicial body in 2007 when the United Nations International Tribunal on the Law of the Sea ruled on this matter.

However, the international system has no rules regarding the matter of compliance on any ruling issued by any international court. Therefore, I disagree with President Jagdeo’s shrugging off the issue, saying he was ‘not disturbed’ by Suriname’s recent claims (See ‘Guyana unperturbed by Suriname’s New River Triangle claims – President,’ Guyana Times 06.16.2011).  The Guyana government must remain vigilant in expanding its diplomatic efforts to ensure this situation is adequately monitored.

This becomes even more urgent as Repsol and its partners are expected to commence drilling in the area in the near future.  An oil discovery would have enormous positive implications for Guyana’s economy so the government cannot afford to be reactive in its diplomatic affairs, as was the case with the CGX expulsion in 2000.

Instead, it must take solid proactive measures to ensure that Suriname’s actions and claims do not interfere with this project.  Moreover, positively directed diplomatic maneuvers are essential to assuaging any fears or doubts investors in the area might have amid the present claims put forth by Suriname.

Suriname is one of the region’s most robust emerging economies and Guyana certainly has much to gain from closer relations with its neighbor. However, much of how a mutually beneficial, trusting relationship is established will depend on the strength and capabilities of our performance in foreign affairs.  

Guyana faces comprehensive challenges in assessing the rapidly shifting dynamics in the contemporary global environment and, most particularly, in the surrounding region. Therefore, its foreign policy portfolio should be directly tailored to address these new realities, articulate priority areas of focus for capital and resources disbursement and to enact a policy course for strengthening our nation’s foreign service programmes.

Military should be used to spur Economic Growth and Development

I am prompted to write this letter after reading the headline, “Strengthening army to depend on economy” (SN, January 20, 2012).  I firmly believe that the military could, and should, be deployed as an instrument to generate the type of economic growth referenced by the President. This would require the reconceptualisation and reorganisation of the Guyana Defense Force from an institution focused overwhelmingly upon issues of national security and humanitarian interventions to one that is prominently focused upon economic development.

This concept is not new or atypical, as many militaries around the global have deployed their forces in initiatives to spur economic growth. The most obvious that comes to mind is the US military establishment, which has craftily and guilefully used its military as a form of industrial policy to foster its longer-term economic ambitions. The US government funds and subsidizes its military to create employment, carry out research and develop new technologies and products, to build infrastructure, to name a few major functions. Another example that comes to mind is the Brazilian military and its engineers who have been involved in building critical infrastructure projects, including the recently opened Takatu Bridge.

In Guyana’s case, the military transformation should begin with establishing a tertiary level military academy worthy of international accreditation. This institution must have the distinction of providing a world-class standard of education and, to this end, it must be adequately resourced and outfitted with the best facilities and tutors.  Full scholarships and other incentives should be offered to the top students who graduate from the nation’s secondary schools after they have written the Caribbean Examination Council’s examinations.

This academy’s main focus should encompass science and technology. The next generation of engineers, scientists, and computer experts should emerge from this academic setting. Furthermore, those who graduate should be called upon to undertake scientific research and development projects that can assist the private sector (more specifically, the manufacturing sector), and build many of our infrastructure development projects including, but not limited to, the road or rail to Lethem, the bridge to Suriname, and a deep-water port. Moreover, the army corps of engineers should have been the ideal institution tasked with designing and building the access road to Amaila Falls.

Think of the huge sums of monies that this would save our county if we were to go this route. Within a matter of years we could easily recoup the costs of establishing such an academy.

This, however, would require a smaller and more efficient military.  In this era, I don’t believe that our military should be solely in the business of fighting wars and the current expenditure of resources to train and equip our military to this dispensation has been misguided and wasteful. Emphasis instead should be placed on responding to humanitarian disasters and to nation building through training in vocational skills, especially for those who might fall short of the academy’s standards.

It is the opportune time to stop talking about initiatives for economic growth and to start implementing bold, innovative policies that would help us collectively in doubling our current economic growth levels.