Please explain the nation’s large debt

Feb 10, 2013 Features / Columnists, My Column

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By Adam Harris

One of the first pieces of news that I got early Saturday morning was that Venezuela had devalued its currency against the United States dollar, and it was a sharp devaluation. The reports were that the currency was slashed by 32 per cent.
This might have been harmless news had it not been for the fact that Venezuela is one of the largest oil producers in the world. And oil is what makes the world spin. As a member of the Organisation of Petroleum Exporting Countries, Venezuela earns millions of United States dollars per day on each oil shipment it makes. Its coffers should be full.
Not so long ago Venezuela offered to help the victims of a hurricane that hit the United States. It had money to share with the rest of the world. It helps Cuba in ways unimaginable; it offers poor countries under concessions through the Petro Caribe deal. This means that the poor countries, Guyana included, would only pay fifteen per cent of the cost of the fuel up front and the rest at very low interest rates over a long period.
So why devalue? The economists say that Venezuela is seeking more money to boost its economy. And this speaks a lot for those rich Venezuelans who have United States dollar accounts. All of a sudden they are 32 per cent richer. But there are implications for countries like Guyana who owe a huge oil debt. We are not privy to the repayment terms, but there is going to be a cost.
We in Guyana are allowing our currency to find its own rate against the United States dollar. There have been gradual devaluations over time. In 1992 the exchange rate was $126 to the United States dollar; today it is $206 to the United States dollar. It means that it costs us more to buy US dollars. In local dollar terms Venezuelan oil is getting more expensive.
There is another thing that we have to worry about. We are seeking a large loan from China which is under pressure to appreciate its currency against the United States dollar. This would mean that when we borrow Chinese money we will have to find more United States dollars to effect the repayment. And that is why there is this worry about the economy.
Last week, the government said that about a year ago, Guyana owed the rest of the world some US$1.7 billion. By now that debt must be about US$2 billion, the same amount it was when the People’s Progressive Party took office.
Just before it demitted office the People’s National Congress said that it had borrowed about US$800 million. However, when it failed to repay its debt on time the interest pushed it to the limit that the new government found it.
President Bharrat Jagdeo, the economist that he is, set about liquidating this debt and he was successful. The Paris Club comprises nineteen of the world’s wealthy nations, including the United States, the United Kingdom, Japan, Norway, Canada, and Switzerland. Countries like Guyana owed a huge debt to these countries, but by the 1990s they all combined to say to the poor countries, we will eradicate your debt. And it did.
Guyana was a major beneficiary and it managed to have about 75 per cent of its debt liquidated.
Other countries began to do the same. By now Guyana should have been debt-free. Instead, it has borrowed even more, and a lot more. Indeed, Guyana needs to borrow to promote its development, but one must ask about this development. The roads are still not what they used to be, schools are not the upbeat places they should be; there have been dramatic improvements to the Georgetown Public Hospital and some other health institutions, but not much else to shout about. Instead, there has been a lot of private spending.
The bauxite industry is in foreign hands as are almost all the major industries, so the government is not constrained to pour money into them.
The government divested many public assets which it contended were proving a drain on the national economy. So why did we have to borrow so much?
We cannot say that we are enjoying the benefits of the excess borrowing. The government says that it cannot pay the kind of wages that would retain the needed skills, so where has the money gone?
We did not have to borrow to pay debts—a case of digging a hole to fill a hole. But we are still borrowing. Guyana is about to borrow almost US$1 billion to fund the hydroelectric facility, another sum to fund the airport expansion project and even more to construct the Marriott.
It will be some twenty years before the hydroelectric facility begins to make its impact felt—that is when it would have repaid the money it borrowed. But by then our grandchildren would have begun repaying this money that we have borrowed to do what, I am not sure.
We could not have borrowed a lot to buy food. Did we spend the money on cars and the fancy houses that some of the government officials own? We need answers.

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