The possible economic impact of sanctions on Guyana

Apr 16, 2020 Letters

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DEAR EDITOR,

Further to a Joint Statement by the United States of America, United Kingdom, Canada and The European Union on Guyana’s failure to deliver a credible General and Regional Elections result and the country’s probable isolation, there are a variety of sanctions we can anticipate.
Here is a summary of possible economic impact on the country:
Sanctions can come in the form of travel restriction and asset freeze of persons in power, especially constitutional office holders, police, army officials, politicians and other citizens guilty of criminal behaviour and the violation of human rights such as electoral fraud etc.
In Guyana’s case, the region four tabulation, verification and declaration process was ruled illegal by the Chief Justice on 11 March, 2020. The second declaration was also widely rejected, as it did not follow the rules set out in law and the CJ’s ruling.
All of the International Observers and Political Parties, except the governing party, pronounced that the process lacked transparency and was not credible.
If American sanctions target persons first, which is usually the case, the sanction is designed to effect a change in behaviour in the persons concerned to do the right thing and exercise the legal options available to them.
If the Coalition and GECOM fail to deliver a legitimate elections result, then personal sanctions are likely to follow. In the event that a swearing in occurs of an illegal President using the fraudulent declaration of Region Four, and a government is undemocratically installed against the will of the people, the following is likely to occur:
1. Sanctions will be placed on the President and his entire Cabinet, their families, and in some cases close associates.
2. Sanctions on members of the staff of the Guyana Elections Commission who were fraudulently involved in elections rigging and malpractice.
3. All political appointees and their families
4. Members of the Guyana Police Force directly involved and complicit in enforcing the installation of an illegal government
5. Members of the Army similarly involved in enforcing the installation of an illegal government.
6. Members of the Judiciary if illegal power is facilitated using the judiciary as a means.
7. All other politically affiliated persons contributing to or enabling the establishment of an illegal government.
While personal sanctions are imposed, Guyana under an illegal government, will become a pariah state, subject as a country to, but not limited to, expulsion from the international and regional community.
Such exclusion would lockout Guyana from accessing finance from international funding agencies such as the World Bank, IMF, CDB and IADB and other international banks. Needless to say, that this would drastically retard development and severely damage, with all of its social ramifications, the way of life of the Guyanese people.
Sanctions will further manifest themselves by global banks being issued instructions from the US Treasury Department’s enforcement arm, the Office of Foreign Asset Control (OFAC) to bar financial transactions from being routed thru the USA.
Other countries, such as CANADA, UK and the EU member states, will put similar arrangements in place to bar wire transfers of funds from being routed through their registered banks and jurisdiction (s) which they control.
The isolation of Guyana will result in a suffocation of business to their death. Payments for imports will not be able to be completed, thereby starving Guyana of essential materials for plant and machinery, branded goods, parts for manufacturers and retailers, trucks, cars, clothing and all other forms of imported goods we use and consume as citizens.
The trading of Guyana’s gold on the world market can be frozen and remittances from countries such as US, Canada, UK and EU expected to be prohibited.
Faced with these sanctions and international isolation, Guyana will be forced to use up the little reserves we have at the Central Bank, which is approximately 2.5 months of import cover, based on the reserve level at the Bank of Guyana. Thereafter Guyana will find itself bereft of the kind of resource levels to sustain the needs of businesses and their operations. Businesses in Guyana may be expected to die out within six months to one year.
When this kind of shortages of goods and currency are imposed on an economy, it results in unmanageable inflation, escalating further and deeper into hyperinflation, driving the poor to the brink of mass starvation.
The chain reaction then pushes mass migration out of Guyana, thereby weakening local demand and resulting in the ultimate destruction of the entire fabric of the Guyanese society.
A frightening scenario exists where government starts to nationalize private institutions, at this point the decay of the economy starts to accelerate. This acceleration, in most cases, leads to rationing of goods and services. We saw this in Guyana in the early days of the 60s, 70s and 80s. Other countries, such as Germany in 1923, experienced a loaf of bread costing 10 billion German marks due to hyperinflation.
American companies, UK, Canadian and European companies may not be allowed to operate here in Guyana. Currently, there are a number of companies from these countries which are presently operating in all aspects of Guyana’s economy, they are present in many economic sectors, this is likely to come to a grinding halt.
When mass poverty and isolation grip the land, social ailments arise in the form of crime, in the villages and communities, towns etc. History tells us that, at this point the police and army end up controlling the small resources net of the country to feed the state apparatus. We are seeing this happening in Venezuela.
For many Guyanese who have savings and property, savings in Guyanese dollars will evaporate in its value and purchasing power due to the inflationary effects as seen in Venezuela and Zimbabwe. Property value will sink as a result, as no new investment will be viable. Cost to operate a business and the ease of doing business will end up a nightmare scenario for any sane businessman or investor.
Nevertheless, the national debt has to be repaid, government apparatus and budget agencies will have to provide some services to citizens, this is expected to be paid for through taxes. Taxes will then strangle businesses, as there will be a sharp reduction in business without the corresponding reduction in costs.
Tourism will be an early casualty, as travellers are not likely to choose countries with a collapsing economy and military dictatorship as a destination for pleasure. Construction and retail and wholesale business will follow, as demand dries up and spending is halted.
Other sectors of the economy will also dry up fast as the suffocation takes hold. Other sectors that are offshoots will suffer the same fate, as spending is expected to be halted and nothing new coming from foreign investments.
Further joblessness will follow as businesses windup. People will take to the streets in desperation, put down by politically directed police and military serving an illegal government. The sum of all of this will be an economically and politically bankrupted Guyana. No one will be spared.
There is no future scenario to contemplate where a positive can come about from undemocratic rule.
Deodat Indar
Financial Expert
Former President – Georgetown Chamber of Commerce and Industry
Former Vice Chairman – Private Sector Commission of Guyana

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