Where is Govt’s hands-on management style now that Globe Trust needs its help?

Oct 23, 2008 Letters

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DEAR EDITOR,
I refer to your editorial “Reviewing economic dogmas” of 22 October, 2008. Yes, we are living through the quick death of Anglo-American capitalism. In the heady days of Anglo-American capitalism, who would have believed that governments would step in to rescue a private sector banking system with tax payers’ cash at the ready to bail them out.

Yet the governments of the USA, UK and several EU countries, notably France, Italy and Germany as well as isolated Iceland, have done exactly that. Obviously these governments no longer see their role as merely “Vestigial”.

This is 2008 and a new capitalism is emerging as the outgrowth of a crisis whose proportions are not yet known. Every government must now bend before the imperatives of the global capital markets.

“Market fundamentalism” is out and interventionism is in. A government that wants to borrow internationally, avoid a run on its currency or attract inward investment must accept the new imperative of judicious state interventionism.

Sound money, balanced budgets, low taxation and free markets were the order of the day. We must now add judicious state intervention when needed.

Governments no longer have full autonomy in constructing their domestic social and economic policy. Every move is cast with an eye on the markets’ reaction.

In the recent past, the global capital markets obliged governments to enlarge the scope of capitalist endeavour and to roll back the state. Small was good in terms of governments’ active involvement in the commanding heights of their economies.

This was seen as a precondition for growth and prosperity. Now governments are encouraged to protect the commonweal by all means necessary. It is all about allowing breathing space for recovery and growth.

For Guyana, this is a welcome development. The government is now allowed to formulate and execute a financial investment package to rescue Globe Trust.

Such intervention by government is now part of the new orthodoxy. In any event, this government is well known for its hands-on approach in micro-managing the economy. Some 5000 depositors may lose their deposits if Globe Trust is liquidated.

This is imminent. An injection of around US$5 million by government to acquire (temporarily) the shares in Globe Trust would take the Trust off death row and pave the way for implementation of an approved reorganisation plan.
Over a three-year period, the plan will reactivate all the deposit accounts.

This will increase consumer (depositor) spending on goods and services and may provide a mini boost to the economy, particularly if government’s rescue takes place before the Christmas season.

To avoid a run on the Trust some of the depositors’ money can be converted to stock to retain their custom and keep the Trust alive.

Globe Trust’s realisable assets are in the region of US$2 million thus government’s critical exposure may be limited to a mere US$3 M in a worse case scenario.

As for the charge that Globe Trust is not significant in the financial sector and that its demise would not have a ripple effect on the overall scheme of things, it falls on two counts. First, no established financial institution should now be a write-off.

The Guyanese economy is an emerging one and needs all its financial institutions in place. Over the active period Globe Trust’s growth rate with new depositors was second to none. Its popularity seemed to rest on soft values like partnership, cooperation and people-friendliness.

Globe Trust’s clientele is multi-ethnic with a significant Afro-Guyanese base while the socio-economic base of its depositors ranges from B (middle managerial, administrative or professional) to E (pensioners, casual or lowest grade workers, the unemployed and remittance recipients). These are among Guyana’s most vulnerable citizens.

Indeed, at present with remittances from abroad falling sharply, production and exports dropping in value and demand, our economy looks set for a downturn.

All this reinforces the response to the second objection; intervention does not have to take the American or British form.

To advocate state intervention does not mean that Guyana has to reproduce the American model in every respect; it means that as we design a Guyanese variant (anchored in government’s hands-on modus operand!), respecting Guyanese institutions and culture, there are lessons to be learnt about what does and does not serve our own best interest.

If democracy is to have any meaning, it is surely to permit elected governments to shape their economies and societies rather than abandon the process to the dictates of the financial market, the Washington Consensus or the WI’s (International Financial Institutions). In the past, in a world of deregulated finance social democracy was in peril. But times have changed.

Now, industrialised countries, at times of crisis, are providing financial assistance to help avoid measures damaging to either their own or international prosperity.

We have a tradition of hands-on government which dominates all aspects of economic life. Why is this hand not a helping hand in Globe Trust’s case?

Are not the 5000 odd Globe Trust depositors our own and should we not provide assistance in their time of need? Is their prosperity not our own? Is the case not made for government to intervene and prevent Globe Trust’s certain demise? If this is not the right time then when will it be?
F. Hamley Case

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