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Put simply, the Guyana syndrome makes four basic assertions. One is that while the economic reforms introduced in the late 1980s early 1990s under the auspices of the international financial institutions (IFIs) and in particular the IMF, World Bank and to a lesser extent the IADB and CDB, led to more or less immediate economic recovery in Guyana, much of that recovery is a statistical illusion. Second, the economic recovery was not sustained, and indeed could not be sustained. The primary reason for this was the flawed design of the reforms, although there have been other contributing factors. This is in contrast to the emphasis given by some analysts to implementation failure, or the lack of 'political will' by governments to pursue the reforms thoroughly. Third, as a consequence of the above, the record of the much heralded reforms of the Washington consensus model of the time, is no better, and indeed generally worse, than that of earlier development models practised in the wider Latin America-Caribbean region. Fourth, the repetition of these broad features in several regional states that resorted to the structural adjustment packages of the period, indicates a syndrome and not a phenomenon specific to Guyana.
The statistical illusion attributed to the rapid growth of Guyana's economy (over 7 per cent recorded during the period 1991-92) derives from two sources. One is the low economic base to which the economy had already declined by 1990. Measuring from a low base made percentage increases look large. The other is the statistical effect of the measures introduced to absorb the parallel/underground economy into the official economy. The national accounts only measure official/legal transactions, which meant that this transfer of what was already taking place from the illegal to the legal sector created an illusion that there was more additional activity than was in fact occurring.
As we saw last week the boom in Guyana was not sustained. The economy has had negative growth in two recent years (1998 and 2000), a highly questionable positive growth of 1.5 per cent in 2001, and a 3 per cent growth rate in 1999. Ironically, the latter was the year of the PSU strike and the Armstrong Tribunal Award, which some had claimed at the time would have broken the Treasury and the economy, and put the reforms at risk. It is surprising, therefore, that this was the only year of growth, albeit modest growth, since 1997. The result of all this has been that for the period 1998-2001, the growth rate was less than 0.5 per cent per year.
The declining growth rate that has emerged in the late 1990s, so shortly after the much touted gains from the economic reforms has generated considerable debate in policy circles around the globe. One point that has already emerged out of the debate in Latin America is that the unsustainability of the reforms there cannot be attributed principally to lack of 'political will' or failure to pursue the reforms resolutely. Argentina, which as we saw is presently in deep crisis, has been exemplary in sticking to the IFIs' orthodoxy and reform packages. I would also argue that in Guyana the authorities have also steadfastly, if not slavishly, followed the IFIs' directions in their development policy. Indeed, in seeking to extend the ERP into HIPC I and then HIPC II, this country had in effect been put on a course that could only lead to the abandonment of all pretences at pursuing an independent economic programme.
My previous article introduced the 'Guyana syndrome' as a label to stylize the phenomenon described above.
The design flaws in the economic reforms are many, but space allows me opportunity only to draw attention to three of these. The first is the secrecy and confidentiality of information about the reforms that was practised in the early period. This, together with reluctance by the authorities and the IFIs to widely share data on the performance of the economy, led to a degeneration in the quantity and quality of economic data provided to the public. This action was tolerated, if not encouraged by the IFIs, in their zeal to showpiece Guyana. The result was that even as the IFIs recently joined (and rightfully so) in the open public criticism of the Enron-type corporate fraud, corruption, and publication of inaccurate and deceptive information, they have never felt morally compelled to do the same in a situation where they themselves have direct oversight responsibility for the use of taxpayers' funds, which they had borrowed and loaned to governments under their programmes. Yet these governments, like Enron, were also bent on 'cooking the books' for public consumption.
Thus for example, over the course of recent months information gleaned from the internet reveals that in the private meeting rooms of the IFIs several of these issues have surfaced in relation to Guyana. Both the Country Procurement Assessment Report and the Country Financial Accountability Assessment identify significant problems in the accountability/fiduciary framework of the public sector. Other problems have also emerged, among them the mysterious 1.5 per cent of GDP in the 2001 accounts that they have expressed unhappiness about; the conflict over Cabinet control of procurement in the new Procurement Bill; and, Government's fulfilment of its undertaking of 2,500 redundancies in the sugar industry over the next three years.
A second design flaw was the surgical, if not harsh and brutal imposition of the initial stabilisation programme. This was indeed a universal practice at the time. One which caused me to label it a one-size-fits-all approach to macroeconomic policy. The attitude of the IFIs was almost 'moralistic' in the assumption that 'no pain no gain.' Of course the poor were expected to bear a disproportionate share of the pain, which they in fact did, to the extent that the social and political cost of the deflation introduced at that time is still with us and is reflected in the massive overhang of social and economic deficits for which economic growth to date has been unable to compensate. Thus while between 1992/93 and 1999 the poverty rate fell from 42 to 36 per cent, that rate not only remains large, indeed the largest in the region, but it has more than likely gone up since 1999, based on the economic performance as outlined above.
A third design flaw is that the ultimate purpose of the reforms was to re-integrate 'sick economies' into the global order as it had developed, without due attention being paid to the possible future modification of that order. A terrible example of this is that, by 1995, even before the WTO Agreement was signed, Guyana had already liberalised its trade. Market access distortions like licences, quotas, and negative lists had largely been removed.
Guyana did not 'tariffy,' but opted to bind its tariffs at levels below those permissible under that agreement. Thus the import duties on most agricultural products were bound at 100 per cent. For a major food producing, exporting, and importing country this was a most unscientific approach to the protection of its national interests. The sad truth is that, in failing to design any room for manoeuvre, such policies have denied Guyana the opportunity to benefit from possible later modifications/ improvements to the arrangements in the evolving new trade order.
Understanding economic crisis
During the past two weeks this series has been focusing on issues directly related to understanding economic crisis. The concept of the ‘Guyana-syndrome,’ which I had introduced, sought to capture the structure and nature of the economic processes at work in the economic crisis presently facing the wider Latin America-Caribbean region. Today, I shall explore a bit further some of the attributes of economic crisis as a social phenomenon.
To compartmentalise or not
A central feature of economic crisis is that it is usually impossible to draw a neat and clear line of separation between that and other crises in society.
We are all too familiar with this here in Guyana, since at the moment we face a crisis that is not only economic, but simultaneously multi-layered and multi-dimensional. In other words, the crisis covers all layers of society (albeit in different ways) and all dimensions of our lives (whether they be cultural, social, aesthetic, religious, political, recreational or economic).
Despite this it is still convenient for purposes of analysis, as an aid to understanding the phenomena around us, to compartmentalise and isolate some dimensions notionally, and in particular the economic dimension. The reason why the economy is frequently singled out this way is that it produces our livelihoods and determines our level of material well-being. Most analysts believe that the case for treating an economic crisis as a separate phenomenon is reasonable. Indeed this has long been the practice. Nevertheless, the caveat should be borne in mind that the isolation of the economy is an ‘abstraction’ and not ‘real.’ It does not represent the actual state of affairs.
Another feature of economic crises is that the world has had a long experience of them - one that in fact pre-dates market capitalism and indeed started with the first formation of human society. Those earlier economic crises, however, reflected in the main the perpetual struggle early societies faced to secure the sheer physical survival of their inhabitants, as they faced the constant threat of hunger, pestilence, and marauders in search of food. Society was barely, and for that matter rarely, able to sustain the supply of a bare minimum of needs for everyone. Life, as we would now say was “nasty, brutish and short.”
Crisis and inequality
With the development of modern capitalism, several societies have managed to escape the boundaries imposed on them of having to constantly struggle to stave off hunger and pestilence. In the rich countries, and for that matter among the non-poor in poor countries, there are enough goods and services to satisfy basic needs and to provide a large enough surplus so that the brutal presence of hunger and pestilence is removed. In such circumstances, when an economic crisis occurs, it does so in the midst of plenty.
Indeed, the point should be stressed that globally we have reached a point today where all the inhabitants of the world could have enough resources to ensure a sustainable flow of goods and services to satisfy their basic needs, if even a basic and rudimentary notion of equity and justice prevailed.
The failure to secure this means that economic crisis today is not so much the product of a harsh natural environment as it was in the past, but it is in fact much more a crisis of inequity and unfairness in the distribution of economic wealth, income, and opportunities. With these inequalities come others, particularly inequalities/inequities in the distribution of power, influence, authority, status and political opportunity between countries and within them.
Economic crisis and its causes
It is important when considering the features of economic crisis to distinguish between ‘proximate causes’ and other more fundamental causes and explanations of a crisis. A ‘proximate’ cause is the ‘shock’ event that immediately precedes a general awareness of an economic crisis.
Thus in the case of the current global crisis, I have argued that the events of September 11 and their aftermath is the signal event which heralded the fact that a global economic crisis had taken hold. The economic consequences of those events have been huge, particularly their impact on some of the economic sectors and activities vital to the region, eg travel and tourism, and foreign investment. They have also managed to displace the priority that was being given before then to the global development agenda, with that of national and global security. As a consequence, although I have stressed that the September 11 events mark a decisive turning point in the development of globalisation, it is nevertheless true to say that the deeper explanation of why this is so, are the events that gave rise to the belief that September 11 offered some sort of solution to global problems. In any event, the economic downturn, financial crisis, stock-market collapse, and decline in most primary commodity prices had preceded September 11.
Because of such considerations, it is necessary in understanding an economic crisis for one to be able to distinguish between the manifestations of that crisis and the systemic features which underlie it. This is what the notion of the ‘Guyana-syndrome’ attempts to do - to give a systemic explanation of a certain type of economic crisis that has emerged in the Latin America-Caribbean region.
Economists frequently refer to what are termed ‘shocks’ and some persons interpret this to mean economic crisis. By shocks, however, economists refer to events or occurrences that can lead to sudden significant alterations in the ability of an economy to purchase goods and services or produce them. In the former instance, we refer to a ‘demand shock.’ This can be caused by many factors such as shifts in government spending and taxes, or changes in the interest rate that affect demand for investment. In the latter instance we refer to a ‘supply shock,’ as for example when there is a temporary shortage of a commodity. This can occur for a host of reasons, including natural disasters. In both instances in a market economy these shocks are reflected in changes in prices.
Shocks are essentially temporary phenomena, even though they can lead to long-run enduring effects. A good example is when a temporary shortage of a product or service encourages users to find alternative sources of supply or alternative products and services. Shocks eventually impact on prices and these in turn lead to direct responses to resolve their consequences. In this sense, therefore, an economic shock is not quite in the same league of concern as an economic crisis. Indeed one might say that the more efficient the market economy the more responsive and adaptable it is to the impact of shocks. One of the features of backward capitalism is its inability to cope quickly and smoothly with shocks.
Backward capitalism and crisis
Overcoming an economic crisis with the least possible pain, requires a prompt diagnosis of its root causes and the design of appropriate responses. In backward capitalism there is a strong preference for the soft-option of pretending or denying the existence of crisis, since it is believed that to do so would be a sign of political failure. The deeper political failure of pretending that a crisis does not exist, when it does, is not comprehended. In these societies the time horizon of the leadership is short and regime survival takes precedence over the national interest. Developed capitalism is more flexible and responsive, recognising always the pre-eminence of national interest over all else. In this way, although it is crisis prone, to date economic crisis has not overwhelmed it.