By Peter R. Ramsaroop, MBA CEO, AFC
Introduction
Recently the President blasted the AFC for being unpatriotic for stating that our nation’s economic stagnation is due to crime, corruption and lack of transparency as validated by many international reports. The PPP General Secretary also disagreed that crime does not affect investors. However, if one would survey overseas-based Guyanese on why they do not return home and invest, they would all say it was because of lack of security. It was unpatriotic for the PPP to refuse millions of dollars from the British to aid in reforming our security sector. The President also scared future investors by stating that his government is under siege by terrorists. This was a very unpatriotic statement to make.
Crime has taken over Guyana and has suppressed the investor class and working class. For instance, smuggling has made it difficult for legitimate businesses to compete. The drug dealers are also laundering money that put those who borrow at 15% interest rate from the commercial banks at a disadvantage. Violent crimes have also chased away skilled Guyanese, workers and potential entrepreneurs. In spite of the escalation of deadly crimes under the PPP, few are brought to justice.
Another unpatriotic act was not implementing the National Development Strategy (NDS). The PPP General Secretary also said recently that “infrastructure” was the reason there are no major investments. If we had implemented the NDS since 2001 and started the smaller energy projects recommended, Guyana would have been in a position today to attract large investment. The PPP is waiting for the silver bullet hydro project, as economist Dr Tarron Khemraj recently noted, to solve our energy needs. But one silver bullet energy project is not likely to solve the energy needs of Guyanese. The AFC proposes the portfolio approach to energy – we prefer geographically focused small/medium scale hydro projects, ethanol, bio-diesel, wind and solar energy. These are not only realistic, but also more likely to create jobs for our people. I will expand on this in next week’s column.
Liberalisation
The key factors to the economic development and sustainment of any country are simple and the same from the Egyptian Empire to the American Empire. Before there were social sciences called economics and psychology, before there were MBAs and Accountants, certain natural factors existed which when honoured brought prosperity to a people.
What are these factors? These factors are mainly an entrepreneurial spirit of the people, access to capital and low taxes. Whilst these factors are simple and clear, they often manifest themselves within the political framework of the particular society. It is the political framework of a society that either properly harnesses these factors for the overall prosperity of the country or stifles these factors to the detriment and stagnation of the country.
This concept holds throughout all societies and empires from time immemorial to the present.
It has been documented that about 85% of skilled Guyanese migrate. Our country also suffers from the exodus of the entrepreneurial and investor class. These are the people who undertake new and risky in investments. They organize labour, financial capital, physical capital and skilled workers in the best manner to achieve the highest productivity. In addition, it is well known that for a country to develop it needs a core set of engineers and scientific researchers who can imitate foreign technologies and then innovate by applying them to the domestic circumstance. Guyana lacks this core set of human capital.
We also lack business management specialists and financial experts who can take good ideas and inventions and turn them into commercial successes. An economic plan to retain and recruit back our expertise is needed.
Guyana is mired, after eighteen years of PPP rule, in a backward production structure and a punitive political framework – so much time has been wasted by the PPP. Guyanese are largely dependent on remittances to finance consumption. There is still a large smuggling and illegal underground economy as documented by the multilateral financial institutions and academic researchers.
There is no focus on production transformation and every policy initiative of the government has to be financed by grants and foreign aid a large part of which ends up paying foreign consultants. Remittances, the underground economy, and foreign aid have created a false sense of success and an illusion of development for the PPP ruling class. The illusory pockets of development, moreover, do not emerge out of the creation of domestic production and wealth by stimulating the ingenuity of our people, or from encouraging foreign investors to invest in Guyana. Rather it is unbalanced and artificial development that cannot be sustained unless we transform the production structure of the economy.
The latter is precisely what the AFC’s economic blueprint policy package seeks to accomplish. We seek to achieve rapid growth through production transformation, productivity gains and reducing barriers to enable development that benefits all Guyanese. Remittances would become less important to prop up the consumption of families as they find permanent jobs and investment avenues.
Also, the underground economy, and the recklessness that emerge from that sector, would be smothered through appropriate legislation, transparency and robust law enforcement. We also intend to achieve our production transformation (and jobs creation) while maintaining stable price levels and exchange rates via prudent fiscal policy and an independent central bank.
Conclusion
Emphasis needs to be placed on making the political framework as it relates to taxes and liberalisation of the energy and telecommunications sectors more conducive for entrepreneurs. This is the only way to harness the factors of entrepreneurship and capital which will make Guyana a prosperous country.
We have called many times for a complete review of our entire tax system with the goal of streamlining collection and expenditures.
We would like to develop Guyana within one generation as was done in South Korea, Malaysia, Singapore and Taiwan. This is a highly realistic objective. We are confident our policy proposals can achieve this fundamental objective of economic transformation.
An average of 7% per capita economic growth per year for twenty years would ensure Guyana moves to a middle income country by the end of 20 years after 2011 – that is we can achieve a per capita GDP of at least US$8,000 by 2030. Doable? – Yes! Until next time, “Roop”
Send comments to peter.ramsaroop@gmail.com
A very brilliant article Peter. Dr.T Khemraj Dr. Clive Thomas and yourself are among the few who are enlightening the people as to the nitty gritty problems that need to be addressed in order to allow the recovery of a shattered economy.
The government as usual keeps painting a rosy picture with broad ambiguous brush strokes that not even the most brilliant of minds can translate into a model of progress. It is all verbal magic talk and political quackery.
I do not share the same view that the established economic sector can be better served by bringing down the hammer on the underground economy. That solution never worked in any country. Look at the drug trade for instance. That is also a part of the underground economy. The tougher the government gets the wiser the drug merchants become. Business has never been better for the drug cartels.
There is another alternative, it is called scrip currencies. It is not illegal,it has been around in the US for quite some time. It is becoming more and more popular right here in the US, Canada and many more communities around the world. It has been kept on the downlow by the Feds, who by law cannot challenge it, but neither would they encourage it.
It takes a very careful proccess and mechanism to set up, but it has the power to revitalize communities economically, overnight.
Peter can you please take a look at this article I have attached on the subject.It works and it helps local economies, but it requires the minds of economic scholars like yourself, T Khemraj and Dr.Clive Thomas to implement.
Can you guys get together and at least look at this promising alternative? Massive amounts of borrowed money and even an influx of fiat money from the LCDS, will not bring prosperity to Guyana, it will further bury the country in a mountain of revolving debt into infinity.
Anyone else can also read more about it on Wikipedia and many other articles on the internet.
http://www.strike-the-root.com/3/pre/pre2.html
Joe.
Excellent article Peter!
Joe, the point you made with respect to the currency is a valid one. One possibility would be for Guyana to amass large amounts of good reserves as foreign reserves. The Bank of Guyana and many central banks around the world always hold some gold as reserves. I know (and Peter can verify) the AFC is discussing how to do monetary policy that is consistent with the party’s goal of developing Guyana within one generation.
Tkhemraj, the scrip currencies I am takling about cannot be used as foreign currency reserves but it can work to support foreign currency in the sense that there will be no need to have any foreign currency working its way through each and every village and community store and business of the local economy, but stead can truly be reserved for more solid mainstream business.
What’s going to happen when helicopter LCDS money start pouring into the region, is that it will cause the value of all local currencies to plummet so badly you will need a wheelbarrow of Guyana dollars to buy a loaf of bread. It will create Weimer Republics or Zimbabwe’s of all these third world countries.
One solution would be to say, then just let us forget about the Guyana dollar and go with the US dollar, but here again there will never be enough is sufficient small denominations to fill all the little gaps of the economy.
The greater danger would also be that those who controls a countries money, controls the entire country regardless of its laws. This is were scrip plays an effective role in filling in the gaps, but instead of being pegged to the US dollar it will be pegged to an hours labor pay or even a gallon of rice or a pound of sugar and so on.
Joe.
Great article Peter. Keeping with the theme of the current discussion.
Joe I like the reference, if I really get your point about ‘fiat money’. Some time ago my daughter and I had a discussion of the issue of fiat money for her first year economics class assignment at TO Uni. And I was impressed about her arguement that it had no intrensic value in it self and that it derives ‘value’ from the confidence one has in the economy which issues it. The reason why the US dollar is taking a beating right now and why Obama has hedged all his bets on rebuilding confidents through the stimilus package. Given the expansion of economic activities, gold as a standard would have been burdensome and then we don’t have enough gold anyway to finance global economic activities; we might have priced ourselves out given the demand. I smiled when she extended the concept to an analysis of the Guyanese currency….we really did have a fun time discussing the ramification of not having the production to back the currency (in the place of gold). By the way a solid stock of gold reserve is the best way but we don’t have the luxury of foreign reserves to convert to gold. Therefore we have to work on the confidence boosting measures. The PPP has fallen flat here. The AFC program will provide that confidence boost in the short term to attract the foreign flows needed to invest. Open, prudent and transparent management of the programs will provide that confidence over the medium term and a solid foreign exchange reserve with a net inflow in the BOP current account will carry us through to a per capita GDP of US$8,000 in about 20 years…..point to note, we may still be dealing with the current account deficit in the budget given debt servicing and expenditures which would support growth incentives… education, health, etc; these internal dymanics will take more than 20 years to address because of the damage the Jagdeo PPP regime has inflicted on these core support….
We have to work towards building that confidence in Guyanese and foreign investors. We need to increase the demand for the Guyanese currency to reduce the cost put on domestic resources for earning foreign exchange.
TK we have to be careful here of using monetary policy as an instrument of growth in production. We cannot assume an increase in aggregate demand therefore low interest rates or the cooling of inflation therefore high interest rates. I am not one for tinkering with the base rate too easily. Low interest rates by itself is not sufficient (Peter talks about 15%, its not by magic it’s so high. only Jagdeo might think so). Guyana has fallen behind badly. As Peter pointed out, the PPP wasted valuable time of 18 years to build on the ERP. My point is that we have to work on simultaneous stimulus pieces or policies to crank Guyana on towards the prosperity he talks about. I suggest they look at a combination of fiscal, monetary and ‘growth type’ policies with some degree of coherence so as not to dislocate or skew the development of the productive sectors. In macroeconomic policy setting, I learnt that you cannot impact one sector without impacting negatively or positively the other sectors so the need for policy coherence through coordinated policy development. Despite its many limitations, and if you can effectively manage the risks, the financial programming model of the IMF is a very good tool one can use for identifying where policy adjustments are needed and what instruments are appropriate and importantly the timing.
ET, your daughter was right, I am glad that these young folks are finally being taught what this phantom money system is all about and how dangerous it is to world economies. It is more destructive than standing armies, more deadly than the nuclear bomb.
Guyana do not need foreign reserves to go purchase gold, Guyana produces gold, but because of the heavy foreign debt, the government is forced to sell the countries gold to service the debt. So in short the IFI’s are stealing all of our gold, by simply creating electronic money out of thin air on banking computer screens and exchanging these worthless pieces of paper that has absolutely no intrensic value for all of our gold. One politician remarked that Jesse James could not have done better with a gun.
Foreign investors nor foreign investment cannot and will not develop Guyana or any other third world country industrially. Here is why, they will need first of all foreign reserves, that means the mighty fiat worlds reserve currency. That currency happens to be owned by the feds and pimped out to the rest of the world by the mighty money pimp Goldman Sachs.
No matter how much you produce -foreign investment or otherwise- the mighty pimp can take away all of your production profits and there is nothing you can do about it.
The only production money these money vampires cannot touch is drug cartel money and that is why the drug trade is the key to breaking the backs of these vampires. Long live the Mexican drug cartels. The ordinary Joe Shmucks of the world do not understand this simple fact.
What China did was lend their businessmen and entrupeneurs billions of dollars without requiring any repayment whatsoever. Western economists were astounded. How is this even possible? It defies all the laws of economics. It does not, it is a form of scrip whereby local currencies can be injected into an economy and requires no repayment and creates no inflation, but only massive economic stimulus and development. That is the reason why China is the worlds trading Giant it is today.
Joe.
Great discussions guys. It demonstrates that a key focus must be on a balanced approach to economic transformation. Peter R.
Joe,
Good point with respect to the ‘helicopter’ LCDS. Please note that we have realized very small amounts of money. Also, this money has to compensate for the cuts in sugar export price from the EPA.
However, assume we get large amounts of money to finance the LCDS. Essentially the old Dutch disease scenario still holds. It is likely to appreciate the real exchange rate (by raising domestic prices and making the nominal exchange rate appreciate), thus distorting the competitiveness of the other productive sectors.
We had an example of the impact of the Dutch Disease in the early days of the PPP, when Guyana was give access to the OCT route to export rice above our quota to the EU when Suriname was unable to fulfill their quota.
Tkhemraj, it was indeed a very healthy debate where all the participants were able to exchange ideas, opinions,and views in a broad spectrum of the economy.
This way we all learn and all share ideas for a better Guyana.
I hope Peter can choose another such healthy topic in his next article.
Joe.
Evan,
I fully agree with you man. Monetary policy cannot be used as a tool for growth and production transformation. That’s one of the underlying points I made in the first three columns I wrote in SN.
Stable monetary policy has to be backed up by active production policies (energy policy, industrial policy, etc).
Also, my paper which will be published in hard copy next month in the Oxford Economic Papers made exactly this point…so I am with you on this one.
Here is the paper:
“What does excess bank liquidity say about the loan market in Less Developed Countries?” Oxford Economic Papers, Vol. 62, No. 1, 2010.
Thanks TK…will surely read.
Peter Ramsaroop’s Article and the favorable comments from Joe TK and the chorus of dissenters are understandable opposition position to what has been achieved in Guyana. Yet all I read were known programmes/projects with Text Book approaches to the Economic issues which are facing Guyana. There is still the omission of a key factor in the analyis. And hardly is there any mention of the significant and ligitimate development of Guyanese.
However, Peter and I were present when the Bahamanian Motivational Speaker with no ties to the PPP or Guyana, except as a Traveller noted the mammoth growth and development he saw between his trips to Guyana. Are all these insignificant?
Motivational Speaker M.M went on to announce very propehtically that Gyyana will one day lead the Caribbean. I said before I am not moved with the pessimists who bemoan certain dissatisfactions with the Regime, I prefer to garner the the observations and thoughts of the regular visitor
Without focussing on the “known” strategies Peter enunciated, let me observe that like TK, he has not factored into his analysis the impact of politically orchestrated crime which are deliberatedly aimed at smearing the achievements of the current regime and at thwarting development.
Now with the return of the PPP to Office since 1992, this is no idle thought. Let us remember the sixties when the PPP was there. There was the unprecedented Plot and social unheavals hatched nationally and internationally to overthrow the Jagans, and ask ourselves the question, Was/Is the PNC and the combined opposition ever idle with that move?
Not very long ago H.D. Hoyte vocalized this strategy very audibly with devastating effects on the National economy: “All hell will break loose”, “Slow Fyah Mo Fyah”, “Making the country ungovernable”, “Lettijng loose his dogs of War”
Hoyte passed on, but the moves remain live. Has anyone called off the Dogs of war?
Until proper measurements and assessments are agreed upon to quantify or qualify such factors, economic analyses are flawed and Government being blamed for a nation’s lethargic development will have a recourse to identifing such factors.
SEOPAUL SINGH: “Motivational Speaker M.M went on to announce very propehtically that Gyyana will one day lead the Caribbean. I said before I am not moved with the pessimists who bemoan certain dissatisfactions with the Regime, I prefer to garner the the observations and thoughts of the regular visitor”
MY RESPONSE: The motivational speaker is making the same mistake many individuals like yourself continue to make. They confuse the false success for real success – that is success driven by production transformation. Remittances are close to 50% of GDP. There is a large illegal underground economy. There is a large smuggling economy, especially with gold price reaching US$1200/ounce. The government depends on foreign aid to finance basic things. The stadium was built by US$6 mill grant from India and US$19 mill soft loan from India. The Convention Centre was built by Chinese aid. The CARICOM building was built by Japanese aid. Perhaps you should point out ONE industry/firm which started in the post-1992 era that is now a success in the Caribbean/world. Perhaps you might want to help the motivational speaker to find one such industry.
SEOPAUL SINGH: “Without focussing on the “known” strategies Peter enunciated, let me observe that like TK, he has not factored into his analysis the impact of politically orchestrated crime which are deliberatedly aimed at smearing the achievements of the current regime and at thwarting development.
Now with the return of the PPP to Office since 1992″
Again Seopaul please point out some successful businesses (one will suffice Rev. Singh) that can compete globally or in the Caribbean that emerged since 1992. Show me the job creation Mr Seopaul Singh.
Seopaul you have brought up again the issue of political instability. Now, I have accepted that and have written letters blazing the PNC on this matter since 1998. The records are there for anyone to see.
However, you have got to update your analysis Rev Seopaul Singh. Which government selected a drug pusher to fight political crimes Seopaul? That same government had international options. Which President said he knows who killed his Minister but cannot make an arrest? Seopaul, which government only weeks ago turned down British aid reform the police force? Why was this aid turned down by a known mendicant government? Please explain. I am befuddled. The same government/President went to Babu John and announced that the opposition will share out guns if it gets into power. Yet the SAME PRESIDENT REFUSED BRITISH AID TO REFORM THE POLICE knowing the opposition will share out guns. Man, what patriotism from your President. WHY Seopaul? What do they have to hide? Please explain.
Again you have accused me of not factoring political instability into my analysis when I have done so in past letters and have written a column on this issue. You are Reverend right? A man of Jesus right? So please answer my questions. But here is my “slow fiah, mo fiah” column.
http://www.stabroeknews.com/2009/features/08/12/development-watch/
I want to assure you the AFC has a Blueprint of policies that would be distributed soon to the Guyanese people that addresses TRANSFORMATIONAL GROWTH as opposed to aid-driven stagnation.
Have a wonderful day Rev. Seopaul Singh.
Peter:
Another excellent article, with superb commentaries from Joe, et al…..looking forward to AFC’s blueprint .
Agreed, it should be about TRADE not AID.