Author: ChrisRam

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Guyana in a housing bubble – not really (but maybe)

Introduction
I was totally surprised at the very informed responses to last week’s introductory part on the country’s housing situation. What made it even more interesting were the sources of the comments and the insights they offered. Indeed they made me do some previously unintended research, the results of which are indeed quite revealing and troubling particularly given the level of accountability and integrity we have experienced in the housing sector.

What has now emerged is that there is more to the superficial impressions and conclusions on the government’s housing policy. They point to an absence of national planning and coordination, developments of some regions and areas at the expense of others, political opportunism and not unexpectedly and increasingly, concerns about accountability, transparency and corruption. Perhaps that is why in a recent talk to young members of the Alliance For Change, Dr Tarron Khemraj a talented economist and academic said that if called upon to grade the PPP/C’s housing policy, the most generous he could give would be a B Minus.

Just maybe
I will return to my concerns later, but for now I go back to the caption of this article and the question whether or not Guyana is in a housing bubble. Last week I was fairly certain that we are not. Further investigation however forces me to qualify that opinion and I have to state at this stage that a bubble is not entirely unlikely in the short term – any time in the next three years.

Recall from last week that a bubble arises whenever the fundamentals of the market do not apply to a sector of the economy. That fundamental states that as more of a commodity becomes available, prices fall. The converse is also true – as supply decreases, prices will rise as we are currently witnessing with the price of chickens. If there is a housing bubble, consumers will continue to pay higher and higher prices for real estate, regardless of whether or not the stock of housing units increases – that is until the Day of Judgment when the bubble bursts.

House lots and housing stock
We must of course be clear to distinguish between house lots and housing stock – something that I am not sure is understood by the government that continues a mad rush to distribute ever more house lots. Indeed it has now decided that with an over-allocation to residents, it must move to allocating lots to non-resident Guyanese and we ought not to rule out house lots for the Chinese and Brazilians too. The evidence points unmistakably to an oversupply.

But we must also distinguish between a bubble and its consequences. The fact that there is an oversupply does not mean there is a crisis, if there are persons who are prepared to pay the obviously inflated prices. The problem arises if the real estate is paid for by borrowings from the financial sector and if the borrowers are unable to meet their mortgage payments. The result of this is that a whole lot of properties come on the market as a result of foreclosures and forced sale of several properties almost simultaneously. This is essentially what happened in the USA and resulted not only in the collapse of the real estate market but a number of financial institutions as well.

Background
Housing policy formulation has not been a recent phenomenon. The first formulation of a country-wide housing plan was undertaken in 1954 by the Interim Government which was put in place following the suspension of the 1953 government. Perhaps because of political considerations – the deficit was in unfriendly areas – the PPP government from 1957 to 1964 did not allocate sufficient funding for the programme and the housing deficit – the technical word for shortage – therefore increased. The policy was revisited in succeeding PNC administrations with a number of new schemes established mainly in – not surprisingly – PNC friendly areas.

Those efforts however did not fully satisfy the need for housing which at 1980 stood at 137,374 units, giving an estimated deficit of 12,360 units, according to a paper prepared by the Hoyte administration in 1986. That paper calculated that by 1986 the deficit had increased to between 25,000 and 30,000, a generous number but which the paper attributed to the increasing number of households arising from cultural factors, the need for specialised accommodation and the decline in housing construction.

Self-help
It means that the PPP in 1992 inherited a housing stock of approximately 150,000 units and a deficit of 31,000 units for a population of 723,673 women, men and children. It responded with great speed – if not decency – and in a move that has become quite characteristic of the PPP, the Jagan administration immediately fixed the housing deficit for its political elite by the establishment of Pradoville 1 where several ministers, party chiefs and top civil servants were given prime real estate at peppercorn prices. Ironically, and for some strange reason the Housing Minister at the time, Dr Henry Jeffrey, was not among the lucky few.

In a Housing Policy paper tabled in the National Assembly around 1994 by Dr Jeffrey, the housing deficit to the year 2000 was projected at 20,078; a figure arrived at by assumptions of the then number of households (rather than housing stock), the size of the population and the replacement factor. Fast forward to 2000 when the population was 750,000 and divide that number by an average family/household size of four.

On that basis the number of housing units needed to house each family in their own homes would be 190,000. By that time the number of housing units had increased to approximately 160,000 leaving a need for 30,000 units. If we make allowance of one-third of that for construction on previously owned lands, lands purchased from both the state and individuals and houses bought from private developers then the house lots needed since 2000 to meet the deficit would have been approximately 20,000.

The PPP/C’s manifesto for the 2001 elections states that the number of house lots projected to be distributed is 50,000 – well over twice the number needed to meet the deficit! Then in its 2006 manifesto the party boasted of having created a housing boom in Guyana with 70,000 house lots distributed since 1992 – or sufficient to house 280,000 persons in households of four.

That means that by 2006, if all the house lots had been used for housing, there would be sufficient houses for close to nine hundred thousand persons – more than the entire population of Guyana. And as we have said this does take in the number of private houses built by individuals on privately acquired lands.

Friendly domestic capitalists
The situation is worse when we consider certain other developments. In the Providence East Bank Demerara area the Jagdeo administration has given/sold some one thousand acres of GuySuCo land to close friends, supporters and contractors including Messrs Lumumba and Shivraj both of whom have been the beneficiaries of the Jagdeo administration’s largesse, BK International, Courtney Benn Construction and VIKAB.

These new capitalists are now offering lots of 50 yards by 100 yards which gives eight lots per acre. In the Providence area alone there will therefore be land for another eight thousand housing units or 32,000 persons! And then there is the other friend Mr Eddie Boyer who acquired from the Privatisation Unit some 103 acres, of which some 400 hundred lots are on offer which will house another two thousand persons!

The housing bazaar
The other factor that actually makes the whole bazaar for house lots more suspicious and that can create problems for the housing market is that except for the Linden area the house lots are on or within miles of the coast. In other words even the very strange situation painted by these facts is decidedly worse if we deduct the population in the hinterland areas to which the concept of house lots is completely alien.

What has emerged recently is that the house lot policy is not devoid of political considerations and reminds me of the word gerrymandering – a favourite word of Cheddi Jagan when he wanted to accuse his opponents of redrawing the demographic map for electoral purposes. The allocation of land at Diamond and Eccles on the East Bank of Demerara will make an enormous difference in the 2011 elections and can for the first time give the PPP control of Region 4.

In the government’s reckoning, economics take second place to politics and it matters not that there are implications for the other regions from which large numbers of allottees are drawn, issues of public services, utilities, access, etc. In any case none of the political elite lives in Diamond and only a few remain in Eccles.

Oversupply and its implications
Based on these numbers, Business Page safely concludes then that there is an oversupply of housing land, if not yet housing. Had there not been selective controls over disposals of house lots, market forces would have brought down the price for land since it is clear that there are lots of house lots which have not been developed into houses. And of course the price for land cannot be entirely divorced from housing market.

What then are the implications for a bubble? That depends on whether or not the housing boom is financed by borrowings from the banking sector. The real estate problem in the US was triggered by the mortgage crisis as homeowners faced with a contraction in the economy and the loss of jobs were unable to finance their sometimes 100 % mortgages, causing the lenders to foreclose or the borrowers to sell and cut their losses. The effect was the same – too many properties going on the market at the same time and prices collapsing. What started as a problem for individual homeowners and single financial houses soon became a deluge that affected the entire economy from which the US has so far not recovered.

Bank lending
As noted last week, available information from official sources indicates that the total amount of mortgage loans at December 31, 2010 was approximately $60 billion, with the non-bank sector accounting for about 42% and the banks accounting for 58%. The 2010 Bank of Guyana Report shows that the share of the commercial banks’ loans and advances to the private sector in real estate was 31%. At first sight this might seem to include both commercial and personal loans but there is reason to believe that lending is categorized by the nature of the underlying business rather than the purpose of the particular loan or advance.

In other words, lending to the distribution sector for real property acquisition is classified not as real estate but distribution. This means that the 31% is really only for personal loans and that the banks are more exposed to the real estate sector than may at first appear. Since commercial properties are on average much more expensive than residential housing, President Jagdeo may have been far too quick and way off target to lightly dismiss concerns about a potential housing bubble.

Banking resilience
What the Bank of Guyana 2010 Report unambiguously discloses is that the total assets of the commercial banks at December 31, 2010 amounted to $296 billion of which total loans and advances were $112 billion, or approximately 38%. On the other hand foreign assets owned by the commercial banks at December 31, 2010 alone amounted to $47 billion, investments in central government were $67 billion and amounts with or claims on Bank of Guyana of $45 billion.

This is more than enough to weather any drastic decrease in real estate prices and prevent any shocks. It would mean however that the value of the banks’ securities and the matching lending would decrease, their profitability and tax obligations would fall, and their overall lending framework would alter. But as we saw some years ago in the rice crisis, and are even now seeing in the US, banks can be extremely resilient and have a remarkable capacity to recover, even from the sternest of tests.

Next week I will look at the implications for the non-bank financial institutions of any sharp decline in the housing market and any other dark clouds hovering over the horizon. As one is always forced to do with matters concerning the Ministry of Housing, I will also ask where all the money for these land sales has gone.

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Nandalall should direct his advice to Jagdeo, not Kissoon

In a letter appearing in Sunday Kaieteur News July 31 and captioned “Mr. Kissoon is treading on dangerous waters”, Mr. Anil Nandlall, signing as “MP and Attorney-at-Law for His Excellency, President Bharrat Jagdeo”, seeks to offer advice to Mr. Kissoon and threatens contempt of court proceedings over comments made by Mr. Kissoon in his Kaieteur News column.

Mr. Nandlall knows that Mr. Kissoon is represented in the relevant matter by two Attorneys-at-law, with a third soon to be added. As one of those attorneys I would respectfully suggest to Mr. Nandlall that he should spare himself and our client such gratuitous advice and instead direct it to his client, the President, who makes a habit of commenting, like Sir Oracle, on matters that are sub judice.

I wonder if Mr. Nandlall, as a regular attorney-at-law for the President, has cautioned his client of the impropriety of such interventions. If he has, it would be helpful to readers if Mr. Nandlall would comment on an article appearing in Stabroek News of July 30, in which the President makes loaded references to criminal charges against a person involved in a matter in which the President as Minister of Information is currently adjudicating.

Guyanese are aware of the numerous occasions on which Mr. Nandlall’s client has shown contempt for our courts as well as our constitution. His client now demonstrates in the complaint against CNS 6 unmistakable bias and rank abuse of Presidential power, a combination so egregious as to make any comment by Mr. Kissoon pale in comparison.

Finally while Mr. Nandlall seems unable to refer to Mr. Jagdeo without the title His Excellency, I would like to remind him that his instructions were to bring the action against Mr. Kissoon in the name Bharrat Jagdeo, which he did.

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Guyana in a housing bubble – not really

Introduction
In an op-ed column in the influential New York Times on December 21, 2007 Paul Krugman, winner of the 2008 Nobel Prize in Economics, columnist, bestselling author and professor of economics at Princeton University, wrote of the mortgage crisis in the USA that “the explosion of ‘innovative’ home lending that took place in the middle years of this decade was an unmitigated disaster.” He was responding – in his usual confident manner – to a statement from Fed Chairman Ben Bernanke in connection with the then pending mortgage crisis in the USA stating specifically that “Market discipline has in some cases broken down, and the incentives to follow prudent lending procedures have, at times, eroded.”

Do the sentiments in that column have any resonance in Guyana where the term ‘housing bubble’ has appeared twice – albeit by one writer – in the letter columns of this newspaper? When it was first raised President Jagdeo, the country’s economist-in-chief sought to counter the fear, noting in his usual manner that the exposure of the financial sector to housing is not very significant. When Clico collapsed he said the same thing, ignoring the six billion dollar hole in which the NIS was thrown and from which it is still reeling.

Pool of fools
What really is a housing bubble? It is a marketplace phenomenon in which one of the most basic fundamentals of economics does not apply – that as supply increases, prices fall. In a bubble, prices go up simply because prices are going up. Persons invest in the expectation that there will be someone who will be willing to pay a higher price – the Greater Fool theory. Of course at some point the pool of fools is exhausted and there is no one willing to pay the exorbitant price not justified by economic fundamentals. At this point the bubble bursts, sanity returns to the sector and several persons start counting their losses. For those who can afford to hold the asset on the expectation that prices will recover, there is only a paper loss. For those who have to sell, the loss is real since they recover much less than they have invested.

But let us return to the bubble and take as an example the recent sale of the St Barnabas Church in Regent Street for $500 million. The Greater Fool theory states that the next property of similar size and location that comes on the market would fetch more than $500 million. For speculators, it does not matter if the annual return on their investment is less than the interest they will receive if they placed their money in an interest bearing account. They bank – pun intended – on prices going further up and what they lose in holding costs they recover in capital gains when they sell in a rising bubbling market. Of course even in such an irrational situation rational economics are not completely thrown out of the window and there are still expectations of things remaining equal.

Guyana – an unequal place
Things in Guyana are not only distinctly unequal but there are other considerations that have to be factored into the equation. Take for example the sale by President Jagdeo of his Pradoville 1 house to PPP/C friend and confidante Ernie Ross at the unrealistic price of US$600,000. There are other and far better properties in Pradoville 1, but one can be sure that none will fetch a price anywhere close to US$600,000, much less $750,000 which would be the pre-Capital Gains Tax equivalent. For this there is more than one reason, with one being the unexpressed statement that Pradoville I is no longer the commune of the super elite; that is now Pradoville 2 where the President and a limited number of persons will be taking up ocean-front residence.

The second is that there is probably only one Ernie Ross who would be willing and able to pay above market price to the President, confidently assuming that his intensive work in the months of the 2011 elections will provide him with tons of money to compensate him for buying a property which he still has not occupied or rented.

Another telling factor at the higher end of the market is the levelof narco and illicit money to be washed and what better to do so than casinos, gas stations, restaurants and cambios – all essentially cash operations.

A hotel can incorporate many of these, making it an excellent vehicle for laundering money. Notice the eagerness with which hotel ownership or operation is pursued by the cash rich businessperson despite the fact that the level of occupancy in Guyana is by far the lowest in the Caribbean. Our one-man (and little support) anti-money laundering unit is harmless and ineffective in this marketplace where any currency of any amount is available on the street, often at low interest and in respect of foreign exchange, at very favourable rates.

Economic logic does not apply to the world of the elite and their friends. They enjoy a high level of immunity in law enforcement, administrative rules and regulations and probably assume that any attempt to investigate them will be terminated with a single nudge or a telephone call.

The importance of information
Let us now seek to examine, as far as a column can, whether there is any danger that Guyana is in a housing bubble. And if it is, what are the potential consequences and what the lenders and the authorities should be doing to prevent a situation referred to as locking-the-barn-door-after-the-horse-is-gone, that is to regulate lending while it is booming, rather than after it will have collapsed – ie taking curative rather than preventive action.

To make any sense of this real or imagined problem it may be necessary to understand who the players in the housing market are and to examine their respective roles.

It goes without saying that a discussion on such a crucial issue requires proper and reasonably accurate information, something that is regrettably scarce in this economy. In this country where telling the truth is not considered necessary or virtuous and where politicians routinely lie, hard facts from regulators are the best check against anything that politicians say.

By law and necessity the Bank of Guyana and the Statistical Bureau are supposed to be independent, but in practice they are controlled and compromised by politicians, often merely following instructions, continuing to do what they did last year, their output seldom demonstrating innovation, initiative or even relevance. So that like the politicians, they simply assume that the obvious benefits of broadened home ownership justify a rather liberal approach to lending by the commercial banks and the non-bank financial institutions.

The government and its agencies
For the government any attendant mishaps to its housing policy – which even its critics agree has been a defining success – will be a major setback, but nothing compared with the losses which the bursting of any bubble would have on the individuals and investors in the housing sector and their lenders.

The government’s main role has been to conceptualise and to facilitate its housing policy largely with below-market sale of state-owned land, infrastructural works and tax exemptions on income earned by approved lenders. As an instrument of social policy, land allocation is dictated not only by economic considerations but takes account of several non-financial variables including of course politics.

The Bank of Guyana has the statutory obligation to regulate the financial sector, and now as well, the insurance sector, a task for which it does not appear to be properly equipped. For years I have complained unsuccessfully about the inadequacy of its statistics and the arrangement of the information in its periodic reports which include a Statistical Bulletin, a Banking System Statistical Abstract, and half yearly and annual reports.

These reports serve different purposes and seem to ignore the need for aggregate statistics to enable a proper understanding of the key sectors and equally importantly, for purposes of policy formulation. It is amazing that any government would actually make important monetary and fiscal decisions in the absence of proper information.

Other players
The other players are the lenders and the borrowers. Not too long ago, financing for the housing sector came mainly from the non-bank institutions. The most prominent was the New Building Society, with the insurance companies a smaller player using part of their long-term funds for housing purposes. It was an insurance company Demerara Mutual that played a major role in the development of Happy Acres, a success story on the East Coast Demerara, but which it did not seek to replicate elsewhere.

There has been a marked shift in the market share of real estate and housing loans over the past ten years. We estimate from various sources that the total amount of mortgage loans at December 31, 2010 was approximately $60 billion, with the non-bank sector accounting for about 42% and the banks accounting for 58%. That is a dramatic change from ten years ago when the banks accounted for 25% and the non-banks for 75%. The dramatic shift in the non-bank sector is attributable to the declining role of the New Building Society in lending to the housing sector.

From available information, we estimate that in dollar terms, lending by the non-bank financial institutions has remained practically static over the period 2007 to 2010. This coincided with the contraction of lending by the New Building Society resulting in a significant decline in market share and losing out to the Republic Bank whose lending on mortgages moved from near zero in 2001 to $6.6 billion at December 31, 2010.

Over the past ten years total mortgage lending has increased at a compound annual rate of 14%, ranging from 2.54% for the non-bank financial institutions, Citizens Bank 10.41%, and Republic Bank 29.4%, a high percentage coming from a negligible base ten years ago. My inability to provide similar information for other financial houses, including those commercial banks that publish annual reports, is because comparable information is not readily available.

To be continued

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A potpourri of NICIL, the Berbice Bridge and the TUF (with some computers added)

Introduction
It has been all quiet and stable on the business scene this past week, or at least what could make news. The column will resort to a number of issues which could not individually justify a column but together represent matters of some concern. One rather publicised issue was the appearance of the Minister of Finance Dr Ashni Singh with the Minister of Education Mr Shaik Baksh at a press conference to defend questionable contracts valued at approximately $300 million for the procurement of computers for schools.

The result was hardly what they would have intended. It was defending the indefensible. But please remember that this most recent contract is separate from the $5.4 billion for the laptop computers that have also generated concerns from beginning to end. One wonders whether this is why the PPP/C has made a joke of the constitutional requirement of a National Procurement Commission. If such a commission is established, the cabinet would have no role in the award of contracts and the country would be spared the extravagance and corruption we witness with each disclosed contract.

NICIL
Readers will recall that the Minister of Finance last year stoutly defended the award of the Amaila Falls Road Contract to Mr Fip Motilall – that time not for $300 million but $3 billion – ten times more than the school computers’ contract. The joke about road contracts is the building of a road to nowhere. In this case it is no road to anywhere, as far as Mr Motilall is concerned. Prominent in the award of Motilall’s contract was the Privatisation Unit headed by the ubiquitous Mr Winston Brassington, the Chief Executive Officer of National Industrial and Commercial Invest-ments Limited (NICIL), a company that enjoys corporate infamy even by Guyana standards for its failure to have audits and to file statutorily required Annual Returns for decades.

Despite this failure being raised on numerous occasions NICIL, whose directors are mainly ministers of the government, continue to receive public monies and to spend it however it pleases. It infamously played the role of handmaiden to President Jagdeo and his cabinet in the unlawful tax concessions to Queen’s Atlantic Investment Inc and has failed to provide properly audited financial statements for its expenditure of hundreds of millions of dollars of GGMC funds to build hinterland roads. It is at the heart of the proposed Marriot Hotel deal and indeed has been busy shopping around for any partner which would give the project legitimacy. No one knows where the funds will come from.

What is clear is that NICIL continues to receive public funds and late last month the Official Gazette (Legal Supplement) of June 25, 2011 carried fourteen Orders under which public lands were disposed of to individuals mainly in Linden, under agreements of purchase and sale in which NICIL was named as the seller.

One wonders whether the nest egg being built up by NICIL is for the Kingston Marriot which President Jagdeo wants to see before the elections – whatever the financial and other implications.

The Berbice Bridge Company
Some weeks ago, a group of courageous Berbicians joined in a protest at the high cost of traversing the Berbice River Bridge, demanding that it was time that something was done about it and calling on the Transport & Harbours Department (T&HD) to reintroduce the services of the pontoon MV Sandaka on a regular basis. The government has been less than responsive. To make the bridge feasible for the investors – many of them friends of the government – persons seeking to cross the river have little option but the bridge.

At the protest, persons complained that only the rich people could enjoy the bridge, describing it as “terrible” since the bridge was one of those elections promises to Berbicians. According to reports, individuals have to pay $100 to go to the Rosignol Stelling and wait a long time until the bus is full and pay $300 to cross. In all they pay $800 return and lamented that some persons who work in NA earn just $1,200 per day and are barely left with a little money. Security guards receive less.

One of the big defenders of the high fares is President Jagdeo who had told Stabroek News that especially for private cars and minibus operators crossing the river using the bridge, the one-time toll of $2,200 toll was cheap. Mr Jagdeo and his entourage never have to pay a cent so he would not know what is cheap or expensive. Unlike the Demerara Harbour Bridge, pedestrians and cyclists are not allowed to use the bridge. This would surely be what a low carbon economy would require.

With the range of concessions under the Berbice River Bridge Act surpassing those given to the Ramroops, one would have expected that these would have been seen as subsidies to be used to make the tolls affordable. Compare the toll between the two bridges: Cars – Demerara Harbour Bridge $100 while for Berbice it is $2,200.

Here is a summary of the concessions that the company and its shareholders whose names seem to be a state secret receive: Exemption from all the duties and taxes under the Tax Act; all imports of goods, equipment and services on design, construction, expansion, rehabilitation, repairs are exempt from taxes, import duties, purchase tax, consumption tax, motor vehicle taxes and all other taxes; and licence fees and other similar fees or charges. This applies to the concessionaire, contractor and subcontractor.

Other concessions are: Complete exemption for the concessionaire from corporation tax, income tax and withholding tax for the entire concession period; exemption from corporation tax, income tax and withholding tax of all dividends and interest paid. Additionally, all income earned by a contractor or sub-contractor pursuant to the Concession Agreement is exempted from income tax.

Like NICIL, the Berbice Bridge Company Inc, whose chairperson is Ms Geeta Singh-Knight of Clico fame, has not filed annual returns and financial statements since its incorporation, so we cannot tell whether the company is making money or not and if so how much. So much for the rule of law, transparency and good governance.

The PPP/C’s embrace of free enterprise
In a letter to the press earlier this week Mr Dennis Lee, an executive member of the TUF, claimed a pivotal role for his party’s leader Mr Manzoor Nadir in the PPP/C government’s adoption of the free enterprise system. That the statement has not been challenged by the ideological wing of the PPP is probably more surprising than the accuracy of the actual claim.

It is true that the government has practised a crude form of the free enterprise system in which major segments of the economy are at best poorly regulated and at worst allowed to run literally on illegal oil. Many of the nouveau riche actually started and or sustain their empire with illegal fuel, narcotics and customs evasion.

That key pieces of legislation including the Prevention of Money Laundering Act are poorly administered with none of the requisite resources to make them work is not free enterprise but abject lawlessness and deception. Indeed the TUF leader can take credit for his role in weakening the trade unions and in keeping the minimum wage of $800 per day for security workers.

But it is also true that despite his decades of railing against the IMF, Dr Jagan came to power in 1992 after he had given commitments to run with the Hoyte-inspired IMF- directed Economic Recovery Programme. The PPP/C under four successive Presidents including Mr Jagdeo who was Finance Minister to three of them comfortably ran with the free enterprise system so warmly embraced by Mr Lee.

It would be interesting to learn whether the new TUF leader Ms Valerie Garrido-Lowe shares Mr Lee’s exuberance over the free enterprise system. What she did tell me on Plain talk was that she would like to see a more compassionate system to take account of our present situation where the free enterprise system has widened unbridgeably the gap between the rich and the poor.

One might also question Mr Lee’s praise of Mr Nadir as the TUF’s investment in Guyana’s future and whether in fact the TUF was Mr Nadir’s investment in his personal future.

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Oyez, the IMF brings good news for our poor

Following last week’s column featuring the IMF Article IV Consultation on Guyana I learnt that Mr Asgar Ally, former Senior Finance Minister in the post-1992 Cheddi Jagan government currently serves as a Senior Advisor to the IMF Executive Director for Guyana. In fact accompanying the Consultation Report was a statement issued in the name of the Executive Director Paulo Nogueira Batista, Mr Asgar Ally and Ms Nicole Leslie-Ann Des Vignes, another Senior Advisor.

If the report was one-sided, the statement read like the adulation reserved for saints and people who routinely walk on water. No wonder then that the Government of Guyana was prepared to break with the past and to permit the IMF to allow public disclosure of the report. Transparency under IMF rules it seems, depends on whether or not the subject government is pleased with the contents of the report. Indeed the rule can be so manipulated to pressure the IMF into writing favourable reports in exchange for ‘transparency.’

I cannot say this was done in this case but the statement by the three senior officers causes me sufficient concern to warrant my writing to the new Managing Director of the IMF, Ms Christine Lagarde about it. The IMF must know that its work is being critically evaluated by the public and that it can be called upon to justify what it puts on the record. I am allowing a week to pass before publicizing the letter and will also publish any response I receive. Now for this week’s column.

Introduction
Earlier this week I received a copy of a wonderful book called Poor Economics written by professors Abhijit Banerjee and Esther Duflo of the renowned research university, the Massachusetts Institute of Technology. It is one of the best gifts for anyone truly interested in development models and processes to help the poor and who reject the banal notions and mindless efforts of politicians across continents. The irony of our Guyana example is that our politicians have managed, quite spectacularly, to rise over a single electoral cycle from need to affluence even as they pretend to write and implement poverty strategies that will go nowhere and help no one. Poor Economics is a book that simply cannot be praised too much, winning acclaim from across the spectrum, including from heavyweights like Nobel Laureates Amartya Sen and Robert Solow, and journalists from the pro-capitalist Financial Times, Economist and Forbes to the liberal Guardian and El País – no easy feat.

The book is no ivory tower approach to the complex issue of poverty or why a poor person needs to borrow in order to save, why the children of the poor go to school but do not learn, why they pay for drugs they do not need while missing out on easily available life-saving immunizations, why they spend so much on dowries in India and funerals in Africa, why they prefer to buy a television set rather than nutritious food or why the poor can start a business but not grow it. Banerjee and Duflo spent fifteen years on this work, among the poorest of the poor in Asia, Africa and Latin America, taking a ringside view of the lives of people who are no different from each of us, or are, as the authors say, “just like the rest of us in almost every way” – with the same desires and weaknesses, and just as rational if not more so.

In the process the authors manage to humanize the poor rather than to stereotype them with a single label as some faceless group, capable of being analysed, diagnosed and treated as one homogeneous whole. As the authors note, the poor have to be sophisticated economists just to survive, having to make more careful choices about what to have, or more often what not to have. Failure for the poor is to fall off the precipice, not only for the head of the household but the several children and their children as well.

Aliens in our world
Those of us who believe that our circumstances, our thinking and our values are the standard, forget that the poor have limited access to the things we take for granted – things like good newspapers, television and books that provide the very information that can make their lives better. The poor have the additional problem of being aliens in a world not built for them – the financial system, the Blackberry, a retirement plan and health insurance and four-lane highways are not part of their lives or lexicon. For the poor their only experience with democracy is the promises they receive every five years, and their enjoyment of human rights is being able to avoid the police. Their measure is quantity rather than quality, and achievement is gauged by survival rather than success.

Ever since Desmond Hoyte embarked on the IMF-driven Economic Recovery Programme (ERP) we have heard of the safety net without realising that many of the poor were below that net, only to fall further below. The ERP was built on a set of theories hatched in the multilateral financial institutions, embraced by development economists and promoted to unsuspecting governments by aid agencies and donors keen to be seen to be doing something about poverty. That is what makes Poor Economics different. It is the product of experiences, observations, interviews and objective analyses by two accomplished economists who worked in the trenches and communities of the poor. It is about solutions of the poor, by the poor and for the poor.

The IMF brings good news
We are now told by the IMF that the reduction of poverty is a major priority of the Government of Guyana and that the authorities are moving ahead with the revised Poverty Reduction Strategy Paper (PRSP). That is more than a bit surprising for more than one reason: the government seldom acknowledges the existence, let alone the scale of poverty and has done nothing to measure it in any of the ten administrative regions of the country. I find it hard to believe that the geniuses in Vlissengen Road and in Main Street would think that the nature of poverty in Region 8 would be the same as in coastal Guyana or that some one-size-fits-all approach would magically solve the problem.

If indeed we want to find solutions to our poverty issues we have first to understand the scale of the problems faced by the poor, including the reasons why they missed the first wave of poverty alleviation and the structural weaknesses inherent in those earlier efforts. Like in so many countries, the efforts have been the top down approach by politicians who believed they knew all and therefore did not need to speak with the patient whose poverty is the problem to be solved.

The Jagdeo syndrome
Whatever the scale or the numbers, the first challenge to our poverty problem that needs to be overcome is the Jagdeo syndrome which is to throw money at the problem and if that does not work, throw some more. If free books and uniforms do not help the dropout rate or improve our CXC scores, then maybe a more expensive laptop will do the trick. If building one over-priced medical facility does not lead to an improvement in child mortality then build another, usually with loan or grant funds. If one gimmick does not work just try another.

Under this syndrome an absolute no-no is the obvious need to examine the causes of poverty or for an evaluation of the economic, social and psychological effectiveness of aid extended so often as charity rather than an effort to make available to society the human capital locked in that huge mass. Not only would that approach be too complex for the Jagdeo administration but it has no political value, the only currency the government recognises in its transactions with the poor.

Conclusion
Expectedly, the IMF tells us that the revised PRSP is being done with donor assistance. One can expect with the certainty that night follows day that the donor community will be asked to finance the inevitable outcome: that the problem is insufficient resources. This trick produced baskets of aid funds before and the chances of doing so again are high, so why not try it?

Meanwhile no one should deny the success the political directorate has had in transforming their personal poverty reduction to wonderful capital accumulation. It is a real pity that what works for the politically powerful is not available for the powerless masses. That is as true now as it was in George Orwell’s 1984.