Fiscal austerity – a newly-found friend for the Opposition

Jan 29, 2011 Letters

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Dear Editor,
‘Rule propaganda, rule propaganda’, is fast becoming a desperate mantra for some in the private mass media world.
Their constant abuse of press freedom catalyzes the negativism that simultaneously creates a distraction away from understanding the Administration’s accomplishments.
The case in point is the 2011 Budget, where opposition parliamentarians have ostentatiously developed a new-found love for fiscal austerity.
It is budget time, and as usual, some Guyana parliamentarians quickly develop a fancy for fiscal austerity; these private media houses make a ‘song and dance act’ over this newly-found friend ‘fiscal austerity’, without any understanding of the rationale for spending.
These few persist in presenting an excessive focus on the ‘debt’ and the ‘deficit’.
Stiglitz (2010) and other economists would argue that the size of the deficit depends on the condition of the economy; and a developing economy, by definition, may require a larger deficit, a product of more spending. Stiglitz noted that it is not appropriate to only review only one side of the balance sheet through appraisal of what a country owes, but also what its assets and investments are on the other side of the balance sheet; and he explained that spending vis-à-vis investments in education, technology, and infrastructure may in the end result in reduced long-term deficits.
Look at the other side of the balance sheet to peruse the Guyana Government’s assets and public investments.
Government assets include large tracts of land where some have become transferable for housing, all mineral properties, value of the forests, State Sector assets as GUYOIL, GPL, etc.
And a social cost-benefit analysis would demonstrate the utility of these expenditures (Stiglitz 2010). Perhaps, a 5-6% return on public investments may be sufficient to counteract any short-term increase in the national debt.
The external debt is reduced to US$1043M, and the Gross Domestic Product (GDP) is increasing; in fact, the debt-service ratio is about 4-5% of GDP to service the external debt.
The Bank of Guyana’s balance sheet continues to show improvement with a net profit of G$3.1 billion in 2010. The Bank of Guyana’s net domestic assets rose to G$48,981 million from G$33,844 million in 2009; the Bank’s reserve funds now stand at G$76,688 million, an increase of 2.5% since 2009 (data from the Quarterly Report and Bulletin, September 2010).
And about 40% of commercial banks’ assets are available for loans, indicating considerable liquidity for credit expansion. Credit increase by 13.2% from 2009. Compared to 1993, when old-age pension was a mere G$406, government increased the pension from G$6,600 in 2010 to G$7,500 in 2011, plus the concessions on water rate payments and travel.
This monetary aggregate growth points to high economic activity in the economy.
Those parliamentarians obdurate on chanting their anti-government rhetoric are ridiculously mischievous in their postulations of the 2011 budget. Deeming it the “election budget”, they condemn it as uninspiring, unable to impress on the population, the feeling of positive change and hope in the light of crime, unemployment and poverty.
Those parliamentarians claim that the 2011 budget is unrealistic and out of touch with reality, and that the deficit burden of it will fall on future generations of Guyanese.
A ‘yoke around the future generation’s neck”, it’s referred to as, arguing that raising the tax threshold from $35,000 to $40,000 will not reflect the effect of the rate of inflation on the Guyana dollar, is insignificant, and will not trickle down to the many workers who receive less than $40,000 per month.
Also, they argue that the expenditure side of the budget does not reflect good management since the overall deficit of government’s finances will increase from $20.6B to $48.0B.
Nonetheless, there is a sound rationale for spending. Keynes’ ‘The General Theory of Employment, Interest and Money’ (1936) has stunning relevance to the US credit crunch. Reich (1999) explains Keynes’ theory as follows: In order to sustain full employment, governments would have to operate deficits when the economy decelerates; this is so because the private sector may not have the proclivity to invest as much as necessary. And so, as the private sector markets reach saturation, investments decline, creating a treacherous cycle – declining investment, fewer jobs, less consumption; and if no government intervention happens, perhaps, there may still be some balance reached in the economy. But this would be at great cost – rising unemployment, with mounting social and economic disadvantage.
These private mass media propagandists and those opposition parliamentarians should
realise that Guyana’s ‘humane’ dictatorship, indeed, is a national treasure, which shows high tolerance for this sordid yellow journalism. For this reason, they should have the moral conviction to do the right thing in their presentation of the Budget 2011 debate.
Prem Misir

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