Continuous economic adjustments needed

Oct 31, 2008 Features / Columnists

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Peter R. Ramsaroop, MBA

INTRODUCTION:
Many of us are closely monitoring the financial crisis. The interest rate has been cut in the US to one of the lowest in history – 1% Prime Rate. Here in Guyana, we have not seen any adjustment to any economic indicators.

The interest rate to borrow money from our banks is a whopping 16%. The excessive Value Added Tax (VAT) concerns have been ignored by the public sector.

It is about fixing the entire fiscal policy and tax system with a complete overhaul of how taxes are collected and spent in the country. Cutting personal income tax for a majority of our workers should be a major political decision now.

A tourist in New York decided to have his portrait sketched by a sidewalk artist. He received a very fine sketch, for which he was charged $100.

“That’s expensive,” he said to the artist, “but I’ll pay it, because it is a great sketch. But, really, it took you only five minutes” Twenty years and five minutes,” the artist said.

The private sector has spent many years developing their businesses; they are not like the fly-by-night politician speaking on business issues.

If the earlier sacrifices and risks are ignored then the reward for what was done within the present time period may often seem exorbitant. We find the politicians spend more time speculating that all is well even as inflation rate climbs.

If it wasn’t for the reporting from this newspaper that the government had secretly raised the taxes at the pumps without our knowledge when oil prices dropped, we would have never seen the reversal of this policy. We are pleased that the government has cut the excessive fuel taxes.

INVESTMENTS:
Oil wells can repay their cost many times over, but they must also cover the cost of all the dry holes that were drilled in the ground while searching in vain for petroleum deposits before finally striking oil.

It is about competition, but fair competition, without political motives and intervention, something that needs to be taught to those that set our laws and investment climate.

I travel a lot on Caribbean Airlines and most of the time I am disappointed at the way they treat us when we arrive in Trinidad.

Last Friday on my way from Fort Lauderdale to Guyana, we were left in Trinidad for over seven hours without access to food or sleeping facilities.

We need to push for competition in the airline industry out of Guyana or we will continue to be treated as second class citizens. Is it time now for a Guyana National Airlines with service from Florida, New York, and Toronto?

From a business and economic perspective, if the return on the investment is not enough to make it worthwhile, fewer people will make that investment in the future, and ultimately consumers will be denied the use of the goods and services that would otherwise have been produced.

As one author puts it, the repaying of the investment is not a matter of morality, but of economics. Consumer goods have risen sharply and without an offset to them via tax cuts, our purchasing power will become even more limited.

Investments take many forms, such as investment in human capital, factories etc. Risks are also an inseparable part of investments. Education also plays a key role in investments.

With an integrated economic plan that takes mainly the private sector initiatives on investment, the government can influence the disposable income of households and the net income of firms by changing the rate of personal and business taxation, thereby changing the economy’s outcome.

We must get away from this counterproductive behaviour by the public sector that believes businesses are bad and we are there to rip the system off.

CONCLUSION:
We must ensure a friendlier government when it comes to investment. We are acting the way India did between 1960 and 1989 where government bureaucracy was at its worst. During that period many leading entrepreneurs from India went outside and established leading companies.

It is not until after India’s vast array of government rules and micro-management of business changed that we now see a modern and progressive India.

In addition, the private sector has found that because of the failure of many of our government institutions such as the police force and the transportation sector, parallel organizations have been established to fill the void, such as the many security firms, which add to the cost of an investment.

Another cost to investments is the many corrupt practices that take place in order for businesses to function.

Investment and speculation go hand in hand. As we work towards a friendly environment for investments, let us push for the public sector to recognize the private sector as the lead in investments, join in partnership to ensure proper legislation and less bureaucracy is in place and focus on the consumer as the main beneficiary of any new laws that go into effect.
Until next time, “Roop”.

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