Belt tightening

There have been no official pronouncements that would suggest there is at present or could be in the future an issue with development aid in the current financial crisis. In fact, what there have been are protestations to the contrary and silence. However, this does not and should not mean that developing countries can assume that the availability of such aid would be guaranteed throughout this trying period or even if it were, that it would continue to flow to them on the same scale.

According to reports from Europe, there have been signs in some countries of an aid slowdown, particularly from France and Italy which have been making efforts to scale up. Up to mid last year, it was revealed, taxpayers/voters in France who were polled said they felt their country should continue to assist poor countries, even if this affected its budget. Would they feel the same if they were polled now or by mid-year if things do not turn around dramatically (and there is no indication that this is even remotely likely to happen)?

Over the past five years or so, developing countries, Guyana included, had grown more heavily dependent on inflows from remittances and foreign direct investment (FDI). Evidence shows that in Guyana, as recently as two years ago, the former was the major contributor to our gross domestic product (GDP); there is nothing to indicate that this trend has changed. Meanwhile in some other developing countries, it was the latter.

In 2007, China was the top-ranked country for FDI, attracting 1,171 multinational investment projects. China, in turn, had begun to invest heavily in Latin America and a few African countries, in effect, spreading the capital flows to emerging markets.

Data has not yet become available for 2008, but projections made in 2007 that FDI would increase may very well have been hit for six by what has been occurring in international finance. While the statistics are yet to emerge, the facts are all around us. Several projects, particularly in the tourism sector, have come to a standstill as investors and potential investors choose prudence and are hanging onto their cheque books/cash or have not been able to draw down from their banks, many of which are in crisis.

Despite earlier protestations to the contrary, we have learned, painfully for some, that Guyana is somewhat vulnerable to external shocks. The local banking sector has trumpeted its financial soundness. And this may well be the case given that our local banks are not well integrated into the global financial system. But that does not mean we can breathe a collective sigh of relief and rest on our laurels. There are other financial institutions at risk; this has been well ventilated.

It should also be noted that the country’s recently presented national budget did not make provision for such eventualities and that any spending down of the current problem involves the use of taxpayers/voters funds. Unlike the case with the French people, local taxpayers have not been polled (and are unlikely to be) on whether we would wish to have our money spent this way. Perhaps it has been assumed that we do not care and/or have no choice in the matter and perhaps some of us don’t. However, while this seems to be the elected avenue for dealing with the problem, there ought to be, at the very least, some cognizance from decision-makers that there should not be business as usual. There will be need for belt tightening and heavy cinching should already be taking place higher up as an example to everyone else.

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