Ninjas and liberalization

Sep 29, 2008 Editorial

Guyana is one of the longest surviving patients of the ministrations of the IMF/World Bank (International Financial Institutions – IFI’s). Signing on to their Economic Recovery Program in 1989, few must have envisaged that, twenty years down the road, we would still be marching to their “conditionalities”.

To access their funding, and more importantly their seal of approval, we followed their prescriptions to liberalize our trade and financial markets, sell-off our public assets, eliminate subsidies, and provide all possible incentives to foreign capital for making inroads into our economy. One wonders if anyone is celebrating our twenty-year-old relationship with the IMF/World Bank.

We followed the prescriptions to a “T” and yet the promised growth and prosperity have proven as elusive as ever. After the initial firesale of public assets in the Hoyte Administration, new foreign entrants into the economy have been few and far between, and our growth rate has been languishing in the doldrums for the last decade.

In the meantime, we have become an extremely aid-dependent economy that has generated some improvement in the living standards of the general populace, but one that shows little sign of breaking out into the double-digit growth figures that are necessary for creating any significant improvement in this generation.

Many observers have been surprised by the continued willingness of the administration to meander desultorily along the path of the Washington Consensus in the face of its continuing failure to deliver on its promises.

After all, they still affirm the relevance of a philosophy that, at a minimum, questions the premises of the received wisdom of the IFI’s.

It is thought that, maybe, with no alternative source of financing and support in sight, they had to pragmatically continue to toe the line.

However, the seismic events of the past few weeks in Wall Street — the epicentre that generated the IFI’s orthodoxy – may just be the catalyst to make them consider alternative models of financing and development.

With the de facto nationalization of the largest mortgage originators, the collapse of the whole notion of independent investment banks (and the actual collapse of most of them), and the trillion-dollar bailout by the US Government to absorb most of the “toxic” debts, the question has to be asked as to whether the whole neo-liberal model might not be thrown out of the window?

How can the IFI’s tell the Government of Guyana, with a straight face, that they must let the market take its own course here, when, in the US, the Government has had to intervene at a scale that we cannot even conceive of?

No matter what eventually happens on Wall Street, the world will not return to the old orthodoxy. After 9/11, the US was determined to show the world that it was undaunted.

The Government unleashed an era of low-interest rates that, coupled with an intensification of deregulation, unleashed the biggest speculative bubble and consumer spending seen since the Great Depression of the 1930’s. The so-called “ninja” mortgages – no incomes, no jobs and no assets – were the largest unsustainable debt, but by no means the only one.

The US piled up extraordinary deficits that were made possible by China, India, Japan and other productive economies being willing to plunge the greenbacks they received back into US assets and financial instruments.

While the unregulated financial houses became even more creative in generating new and murkier financial instruments to sustain the bubble, it could not be sustained forever – even the orthodoxy predicted this. We in Guyana were regularly hauled over the coals for running budget deficits.

In the short term, the overseas sovereign funds – such as China’s – that underwrote the US’s profligacy will be cautious about any sudden withdrawal, for fear of undermining their own asset base.

But, in the certain new dispensation, new institutions will have to be created by these countries to circulate their surpluses. Guyana should begin cultivating these avenues, so that it will not only have new sources of funding, but ones that are grounded in models of development more suited for our economy, based on our history and other exigencies.

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