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Christmas 2009: End of a troubled year and a nameless decade
Introduction
The word ‘merry’ fits in with Christmas as horse goes with carriage. For all but the most ascetic among Christians, its religious significance is celebratory and material, rather than religious, demonstrating the depth of God’s love for mankind, a manifestation of redemption and adoption, in which God gave his son to save mankind from their sins. Ian McDonald often reminds us how, as we grow older, one year seems rapidly to morph into another, pausing only for the special significance and memories which each Christmas leaves with us, as it flies past into the New Year. As we watch our children grow into adulthood, we inevitably reflect, often through deceptively tinted lenses, how Christmas was better in our childhood days. How conveniently we forget that Christmas for most of us was special because toys and ‘ice apples’ and grapes and black cake and new clothes were reserved for Christmas. We forget too that in between, life was challenging, as we shared with our siblings and country cousins not rooms but the floor; indoor plumbing and telephones were for the residents of the few big houses occupied by the village elite, their children sent to high schools on their way to studying abroad; and that in those days a job in the public sector meant something – whether as a pupil teacher, a trainee nurse, a policeman or a class two civil servant. In those days a bank job was reserved for persons with colour and connections, except for the messengers and cleaners. Few holders of such jobs now have the means to change the curtains, to buy new clothes and exchange gifts.
We forget too that in those days, infant mortality was common, that the funerals our parents attended were for persons who would now be considered young, that life expectancy was much lower then than now. We had the excitement of a nation-in-the-making and now are justified in regretting that our freedom fighters and founding fathers wasted some wonderful opportunities to forge our country into a modern state; that for us development meant migration and that for many today a full family Christmas means bringing at least some of the siblings or their children into the sitting room, thanks to the technological revolution that allows Skype to provide low cost telephone and video contact with those in North America and Europe.
The Danish Santa
So what was Christmas 2009 like? This was a Christmas when we were led to believe that our itinerant President would return to Guyana on the Danish Santa’s sleigh, overloaded with LCDS and REDD and REDD + money from the Copenhagen Climate Change Conference. We were led to believe by no less than a major international management consulting outfit that forgoing exploitation of our forests would contribute vastly to the world’s economy and that the rich countries were conservatively indebted to us to the tune of more than half a billion United States dollars annually. How, we wondered, could the world not accept such a gift accompanied by the transport over 80% of the country which our President was personally offering to convey to them, spending the better part of his final term in office and several millions of Guyana taxpayers’ dollars to do so. Success at Copenhagen could have been a fillip for the third term advocates, justification that if Obama could get a Nobel, then why not Jagdeo?
Instead the conference flopped and the Danish Santa never arrived. The President returned home with no fanfare and carefully avoided the siren sounds of the motorcade from Timehri to the unclean and uncleaned capital city, instead quietly slipping into the Ogle aerodrome, a multi-million dollar government gift to a select few in the private sector. Obviously disappointed, the President then used the first press conference after his unheralded return to criticise, not too subtly, one of his ministers whose own Christmas gift was the short memory of Guyanese, and to blame his Danish hosts and its President for the “chaos and mismanagement” of the conference.
Donor of the month
Identified too for President Jagdeo’s tongue-lashing was the United States of America which was represented in the closing stages of the conference by President Obama. According to President Jagdeo, the US bore the brunt of the responsibility for Copenha-gen’s failure, that its inflexibility doomed the conference and that instead it should have partnered with the China, the world’s worst emitter, but our donor of the month. Our President seems unconcerned too about China’s human rights record, or that it has no qualms about executing persons convicted of rioting. Those who are aware that it was Obama, along with the Chinese President Hu Jintao and the leaders of South Africa, India, Russia and Brazil who drafted the final agreement coming out of Copenhagen immediately recognise President Jagdeo’s exoneration of China as cynicism and opportunism in rewarding China for its Guyana $1 billion grant to this country one day earlier. Since Santa has never publicly proclaimed any identity with Christianity and the Chinese yuan, which like its government is atheistic, President Jagdeo had no objection to a Chinese Santa instead of a Danish one.
Four men
So how then do we look back on Christmas 2009 which brought the curtain down on a decade described by Professor Timothy Garton Ash of Oxford University as the “nameless decade”? In last week’s column we recounted that the country and the world’s economy started the year with the possibility of dire consequences, consequences from which the world was fortuitously spared. In such an eventful year it is inevitable that there would have been some who stood out, who contributed to the events that shaped the world, whether for the better or worse.
It is a year when four men of African ancestry – all but one American – made the news and captured the emotions and imagination of the world. The Nobel Committee awarded its Peace Prize to US President Barack Obama, a surprising decision that drew more attention to the donor than the recipient. On January 20 President Obama became the first African American to occupy the White House and carried the honour and the responsibility of being the President of the world’s largest economy and most powerful, if waning country. Young, articulate, intellectual and energetic, Obama’s effectiveness so was circumscribed by America’s domestic politics that he was unable to live up to his international rock star image and to bring his prestige to solve global problems.
The next was legend Michael Jackson, musician, dancer and entertainer in a career spanning forty years. During that time, he had earned for himself the accolade of greatest entertainer ever, but had drawn wide, negative media publicity for redesigning his face, nose and skin colour and for allegations of child sexual abuse from which he was exonerated by the courts. It took his shocking, sudden and still mysterious death in June to regain the public adulation he had enjoyed for about half of his public life, his live memorial service attracting an audience of up to one billion people. Immediately he replaced the iconic Elvis Presley as the most successful dead entertainer.
The Tiger slows, Usain bolts
The third was Tiger Woods, arguably the world’s most talented golfer ever, history’s highest earning and richest sports personality and the Associated Press Athlete of the Decade. A whistle-clean career carefully cultivated over fifteen years came crashing down in less than fifteen days following a minor vehicular accident that led to revelations of domestic problems and later multiple cases of infidelity in which numerous women came out of the woodwork to claim dalliance with him. The golfer has now taken indefinite leave from golf to work on his marriage, hopefully with his wife having no access to his golf clubs!
The Jamaican sprint sensation Usain Bolt at the 2008 Summer Olympics in Beijing China became the first man to set world records in all three sprinting events at a single Olympics and during 2009 became the first man to hold the 100 and 200 m world and Olympic titles at the same time. The sprinter has given his country and our region publicity that for a change, it could consider as being positive and useful. Usain’s achievement is one of which all Caribbean people can truly be proud and offers hope and pride for us all. Ironically the major beneficiary of Usain’s exploits was the sports goods manufacturer Puma, rather than any business from the region.
Heroes and villains
But what about the heroes and villains of the financial world – those who got the world into the mess and those who helped to save it? The popular middle-America weekly Time magazine has named Ben Shalom Bernanke, the Federal Reserve chairman as its Personality of the Year for his “monumental influence on the world’s most important economy” and because “his creative leadership helped ensure that 2009 was a period of weak recovery rather than catastrophic depression…” Coincidentally, Bernanke was a scholar of the Great Depression and not only recognised the depression that appeared on the horizon in mid-2008 but put all his energies and reputation into preventing it from happening. Another candidate for the title was the sprinter Usain Bolt while it was also clear that two European leaders – Gordon Brown of the UK and Nicholas Sarkozy of France had done much to build a reputation as the David that kept the Depression Goliath at bay.
Corporate fraudsters
The world in 2009 also saw its fair share of corporate fraudsters and the drum roll immediately announces Bernard Madoff of the US, B. Ramalinga Raju of Satyam Computer Ltd of India and ‘Sir’ Allen Stanford of Texas, US and Antigua and Barbuda. Bernard Madoff, a star of Wall Street, former chairman of the Nasdaq Stock Market and founder of Bernard L Madoff Investment Securities LLC, was sentenced to 150 years behind bars on conviction of the biggest financial swindle in history, a Ponzi scheme that robbed trust and pension funds of an estimated US$50 billion.
Stanford, seen as the saviour of West Indian cricket with the introduction of the hugely popular 20/20 format, became one of the most recognised faces in the Caribbean. His fall from grace matching his meteoric rise, Stanford is now behind bars in the US, awaiting trial for selling investors high-yielding certificates of deposit on the basis they were safe and liquid investments.
Repercussions
Stanford had his impact on Guyana with the Hand-in-Hand Trust coming up short of millions of its own and others’ pension funds. Making the news too was the collapse of the insurance giant, Clico, a victim and perpetrator of abuse of fiduciary obligations that is costing policyholders and pension schemes, including the National Insurance Scheme, several billion dollars.
At year end there is still uncertainty when some of the money which was recovered through the generosity or guilt of a regional country would be paid. For these, there have been no investigations or enquiries.
It seems that some drug barons and corporate fraudsters enjoy immunity not only from prosecution but investigations as well.
Next week, we look forward to 2010.
Brightening prospects – The Ram & McRae Business Outlook Survey 2010
Introduction
Today’s column draws heavily on the Business Outlook Survey 2010, an annual survey which Ram & McRae has been carrying out for sixteen years. While the overall coverage of the press conference announcing the results of the survey was, as usual, good, I was surprised at the number of media who offered the mild criticism that the event clashed with a sitting of the National Assembly. One of them even suggested that the firm should shift the time of the press conference! I hope this is not an indication that parts of our media do not have the barest of resources to cover more than one event simultaneously.
In its introductory comments on the survey, the firm noted that the survey was taking place in a year that began with the world confronted by real fear of another Great Depression, the possibility of a return to protectionism and the collapse of the world’s increasingly globalised financial system. Armageddon was averted, and according to the publication, World Economic Situation and Prospects (WESP), a joint product of the Department of Economic and Social Affairs, the United Nations Conference on Trade and Development and the five United Nations regional commissions, the global economy began to recover from the second quarter of 2009, aided by massive fiscal stimuli and intervention by governments that seem suddenly to resurrect Lord Keynes. WESP noted, however, that the recovery, which is still taking place, has been uneven and that conditions for sustained growth remain fragile.
Unsatisfactory
Here at home, despite the huge sums from our donors specifically to rebuild the statistical and financial capacity of the relevant agencies, national financial and economic statistics remain unsatisfactory. This column over the past few weeks has been at pains to point out the considerable confusion caused by conflicting statistics published by the Bank of Guyana and the Ministry of Finance. The Bank of Guyana has now quietly amended its own figures on its website by way of a footnote in its half-year report, but which now introduces an inconsistency with its conclusion. It is ironic that even as the Bank does this, it received from the survey respondents the highest number of ‘excellent’ ratings among public sector entities.
The agreement on a decline in the economy’s performance in the half year seems to suggest that the decline continued into the second quarter of the year, unlike the rest of the WESP recovery countries. Let us hope it will not take several more years before Guyana joins the rest of the modern world in offering quarterly economic statistics including labour data and regional activities.
Copenhagen fails
As the 2010 survey was being carried out, the world’s – and Guyana’s – attention was focused on Copenhagen, Denmark where the world’s leaders were haggling over a solution to a phenomenon with potentially devastating consequences for the environment. The report noted that signs coming out from that conference were not good, a view that has been confirmed by the failure of the more than one hundred leaders to arrive at meaningful and necessary action to protect the environment and secure the future of planet earth. No amount of diplomatic acrobatics or linguistics by Ban Ki-Moon, the UN Secretary General, could mask the huge failure that Copenhagen has turned out to be. Ram & McRae had noted that no amount of fiscal stimulus could substitute for the tough economic and political decisions which a solution demands, decisions which China and to a lesser extent the USA were unwilling to make. Having said that, Copenhagen represented a failure of leadership, preparation and execution all around.
The good, the bad and the…
The survey’s introductory remarks included a reminder that Guyana was spared a repeat of the Bartica-Lusignan type murderous attacks of the previous year. Businesses were not prepared, however, to give the security forces much credit for this and indeed, the Guyana Police Force and its supervising Ministry of Home Affairs were rated poorly in terms of effectiveness among public sector entities. The government however was far more generous to the security forces, not only in terms of huge budgetary increases but also in the payment of bounties, a dangerous policy if ever there was one.
Not surprisingly, the Low Carbon Development Strategy as a concept received a highly favourable rating, as did the new prevention of money laundering legislation and the repeat of the proposal for a credit bureau. Not only Guyana but the world agrees with some form of LCDS – which essentially calls for simultaneous development of the economy and the protection of the environment. It is not hard to understand too why the respondents supported anti-money laundering legislation. Those engaged in tax evasion, money laundering, corruption and who dominate the criminalised sector have a huge advantage over those who run reasonably honest businesses. Previous money laundering legislation did not work, and I do not think it is too early to fear that, as presently organised, the new arrangements are going to be any more successful.
Confidence levels
The survey report noted that confidence levels in the business sector had fallen significantly in recent years, and in the 2009 survey, none of the respondents was confident that the economy would improve and sixty per cent were positively not confident about the country’s economic prospects. The percentage of respondents who are now less pessimistic than the year before has fallen by 9% to 51%, the same level as in 2008 but still far from the levels of confidence reflected in the 2006 and 2007 surveys. After the re-election of President Jagdeo in 2006, only 17% of the private sector had expressed pessimism about the economy. That percentage has increased two-fold, in contradiction to what the leaders of the private sector have been singing to the government over the past couple of years.
A summary of the responses is as follows:
One feature of the annual surveys has been that whatever their outlook of the economy might be, respondents always were more confident about their own operations, management and prospects. None of them plans any contraction of their business and they expect – in percentages unprecedented in recent years – increases in turnover and profitability. In its comment on these expectations, Ram & McRae expressed the hope that the increasingly confident business community, including the cash-rich financial sector, would provide the investment the country badly needs to generate employment, foreign exchange and taxes, to help in the development of the country.
Self-confidence
Public/Private Sector performances
For the first time since the firm initiated a Business Outlook Survey sixteen years ago, it asked respondents to rate twenty-one public sector entities with which businesses interact and to rank them from poor (ineffective) to excellent (very effective). Respondents were given the option of not providing a rating for any of the entities, an option taken up by an average of eleven respondents – either opting out of the question or not having done business with the body.
Getting high ratings in order were the Ministry of Agriculture, the Bank of Guyana and the Ministry of Labour, with GPL rated the poorest. Of concern is the NIS which was rated eleventh in a group that includes the Guyana Police Force, the Ministry of Home Affairs and the Office of the Commissioner of Insurance and, of course, GPL. The Commercial Court was rated higher in terms effectiveness than the High Court.
Of the ten NGOs, the two trade union umbrella bodies were rated lowest in terms of effectiveness, with the Trades Union Congress slightly ahead of the Federation of Independent Trade Unions with thirty-seven respondents (80%) and thirty-six respondents (84%) rating them as ineffective or marginally effective, respectively. Neither received an ‘excellent’ rating from any respondent.
At the other end of the scale, the Institute of Chartered Accountants of Guyana and the Guyana Manufacturing and Services Association were rated highest with fourteen (33%) and ten (22%) rating them as effective or very effective respectively. Interestingly the private sector organisations the Guyana Manufacturers Association and the Georgetown Chamber of Commerce received considerably higher ratings than the Private Sector Commission, which more often than not claims to speak on behalf of the private sector.
Conclusion
All the indicators and informed projections point to a retreat from the free-fall in world trade, industrial production, asset prices and global credit availability which had threatened to push the global economy into another great depression in 2009. Since the second quarter of 2009, economies across continents have been improving at varying rates of growth. International trade and global industrial production have also been recovering noticeably, with an increasing number of countries registering positive quarterly growth of gross domestic product (GDP). That revival has been driven in no small part by the effects of the massive policy stimuli injected worldwide since late 2008, and by strong cyclical inventory adjustment. But as the UN World Economic Situation and Prospects (WESP) 2010 notes, the recovery is uneven and conditions for sustained growth remain fragile. Credit conditions are still tight in major developed economies, unemployment is still high and businesses are still wary of expanding the productive capacity until more certainty and stability appear.
At home, despite serious warning signs in agriculture, bauxite and manufacturing, the Minister of Finance predicted a significant turn around in the second half of 2009 while the President seems over-enthused about the economy’s prospects with some US$30 million coming to the country next year under the Guyana-Norway LCDS Memorandum of Understanding.
In the report’s conclusion, the firm expressed its continued conviction in the usefulness of the survey despite the apparent disregard by the government of the wider views of the private sector expressed in confidential, independent and professionally compiled reports. I am convinced that the government’s failure to treat with meaningful tax reform has contributed to the continuing, widespread and massive tax evasion. It has failed to incorporate into the formal economy the huge parallel economy and it has demonstrated neither the will nor the capacity to deal with the criminalised segment of the economy, corruption, and white collar crime. Unemployment and under-employment are officially non-issues, even as the country laments the loss of professional and other skills to migration.
Noting that the short-term political advantages gained by allowing these issues to be driven by electoral considerations are far outweighed by the long-term economic costs, the firm was not hopeful that these issues would be addressed in a year preceding important general elections.
Economy firewall malfunctions – Conclusion
Conclusion
This is the fourth and final part of a review of the Mid-year Report 2009 presented by the Minister of Finance to the National Assembly under the Fiscal Management and Accountability Act, 2003. As I promised last week, the purpose of this closing part is to pull the strands of the three preceding segments together and to look for any causes of optimism in the economy and its management.
Despite its title, the Act requires of the mid-year report more than the year-to-date execution of the annual budget. It requires the report to set out the prospects for the remainder of the year. It also mandates the inclusion of a revised economic outlook for the rest of the year, a statement of the projected impact of the trends on the remainder of the year, and very importantly, a list of major fiscal risks for the second half of the year with likely policy responses that the government proposes to take to meet the expected circumstances. In my view the report presented by the Minister falls very short of the requirements of the Act, and he spent no more than a few sentences on the revised economic outlook, fiscal risks and proposed government responses for the rest of the year. If proof be needed, then the Minister himself provided it this past week when he brought before the National Assembly requests for $5 billion, mainly for spending in the second half of the year, which must have qualified for – but did not receive – inclusion under projected trends and major fiscal risks. It is also a case of how bad and weak the Ministry of Finance is when it comes to budgeting and planning.
Before proceeding, I digress to repeat what I consider a major concern about the report, and that is its lack of timeliness and therefore its limited practical value. The report is by law due no later that August 30 of the year. It is now normal not only for the report to be issued months later, but also for it to bear a date that is very misleading, sending a signal to others that it is okay to do so. For 2009 it was presented on November 12, but bearing the date September 25. The Minister must be aware not only that the National Assembly has a registry to receive reports when it is in recess, but that it is wrong to send signals to subordinates that such conduct is acceptable.
Disdain
In part 2 of this short series I drew attention to an item in the Bank of Guyana Half-year Report submitted to the Minister of Finance, in which the performance of the economy in the first half of the year was addressed in considerable detail. I noted an obvious conflict between the numbers presented by the Minister and those presented by the Bank of Guyana; while one was reporting growth, the other was reporting a decline. Clearly they both could not be right, and the public would have expected, both out of duty and professional self-respect, either or both of these entities to have addressed the issue. Neither has done so, further evidence of the Minister’s disdain for the public, recalling his response to a Kaieteur News article on grossly excessive payment by the government for the purchase and supply of equipment, when he suggested that the newspaper should start bidding for contracts!
LCDS and accountability
The Minister must be aware that the President’s attempt to raise money internationally for Guyana’s proposed low carbon development strategy is also drawing attention to the country and its management. Everyone, including the General Secretary of the ruling party, now admits that corruption is taking place in the country – any difference being only the matter of degree, with most independent opinions leaning towards corruption on a massive scale. That view is reflected in Guyana’s ranking in the Corruption Perception Index by the internationally respected, German-based Transparency International, where Guyana is rated at 126 of 183 countries, the worst in the region.
This series on the mid-year report pointed to one of the most celebrated cases of flagrant breaches of financial procedures – that involving the purchase of drugs by the government, largely from an entity with which the President admitted to having close ties, and which had earlier been singled out for unlawful tax concessions. But that is only one case among many that are surfacing daily with contractors, whose low expertise in construction is only matched by high level connections, and who receive multi-million dollar contracts that cost as much in rework in some cases, almost as soon as the work is signed off and payment made. Corruption is one C-word that is alien to any half-year or full-year review done by the Minister.
Unlike the Minister of Finance and the President, Norway, the government’s LCDS benefactor, is not oblivious to or unaware of the endemic problems of corruption in Guyana, neither does it seem willing to sweep them under the carpet. That country’s Environment and International Development Minister Erik Solheim has made its position on corruption clear by prescribing robust anti-corruption measures before Guyana can draw down on the six-year US$250 million promise made by Norway. That understanding is still only at the MOU stage and may therefore be subject to further refinements and a formal and binding agreement.
Transparency
It is almost a joke to speak of a transparent financial mechanism while simultaneously and strongly refusing to put into effect constitutional provisions regarding the procurement of goods and services or an Audit Office headed and staffed by persons with appropriate qualifications. That the current head of the Audit Office is merely acting has as much to do with the fact that he has no professional accounting or audit qualification as that it serves the government well to have someone hold a key constitutional, accountability position purely at its whim and for its convenience. Those in acting positions know that if they rock the boat they risk sinking with it, a chance that out of self-interest, they will not take.
If the Norwegians are any more careful with their taxpayers’ funds than say the multilateral IDB or the World Bank, the chances of Guyana drawing down the entire sum must be low. If US$250M buys the Norwegians sufficient carbon credits to embellish their questionable record as an environment polluter, they may feel they have obtained a basement bargain. On the other hand, Guyana gives up major rights and opportunities, raising the question whether the country should not have had an indigenous low carbon development strategy rather than one dictated by the Norwegians, acting in their interest.
Contract employees
Another issue highlighted by this series was the increasing prevalence of the use of contract employees to get around the rules of employment in the public service. I had drawn attention to the more than $3 billion paid in salaries to this group of hand-picked persons, with another huge amount paid in benefits to them, including a 22% gratuity every six months. The really lucky ones get cars, drivers and duty concessions on top. This means that even the non-contract employees are really a benefit to the contract employees. Who these lucky ones are is intended to be a secret, but the Office of the President is a wonderful case of abuse. Of 201 employees in the Office of the President, ninety-five are contract employees and fifty-four are temporary. Among the contract employees are former ministers, all of whom are reported to be employed at the pleasure of the President on the same salaries and with the same benefits that they received as ministers. The Ministry of Local Government has two former ministers who must still be financed by the taxpayers.
Ironically, both the Public Service Commission and the Public Service Ministry which are expected to protect the integrity of the public service are themselves serial cases of the contract employee syndrome, while the culture also seems embedded in the Ministry of Culture, Youth and Sport.
Implications
The implications of this are huge and costly. It gets around the constitutional provisions for employment in the public service, creating a huge army of often highly paid loyalists but more importantly, it destroys the public service and its structures. What institutional memory will remain if on a change of government, the holders of all major key positions are not retained? Are we again going to turn to the British government which in the late eighties paid huge sums on financing a study that led to sweeping changes in the public sector and a dramatic reduction in the number of ministries? But that was before we had VAT that provides an annual windfall in revenues for the government to (mis)spend as it pleases, even as the half-year report discloses increasing borrowings without any indication of the actual amount of funds in the Treasury. That simply cannot be responsible financial management.
We noted in paragraph one that the Minister had approached the National Assembly for close to $5B to pay for unbudgeted expenditure on the army, Office of the President, LCDS, GuySuCo and other agencies and ministries. But we had also noted from the first-half report the low level of spending in that half year. The country’s financial rules provide for the reallocation of funds from one budget area to another. There is no indication that this sensible practice is ever employed instead of the simplistic approach for the National Assembly to rubber stamp excess and excessive spending. Simplistic too is its approach to sugar into which it continues to pump billions while its relationship with its major stakeholder – the workers – deteriorates rapidly. It is easy to forget that the government defied the World Bank and informed the public concerned about the Skeldon Project, the largest single public investment ever undertaken in this country. The results so far have been more than merely disappointing.
Where next?
Ram & McRae will this Thursday publish its report on its annual Business Outlook Survey which would give a good indication of the private sector’s take on the economy. From the empirical evidence only a few sectors are doing well but none of these is in manufacturing or production. Our financial sector continues to do well, as does distribution, but important as these are, they provide an intermediary function. The state-owned power company, whose costs feed into the rest of the economy, continues to struggle to reduce inefficiencies and costs. The public sector wage bill keeps mounting while services remain stagnant. The bureaucracy and its sibling, corruption, impose a huge cost on the highly-taxed economy, in which equity and fairness hardly exist.
It would not be right to argue that there have not been improvements in infrastructure, health and education, which were tied to the huge debt reliefs enjoyed over the past two decades. We have, however, failed in diversifying and strengthening our productive capabilities. Until we do that we cannot declare that we have accomplished the mission set by the PPP/C when it assumed control of this country, including making the country a place where rights, responsibilities and rewards were borne and shared equitably.
Economy firewall malfunctions – part 3
Introduction
This is the third and penultimate instalment of a short series reviewing the mid-year financial and economic report presented last month by the Minister of Finance. This review has benefited and drawn from the half-year report presented to the Minister of Finance by the country’s central bank, the Bank of Guyana. We will also look at two developments this week – the two supplementary papers presented on Thursday to the National Assembly by the Finance Minister Dr Ashni Singh seeking another $4,677,208,405, roughly the equivalent of US$25M, some of which has already been spent. The other is the news that the state-owned sugar company is experiencing cash flow difficulties in meeting its payroll obligation, while also being the beneficiary of another $1.4B for its capital expenditure programme. The inability to meet one’s payroll obligation is one of the worst signs of serious financial difficulties a business can encounter, and one wonders how the corporation which is top heavy with accounting expertise did not foresee this and take preventive action.
This request for additional funding of roughly 5% of the 2009 budget is itself troubling since the Minister’s mid-year report had shown key ministries being unable to absorb and spend the money authorised by the National Assembly in the 2009 Budget. Readers will recall from last week that the key sectors identified by the Minister had only been able to spend 34.6% of the 2009 full-year budget allocation, compared with 38% in 2008. By way of an explanation for the capital expenditure in half-year 2009 falling behind schedule, the mid-year report identified “some delays as a result of logistical and other issues.”
A large proportion of the money is for areas controlled by President Jagdeo – the army and the burgeoning Office of the President. The current request brings to more than half a billion dollars the additional sums given to the GDF, an entity that is regularly reported as failing to meet proper standards of accountability. The Office of the President – Presidential Advisory will receive an additional $50M to meet expenditure in relation to the Office of Climate Change and the Low Carbon Development Strategy. It is uncertain whether this money will be reimbursed by our Norwegian benefactors under the Guyana-Norway LCDS MOU which provides for a possible grant to us in 2010 of US$30 billion Guyana dollars.
The Public Works Ministry which is one of the sectors whose expenditure is not on target is yet being given additional sums, while the $400M promised by the President to the rice sector is now part of those supplementary funds. Sugar, rice and electricity, three sectors with an all-pervasive government involvement are proving a heavy burden on the national coffers, raising serious doubts about the capacity of those sectors to deal with their apparent incessant problems, some of which may be weather related.
Let us return to the mid/half-year reports which include the following table of the country’s principal export commodities. While rice export is showing a substantial increase, half-year output in 2009 was 7% lower than in 2008, suggesting a substantially lower level of domestic consumption or lower stock levels at June 2009.
Exports of Major Commodities
Source: Bank of Guyana Mid-Year Report
The country’s import of merchandise also declined – by 16.2 per cent or US$104.3 million to US$538.5 million. This is partly attributed to a decline in import prices, mainly of fuel and food. While the decreases in other intermediate goods may not warrant major concern, that cannot be said for capital goods; the import of all categories of machinery declined by 16.1 per cent or US$21 million. What must be of concern, however, is the import of consumption goods which expanded by 7.6 per cent or $11.6 million primarily due to increases in other non-durables and motor car subcategories. We seem to have a mindless non-policy on vehicle imports, a significant proportion of which are for the growing band of contract employees and others in receipt of duty-free concessions, while the statistics highlight the increasingly visible extravagant lifestyles and conspicuous consumption of a fortunate few.
The Bank of Guyana report shows the extent to which Clico – the country’s largest insurance company has impacted on the economy. As a consequence of that failure, the total resources of the domestic insurance companies (life and non-life segments) declined by 34.7 per cent to G$25,640 million. The life component, which amounted to 64 per cent of the industry’s resources, fell by 46.8 per cent to G$16,321 million, whilst the non-life component rose by 8.8 per cent to G$9,319 million. The resources of the insurance companies are available for investment in other sectors of the economy but because of the surplus liquidity in the banking sector the impact has not been as strong on the rest of the economy. In respect of the savings and pensions of thousands of individuals – either held directly with Clico or indirectly through pension schemes – the impact has been dramatic if not visible.
This column has been strongly critical of the poor management and governance of Clico and the equally inadequate regulatory oversight that allowed the company to break all the rules. It also believes that more thought should have been given to saving the salvageable segments of the company. If the die has been cast and extreme unction has been administered, then there are compelling reasons for the payment of a first dividend to those with savings and pensions in Clico. What a good Christmas gift that would be.
In foreign exchange, net current transfers declined by 17.2 per cent to US$120.5 million as a result of lower inflows to the private sector in the form of worker remittances. The main sources of outflow were workers’ remittances and remittances to bank accounts, which amounted to US$54.4 million and US$29.7 million respectively. The issue of outward worker remittances highlighted in the Bank of Guyana report, amounting in the half-year to more than ten billion dollars is a serious development in the economy, but instead of addressing it, the Minister misrepresents the data in his own report.
Sources: Mid-Year Report 2009 and Bank of Guyana Half Year report
Once again the country is burdened with additional external and domestic debt. The total external public debt rose by US$27.2 million from December 2008 to US$861.5 million at end-June 2009 but it is the composition of the debt that must cause some concern. Over the past twelve months, the stock of outstanding public and publicly guaranteed debt rose by 11.3% to US$862 million with the IDB and the Venezuelans contributing equally to a $100 million in disbursements in the case of the IDB and trade credit by Venezuela under the Petrocaribe agreement. It must be a matter of speculation whether there is any co-ordination between those who manage our external affairs and those responsible for borrowing and spending.
Domestic debt continues its mountainous climb reaching $84 billion dollars in June 2009, an increase of 15% over the 12-month period and 11% during the first half of 2009. Ten years ago the total public bonded debt was $41.6 billion, meaning that over less than ten years the domestic debt has doubled, a situation that would have been replicated in the country’s external debt had it not been for debt-write off.
The reason for this is that what we cannot do by taxing, we do by borrowing – for anything and everything. To bring the New Building Society under the Financial Institutions Act requires the addition of just five words to the definition of a company subject to the licensing requirement of the FIA and the regulatory supervision of the Bank of Guyana. But in public finance and indeed in public management in Guyana, nothing is straightforward. We must have the obligatory consultant to come and tell us for tens of thousands of United States dollars how to do it. What a waste.
Next week we close this series by pulling the various strands together and looking for any cause for optimism in the economy and its management.