For a country that has remained the poorest in the English speaking Caribbean and one of the poorest in the northern hemisphere notwithstanding its abundant agricultural and mineral, to say nothing of human resources, the prospect of our finding oil in the near future has generated an almost reckless optimism. For donkey years we have been utilising our land to grow sugar and, given some market variability, had a relatively decent market place for it in Europe. Indeed, the days were when we boasted of Guyanese being among the best sugar producers in the developing world and yet today we appear neither able to properly grow cane or manufacture sugar!
For decades our fore parents struggled and died in the mineral fields of Guyana, but to what end? A few persons may have become wealthy but the vast majority of our people have only been rewarded with poor health, education, security and other facilities. In its final days, the Hoyte regime adopted an approach which garnered some significant investments in these sectors and gave rise to levels of economic growth, which led to much local optimism and Guyana becoming the envy of the Caribbean in the early to mid 1990s. However, later in that decade the economy was again in decline, never again to reach those levels of real growth. Our people are thus still flocking to the little Caribbean islands, which have nothing compared to our natural resources, but have been able to achieve a standard of living to which we can only aspire.
Guyana therefore appears to be one of those countries such as Nigeria, Sudan, Congo, Angola, etc. which have been able to couple significant natural resource industries with extreme levels of poverty: a condition that Richard Auty, in 2001, referred to as a “resources curse.” For example, Amnesty International recently claimed that: “The oil industry in the Niger Delta of Nigeria has brought impoverishment, conflict, human rights abuses and despair to the majority of the people in the oil-producing areas,…. Pollution and environmental damage caused by the oil industry have resulted in violations of the rights to health and a healthy environment, the right to an adequate standard of living (including the right to food and water) and the right to gain a living through work for hundreds of thousands of people.”
Our government has announced that it is institutionalising arrangements to consider the organisation of the hydrocarbon sector if it materialises (I say “if” because we have been there before) and has also been receiving advice from international players that appears to be focusing on us not falling prey to the so-called “resources curse.” But in the context of Guyana, is that kind of advice sufficient?
The standard regime for dealing with the resources curse is now quite well known and as Professor Jeffrey Frankel in his extensive survey of the issue stated: “The Natural Resource Curse should not be interpreted as a rule that resource-rich countries are doomed to failure. The question is what policies to adopt to increase the chances of prospering. It is safe to say that destruction or renunciation of resource endowments, to avoid dangers such as the corruption of leaders, will not be one of these policies. Even if such a drastic action would on average leave the country better off, which seems unlikely, who would be the policy-maker to whom one would deliver such advice?” He then proceeded to make the following recommendations to address the problem and increase the chances of socio- economic success (2010- “Resource Curse: A Survey,” Harvard Business School).
Firstly, where appropriate, contracts should include clauses for automatic adjustment if world market prices change. Then, export proceeds should be hedged in commodity futures markets. Debts should be denominated in terms of commodity prices. In response to an appreciation in world prices for the commodity, governments should allow some nominal currency appreciation but should also increase their foreign exchange reserves, especially at the early stages, for the boom may prove to be transitory. If the monetary regime is to target inflation, governments should consider using as the target, in place of the standard consumer price index, an index of export or producer prices, which puts greater weight on the export commodity. To avoid excessive spending in boom times, governments should emulate Chile and allow deviations from a target surplus only in response to output gaps and long-lasting commodity price increases, as judged by independent panels of experts rather than politicians.
Commodity Funds should be transparently and professionally run, with rules to govern the payout rate and with insulation of the managers from political pressure in their pursuit of the financial well-being of the country. Lump-sum distribution on an equal per capita basis should be considered when spending oil wealth and finally, an external agent, for example a financial institution that houses the Commodity Fund, should be mandated to provide transparency and to freeze accounts in the event of an illegal regime change.
On the face of it, the above advice would seem eminently reasonable, particularly in view of the level of corruption and maladministration which is thought to exist in Guyana. However, what can be easily missed is that our poor condition can be located firmly in our political process and none of the stated recommendations would be put in place or sustained without the appropriate political arrangements. For example, just suppose that in the present tight parliamentary arrangement the government institutionalized the Chilean type condition stated above, what is to prevent it from changing that and other arrangements if something like the permissive, previous parliament regime resurfaces?
It appears to me that if our politics is not immediately fixed in this initial period when the spoils are already being allocated; when the elements of materialism and greed associated with the exploitation of these resources are combined with our ethnic security/insecurity issues, the stage will be properly set for greater social conflict and prolonged underdevelopment. No rule is safe where the political regime is unaccountable. Thus, if we are to do better with our natural endowment than we have done in the past, our first task must be to establish a stable and accountable political process.
