Budget 2000 geared for 'hostile environment' - President defends thrust By Nivedta Kowlessar Guyana Chronicle March 30, 2000 THE Government yesterday defended its $62.2Bln national budget for this year, saying it must be seen in the context of a very hostile external economic environment and the ability to spend more without raising taxes. President Bharrat Jagdeo and Minister with responsibility for Finance, Mr Saisnarine Kowlessar said critics should note the big injection of funds into the social sectors to improve living standards and create jobs and cut poverty. Opposition parties and some labour and business spokesmen claim the budget, announced Monday, lacks a comprehensive economic framework, tax reform and measures to stimulate investment and jobs. But Kowlessar told a press conference he shared with President Jagdeo that it was really fashioned against the background of the international situation and local demands. "We tried to balance it in a way that would give priority to our thrust...to implement and improve the standards of living of the people...and it's against this background that we have set out the programme...for 2000", he said. "We will be extending quite a lot of funds into the social sectors...and that is because we want to improve the lot of the people to reduce poverty, to create jobs and so on...", he added. "...we had a context in which the budget was prepared and the context is...a hostile external economic environment, everyone could testify to that", President Jagdeo said. "It has...become a bit more positive than say, a year ago, but it is still very, very hostile in the sense that many of our exports still face the situation where international prices are very low. We have to import fuel and fuel prices have tripled in just over a year. "So those two things must affect the budget and balance of payments of the country", he argued at the briefing at the Office of the President in Georgetown. He noted that the Government has also managed to avoid increasing or introducing taxes in the face of a $2Bln pay out to public servants and the $8.7Bln allocation for education, $4.6Bln for health, $1Bln for housing and $1.3Bln for agriculture, among other large disbursements. The President recalled concerns by the business community that taxes would have had to be raised and the capital programme cut to pay for the 26.6 per cent salary increase for public servants. "We had grave difficulties in locating the financing, but we have done so...within a sustainable framework,...the context of lower inflation and repaying the banking system," he explained. With expected external inflows greater than the size of the deficit which is projected to be the equivalent of 6.6 per cent of GDP this year, extra money will be available to repay banks and create more room for private sector borrowing. "In this budget, Minister Kowlessar has managed not to increase taxes to pay for the increase in expenditure and he has expanded the capital programme ($14.6Bln) of the country...tremendously, thereby creating the basis for further growth and for dealing with some of the social issues," the President said. He also explained that recommendations from a Government/business summit last year are being implemented and would impact positively on the private sector and create jobs. Many of the proposals, such as closing the Guyana Export Promotion Agency and strengthening the Guyana Office for Investment, have been implemented and the Government has drafted a Bill for special concessions to small businesses which would boost economic growth and employment. The President also reported signing yesterday the money laundering law, another recommendation of the summit, and said other measures included the setting up of the Revenue Authority and tax cuts to help garment manufacturers sell competitively on the local market. "...the budget is not a one-shot thing. It's just a continuation and Minister Kowlessar referred to the business summit and all of those measures...it focused on some of the things that have been our priority and will continue to be our priority...", President Jagdeo said. He stressed that job creation is linked to measures resulting from the summit and the Government continued to focus on things that are important to people. "...it's not the gimmicks...sometimes I get the sense that a few people are more interested in gimmicks than with the core continuation of a programme. "It's not shifting resources every year from one sector to the other, it's just the continuation of the allocation of huge sums of money in these sectors because they are the key problems in our society...," the President remarked. He reminded that the People's Progressive Party/Civic administration had outlined its priorities for its current second term in office in its manifesto and policy framework paper and the budget has strong links with these and the National Development Strategy. The President reported that a recent United Nations Development Programme survey showed a reduction in unemployment and said a joint Government/business sector committee is working on introducing measures to create jobs. With increased capital programmes, more people will be employed, he said, citing the education investment which will lead to skilled human resources from which the private sector will benefit. "...if our programmes are leading to a reduction in poverty, then that speaks well for the private sector. If you have a happy population, then that's also a good environment for private sector development and growth," Minister Kowlessar said. President Jagdeo also noted that the budget addressed the maintenance of a stable macro economy which is vital for investment and referred to the Asian financial crisis which resulted from a downturn in such stability. He said the opposition cannot say it is concerned about investment and jobs for young people and when investors come here they tell them things like "fade away quietly" (referring to a statement reportedly made by main opposition leader, Mr Desmond Hoyte to an electricity sector investor). "You can't every day issue threats to people like Beal (the Texas firm that wants to set up a spaceport here) and others not to come into the country or threaten instability and then be concerned about our young people, because two things are important for increased investment - macro economic stability and political stability, apart from other things like concessions, etc.," President Jagdeo stated. Commenting on criticism that the budget offered no plugs for forestry and rice, the President said these sectors are affected by a downturn in prices, but remarked that spending on drainage and irrigation, which is key for rice, and concessions for forestry are being ignored. In 1999, forestry grew by 12.5 per cent and rice by 7.6 per cent, proving the problem is not one of production, but of prices. President Jagdeo also noted that the Government avoids speculating on foreign exchange rates because these are determined by supply and demand. Its prediction of stability this year is based on the level of reserves (exports are likely to net US$530M, some US$5M more than last year) and the huge turnaround in balance of payments, expected to deteriorate by 26.7 per cent to US$95M. The 9.5 per cent inflation rate projection is a cautious stance and while the Government feels it will be lower, monetary targets were set to support that estimate. Kowlessar, responding to claims that many proposals by business and civil organisations were not considered in the budget, said representatives were advised during pre-budget discussions that there was no guarantee their recommendations would have been incorporated. "We were willing to listen to them to see whether there could be some accommodation, but we have to balance those vested interests that some folks may have against the priorities of the country. It's against that background that we have to look at their recommendations," he explained. President Jagdeo noted that the consultations are not just for people to take a wish list, but help the Government to communicate its concerns. He remarked that budgets must not only be seen as "handing out goodies" but as catering for the overall development and good of the country.