As I pointed out in that column, this rate of growth is nine times greater than the global average of 0.5 per cent, predicted by the World Bank for this year. More outrageously it is also more than 50 per cent greater than the official growth rate of real GDP in 2008 (3.1 per cent). I know of no country, which has projected such a rise in its growth rate for this year over last year. And, to make matters worse, this predicted growth rate is treble that achieved in Guyana as the annual average rate of growth during the decade (1998-2008).
Readers should bear in mind that the World Bank has predicted that, if the present global economic trajectory is maintained, developing countries as a group, could suffer a “lost decade” for economic growth, job creation, and improvement in living standards.
This is an important indicator of how serious are the global challenges facing Guyana.
The suggestion in the Budget that the Guyana economy is somehow recession-proof and insulated from the worsening global economic recession, financial crisis and credit squeeze, is not only implausible, it is also I believe a dangerous posture for the government to have adopted in framing the National Budget for 2009. This implausible prediction conjures the wrong impression. It sets up a worrying situation in which claims and expectations will grow, in the belief that more will be available this year than in the previous one. That indeed the threatening economic or financial challenges can be easily overcome.
Regional hardship: Why not Guyana?
To my mind a healthy dose of realism would have been far better. The priority now is to prepare all economic actors in Guyana for the serious challenges which lie ahead. Already, they are aware that the global crisis has brought considerable hardship to sister Caribbean territories, and they ask: so why not Guyana?
Trinidad and Tobago, although a huge beneficiary of the oil boom, has seen a massive fall in export earnings due to declines in the price of natural gas and oil way below the notional level of US$70 per barrel its government uses in preparing its own national budget. It has also had to deal with the collapse and bailout of the CL Financial Group.
The travel and tourism sectors have been very hard hit throughout the region, but moreso in those countries like The Bahamas, Jamaica, Antigua and Barbados, which are heavily dependent on these industries. Further, as I have continually warned in these columns, wealthy Guyanese and Caribbean folk, pension and trust funds holding significant external financial assets would have already been made worse off by the global crisis.
So too would have been those who participate in the organised crime that fuels a large portion of the underground economy. Both these legal and illegal groups usually channel and/or launder resources through regular financial connections between firms located in the Caribbean, and those in North America, Europe and Asia.
Financial scams and leverage
As the global crisis has progressively worsened, a number of frauds and scams are being unearthed. The two most recent are the Madoff US$50 billion Ponzi–like swindle and the Stanford Financial Group, US$8 billion fraud. The latter is located mainly in Antigua and the US. Both these frauds have directly affected Caricom and Guyanese nationals badly.
The recent press release by Hand-in-Hand Trust Corporation of Guyana confirms the local impact. However, the threat has been downplayed by the company. As with CLICO (Guyana) it is representing that there are small to minimal losses: “less than 10 percent of its assets.” However, until the company lets the public know how much it is leveraged, there is little comfort to be gained from this statistic. We have only this week seen where CLICO (Guyana) has ended up!
Additionally, the disaster of the CL Financial Group in Trinidad and Tobago will certainly have progressive negative reverberations throughout the Caricom region. I shall discuss in coming weeks more fully, aspects of this regional financial fallout and how it is likely to affect the financial sectors in Caricom and Guyana. As we shall see one of the key considerations to ponder as we consider the damage to local financial firms is the extent to which they are leveraged.
Hardship
The global crisis has, as I have reported, significantly affected the flow of remittances to Caricom. In Guyana this is particularly important, because of our heavy dependence on it, due to present low incomes and past low rates of growth. Commodity exports have also been badly affected. Thus the export of bauxite and alumina has been dramatically reduced in Jamaica. Despite its deliberate underplaying in Guyana the same is occurring as global demand for commodities fall with the global recession. Declines in commodity exports including, as we saw, natural gas and oil, have also impacted on Belize and Suriname. In addition, throughout Caricom, foreign aid, private investment inflows, as well as trade and other types of credit, have been virtually frozen.
Financial ‘runs’
If anyone had mistakenly believed that the Guyana economy is, or could be made insulated from the global crisis, the mounting evidence in recent weeks, if not days, should have disabused them of this idea. As we see with each passing hour, even global financial scandals are negatively impacting directly on Guyanese firms and individuals. The risk we face is that the Government of Guyana does not have the financial resources to facilitate depositors/investors if a substantial run takes place on local financial firms.
The present position adopted by the authorities that the threatened institutions are “small,” “insignificant” and “marginal” is unhelpful. Usually runs on financial firms are contagious and generate panic and extreme frenzied action, affecting both sound and unsound firms. No government in the world could afford to take ‘make-believe economics’ to the point of treating this threat lightly.
At this point, it is my fervent hope that the Regional Financial Action Task Force that I referred to in last week’s column, while pursuing preparedness at the regional level, might well rub-off on Guyana. This will be because of contingent commitments the authorities are going to be asked to give in order to frame coordinated regional responses.
Next week I shall continue from this point.
