Last week, in a presentation at a Georgetown Chamber of Commerce and Industry (GCCI) forum that spared no one’s feelings, Guyanese economist Dr, Maurice Odle spelt out in rather graphic terms some of the likely implications for the Guyana economy of the current and seemingly worsening global financial crisis.
While Dr. Odle was careful, for example, to make the point that the local commercial banking sector is pretty much insulated from the crisis, he also made the point that the global financial meltdown could trigger a knee-jerk caution in the local banking outlook that could put a squeeze on commercial credit.
As far as opportunities arising out of the crisis are concerned Dr. Odle made the point that local capital market development might derive an “unexpected benefit” from the crisis, arising out of the fact that institutional investors like insurance companies, mutual funds, pension funds and investment banks that may have experienced a fall in income on foreign earnings may now be more inclined to hold a greater proportion of local or regional assets.
For all the few bright sparks in Dr. Odle’s presentation, however, his assessment was a disturbing one that ought to set us thinking. For example, one could not help but be chastened by his views regarding the likely implications of the crisis on what he describes as Guyana’s “real sector” including sugar, rice and bauxite, exports, all of which, he says, will be negatively affected by reduced global demand.
It is, however, the implications of the global financial crisis for money remittances, particularly from the United States of America that is, mostly, the concern of this editorial. Everything that we have gleaned from our exchanges with local remittance companies so far tell us that Dr. Odle’s concerns are valid. Several remittance companies have told us that the feared reduction in remittance flows has already begun to materialize and that, decidedly, is not a good sign.
So substantial is the volume of remittances these days that it has come to be factored into measurement of the state of the economy in terms of its contribution to the Gross National Product. Last year, remittances to Guyana totalled in excess of US$424m and accounted for more than 40 per cent of GNP. These figures are, in themselves, particularly significant, even more so when one considers that remittances depend largely – though not exclusively – on the ability of employed overseas-based Guyanese, particularly those residing in the United States, to afford them.
What is perhaps most significant about remittances in terms of their impact on the condition of the Guyana economy is the fact that their flow impact directly and critically on the welfare and well-being of ordinary Guyanese; so that while, in a sense, reduced sugar or rice exports and their impact on the economy is probably an issue that is somewhat more distant from the immediate consciousness of the man-in-the-street, a reduction in remittances is likely to attract more immediate and direct attention since remittances impact directly and immediately on the capacity of recipients to meet even their most basic day-to-day needs.
The situation appears even more eerie when one considers that – according to reports from one of the leading local remittance services – around 80 per cent of the local population receives remittances from abroad with varying degrees of regularity; and while the number of routine recipients is not precisely known, at least one remittance agency says that that number could be as high as around 45 per cent.
What this means, in effect, is that remittances do much more than enhance the spending power of ordinary recipients. What they also do is to stand as a barrier – a safety net, if you will – between the social discontent associated with the condition of being unemployed and the social instability that always threatens to attend a protracted condition of unemployment.
A further point that needs to be made is that in circumstances where the remittance slowdown has been relatively sudden and where, as Dr, Odle puts it, the remittance squeeze “is likely to persist beyond the period of the recession, until asset items foregone are acquired by the metropolitan-based remitters,” routine and important financial obligations like mortgage payments, tuition fees and bank loan repayments will suffer. Of course, one need hardly spell out the stark and potentially disastrous implications of such developments.
The challenge for the government is immediately apparent. In the case of the likely reduction on the volume of the country’s exports that will arise out of the global financial crisis, there is a need to work more aggressively – in partnership with the private sector – to secure new markets while both must seek ways of reducing production costs and improving efficiency. Additionally, if Dr. Odle is correct, commercial banks should be strongly encouraged not to immerse themselves in a cocoon of ultra cautious lending policies that could have a disastrous effect on local investment and employment creation and which will ultimately render a bad situation worse.
As far as the remittance squeeze is concerned we could well be saddled with the worrying problem of higher unemployment – so to speak – arising out of a reduction, or perhaps even a complete loss of spending power on the part of recipients of remittances. That coupled with an already existing economic squeeze at the level of the man-in-the-street arising out of the rising food prices that have ensued in recent months could pose even more serious social problems for the country than those that already exist.
