The question of external indebtedness, economics and the economic history of Africa vs the rest of the world

Jan 07, 2020 Letters

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DEAR EDITOR,

The Kaieteur News (KN) issue of Peeping Tom dated Jan 1st ostensibly on Oil and Debt, is yet another reaction by KN to a letter sent to the Editor which KN did not see it fit to publish. They have recruited others, including Mr. Jagdeo and an anonymous writer ‘Peeping Tom’, to do their ‘dirty work’.
In order to make their case about African states being in a state of penury in spite of being blest with abundant resources, KN listed states that were neither petroleum producers nor producers of significance. KN through Peeping Tom is now claiming that, “A factual basis has long been established for the link between petroleum production and indebtedness…”, and triumphantly asserts that, “Mr. Greenidge would do well to re-examine his position on oil and debt.”
Unfortunately for KN, Peeping Tom seems to have missed the plot because that link cannot be made by citing only African states and one led by an African leader. Even the subsequent sentence quoted by Peeping Tom makes this obvious, it reads, “the evidence exists of the undeniable link between oil and debt in Africa and elsewhere.”
The words, ‘and elsewhere’, conveniently overlooked both by KN and Peeping Tom, vindicate my views, so there is actually no need for me to re-examine my position at all! My views are in keeping with the findings of the study. The problem is of KN’s making. It is one of perception and statistics. So much for Africans and indebtedness.
Peeping Tom resurrects some more poor economics in the argument that Guyana has a debt to Exxon, arising from, “accumulated pre-contract costs of more than US$900M. That is close to 50% of Guyana’s total external debt in 1989, which was the highest debt/GDP ratio in the world at the time”.
The debts being referred to here reflect two different types of obligations. The Debt/GDP ratios reflect sovereign debts which have to be met by the Treasury on behalf of Guyana. Outside of default they are therefore considered risk-free. On the other hand, under production-sharing agreements the exploration, extraction and development costs of Exxon are only payable if production materialises and sales are made.
If Exxon finds no deposits or if they wrap up operations prematurely due to the collapse of the oil market for example, Guyana would owe the company nothing. The company bears the risks. The costs in question are not treated as sovereign debt!
KN should stop trying to persuade readers that the situation is otherwise.
Peeping Tom, also turned to personal disparagement via innuendo – ‘he should know’. In that attempt to discredit another party and myself, it is understandable that Bharrat Jagdeo should join in. He cannot resist the opportunity to join in a war, even someone else’s, especially if it involves blaming the PNC for something.
Those who care to read will know that the borrowing which led to Guyana’s indebtedness in the 1980s, took place over a period of over three decades and had been undertaken by Dr. Jagan’s and LFS Burnham’s Governments prior to, and immediately after, independence.
Its massive upsurge was due to a combination of the vagaries of LIBOR[1], against which the borrowing rate was set (and the manipulation of LIBOR which is well-documented in the literature) and the dramatic decline in bauxite exports after 1982 which undermined the country’s ability to service the external debt.
As a consequence of these two factors, the accumulation of arrears was so steep that interest payments due in 1986/9 far exceeded the sum borrowed (US$560mn) (US$1.6bn.) Guyana owed mainly bilateral states and multilateral development agencies such as the IBRD, IMF, CDB. In this plight, we were in the company of several other non-petroleum producers and non-African states.
The problem of external indebtedness, therefore, is not only one faced by petroleum producers and caused by corruption of African leadership. Latin America’s Lost Decade resulted from the debt crisis of 1970-1980 and was associated with an increase of 1000% in the region’s debt! It was followed by an equally memorable 1997/9 Asian Debt Crisis. There were two others over the last century.
There was therefore no justification for the adverts to draw an exclusive parallel as regards debt with either African states or with petroleum let alone, as we have shown elsewhere with corruption. The ads appear to be an example of malicious analogy, perception bias and certainly a poor grasp of the economics and recent economic history.
I call on the Editor therefore, to also withdraw this Peeping Tom article because it, like the advert, is erroneous. They should also stop trying to defame those who do not share their point of view.
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[1]The London Interbank Offered Rate, in connection with which there were at least two widespread plots by several US and European Bank to manipulate these interest rates for profit and at the expense of borrowers such as Guyana.
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Foreign Secretary,
Carl B. Greenidge

PUBLISHER’S NOTE: Mr. Greenidge’s accusation that there was a letter sent to the Editor “which KN did not see it fit to publish” is quite perplexing, since the newspaper or others within the newsroom to whom he would send same, never received this correspondence. We would be grateful if Mr. Greenidge could provide proof of his email being sent to us.

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