Guyana and the wider world

Jul 17, 2008 Editorial

As we – the people and the government – struggle to cope with the economic shocks of precipitous price increases, let us not forget that there are broader structural constraints to which all of us, including our policy-makers, are subject.

We are not saying that the government could not possibly demonstrate greater political will to bring relief to the ordinary people – such as revisiting the quantum of the imposed VAT – but it would be foolish to pretend that Guyana’s political economy is immune to the influence of regional and global factors.

It is even more foolish to suggest, as a Jamaican editorial did, that our economy is being run in accordance with “communist” rules.

The present administration inherited a crushing debt burden (which the local rulers do not need to embellish by claiming that ninety-four percent of the budget went to service it) which was being serviced through an IMF/World Bank programme – with all the notorious “conditionalities” – that the previous regime had signed on to.

In the almost two decades since, Guyana has had to absorb the full impact of the “Washington Consensus” treatment which meant privatisation of state-owned productive entities, liberalisation of trade rules, and opening of the financial system to foreign investment.

The result has been the creation of one of the most open economies in the hemisphere, the asserted benefits of which, such as high economic growth, we are still waiting to reap.

While we were being regulated into conformity through the IMF/World Bank regime, the developed economies were embarking (since the first oil crunch of 1973) on one of the most massive and unprecedented spree of unregulated financial activity the world has ever witnessed.

This represented a complete new world order paradigm in which the dependency of the Third World’s was deepened while unprecedented profits were raked in by the financial centres of the First World entirely through intermediation activities.

Our exports that affect the majority of our population – mainly sugar and rice – have been subjected to widely fluctuating fortunes.

We lost the preferential market for our sugar that we signed onto with the EU in the 1970s (to their benefit then, because the agreement was at a price lower than the then world market price) and have seen our prices unilaterally slashed.

The resultant belt-tightening occasioned by the lower revenues has affected sugar workers very harshly. The price of rice rose in the early nineties, encouraging farmers to make heavy capital investment, only to see it collapse precipitously and forcing many into bankruptcy.

The present rise in rice prices should be viewed, as the Minister of Agriculture has advised, very circumspectly.

Then of course, there has been the gradual weakening of our dollar, which is strongly aligned to the US dollar (the bulk of our foreign reserves, for instance, are in US dollars), and suffers from all the travails of that currency.

As the US economy slides inexorably into a recession, and its trade deficit widens, we can expect further downwind pressures on our dollar – which the authorities will have to spend much time and resources to defend.

What we are witnessing is the inevitable bursting of the speculative bubble in which the First World was raking in their mega wealth from activities such as derivatives, entirely divorced from productive activities.

The mini-collapse at the end of the nineties was a precursor to what we can expect – with the faltering of the “tiger economies in the Far East and the crumbling of the “dot com” rage.

We can now see that the claims of the IMF/World Bank to have corrected the weaknesses of the faltering world system have been greatly exaggerated. One has to wonder if they are capable of doing so even if they sincerely wanted to.

We can also see the contradiction most vividly in the First World’s response to the ecological crisis that even their experts are warning could destroy us all within a few decades.

It is the Third World, however, that will bear the brunt of the early consequences but ultimately, “all will be involved”.

Our problems in Guyana are but a microcosm of a global phenomenon and because of this structural underpinning we need the cooperation of all the people to work together to chart a course through the present and upcoming treacherous economic waters.

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