Guyana is in vice

Nov 16, 2022 Features / Columnists, Peeping Tom

Kaieteur News – With the rise in oil prices in the 1970s, oil-producing countries were able to transform their fortunes. The discovery of oil in a short period of time brought untold wealth to many countries.

Most of these countries, including those in the Persian Gulf, have squandered their oil wealth. The IMF recently did a report which suggested that some of the Gulf States could run out of money before they run out of oil. Countries in Africa and even the Caribbean state of Trinidad and Tobago, as well as Venezuela misused their oil wealth.

Even these countries would not deny that they received substantial revenues from oil and gas. But many of them engaged in profligate spending with the result that many of them now face serious economic problems.

Guyana must learn from the examples of these states and this is what the publisher of the newspaper, Glenn Lall, has been urging the government. He is afraid that oil could be a curse unless there is a proper plan for the utilization of oil revenues and, more importantly, unless there is a better deal for the country.

Both the APNU+AFC and the PPPC governments have attempted to deflect the criticisms which Lall and others have leveled against Production Sharing Agreement (PSA) with the oil companies. He has also been critical of the failure of the PPPC to renegotiate the deal which the very PPPC described as lopsided.

The APNU+AFC which signed the PSA had sought to justify the terms of the agreement on the grounds that this was the best deal possible given that Guyana faced a territorial threat and was a newcomer to the industry. The PPPC while recognizing the flaws in the agreement have refused to budge in demanding a higher royalty, ring-fencing and a lower ceiling for deductions.

Glenn Lall in the meantime continues to plug away in calling for renegotiation. And the more he does this, the more the government insists that it has to respect the terms of the existing contract. The two – Lall and the government – have not been on the same page when it comes to the PSA.

Finally, however, a government official has come out and has said what Lall has been saying, but for a different reasons. Lall has been claiming that the 2% royalties is a poor return for our oil assets. The government official has said that our oil revenues are moderate in relation to our development needs.

If this is so then it is mind-blogging that the said official belongs to a government which adamantly refuses to renegotiate the PSA so as to obtain greater revenues. Surely, the mere fact that the oil revenues would be unable to satisfy our development needs should imply that there is need for us to get more revenue for our oil.

Unless Guyana obtains more for its oil, then the country is not going to be able to implement the sort of plans which the government is promising. And that is why this statement by the government official is an important development because it suggests that even with the ramping up of oil production, the higher revenues generated would still not be sufficient to meet our development needs.

It may also explain why the government is going on a borrowing spree. It is borrowing left, right and center. The Guyana government is borrowing from the IDB and, now, even the Americans have set aside US$200B for us to borrow.

Borrowing is a trap. When the OPEC countries came together and caused a spike in oil prices in the 1970, they enjoyed a windfall in oil revenues. But when they were awash with revenues, they could not utilize all and so they banked them in the western banks. The Western banks in turn took that money and lent it to poor countries including Guyana. And this is how the debt crisis emerged for poor countries.

Guyana is therefore in a vice. Our oil revenues are now described as too modest to meet our developmental needs. The Natural Resource Fund which was crafted with support from the western countries provides that the bulk of our oil revenues will remain in external banks while the country has to borrow to finance the gap between its financing needs and its revenues.

The more the country borrows, the greater the risk that we could end up being buried in debt. It is a vicious cycle with no end in sight.

(The views expressed in this articles are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

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Guyana is in vice

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