Dear Editor,
I refer to Mr Emile Mervin’s letter of June 1, 2009 in the Stabroek News, with the caption ‘It isn’t the President and his supporters who will define his legacy.’
And it certainly would not be Mr Mervin. As the Guyanese vernacular would have it, ‘This man takes his eyes and passes me,’ and refers to me as a spin doctor. He knows little about me, should stop using dysphemism as a camouflage, and should stick to the issues at hand – the facts of the matter. In fact, this letter writer seems to be constantly in the repetitive mode.
Mr Mervin coined debt relief as a point of legacy for this administration – incorrect.
Fact: I have never indicated that debt relief is one of the legacies of this current President or any previous President; I merely contained myself to point out that debt relief is a major achievement of the PPP/C administration since 1992; achievements do not necessarily translate into legacies. But debt relief was critical at that juncture because there was no ‘life blood’ in the social sector.
Today, many comments on Guyana’s development fail to appreciate the implications of a huge debt burden, and the nine or ten years subsequent to 1992 that elapsed before Guyana could reach financial viability. And so, given the lead time for the realization of financial viability under the PPP/C’s watch, we are looking at less than 10 years when it comes to review this country’s developmental gains. This letter writer has no comments on the time it took to reach financial viability; this was a period when little or no revenue was available for social sector development. Why did he not make any comments on the lead time for financial viability?
The debt service burden in 1992 consumed a disproportionate amount of the country’s revenues, leaving very little for social infrastructural works, as in education, health, and human services. Today, some analyses of Guyana exclude discussions on the inherited 1992 debt burden and subsequent period for financial viability. Any such exclusion will produce a biased analysis, for a heavy debt burden and the process to attain financial viability place enormous strains on the delivery of services.
The World Bank Group Report (1994), referring to the 1988-1992 period, noted “The government’s capacity to deliver essential services has virtually collapsed. Infrastructure remains severely dilapidated. The supply of potable water is limited to a small proportion of the population, drainage and irrigation systems have deteriorated to the point that they are no longer useful, and health and education services have become so inadequate that social indicators for the country have fallen to among the lowest in the Caribbean.” This report, indeed, dismissed the so-called gains from the Economic Recovery Programme (ERP).
Mr Mervin said: “it is one thing to be commended for obtaining debt forgiveness by simply adhering to the IMF/WB rules and borrowing fresh loans or even tapping into local reserves to undertake social services projects and brag about these as progress, but these are not sound enough reasons to constitute a good legacy.”
Fact: It’s unfortunate that people like this letter writer would want to convey to the Guyanese people that acquisition of debt relief is automatic; they fail to assimilate the arduous process of attaining debt relief, including good economic management.
A few explanations on the process to attaining debt relief follow. Prior to 1996, concessional lending was the norm in providing financial aid to developing countries. Notwithstanding these favourable terms, many poor countries experienced problems making their debt payments, as many of them did not achieve appropriate growth rates in subsequent years.
There, therefore, was a need to introduce new ideas and mechanisms. Believing that the debt service difficulties of poor countries were temporary, the French Treasury invited creditor governments to form a committee to reach a consensus on the debt relief needed for poor debtor countries, and to ensure that all creditors offered similar terms as agreed by the committee. This committee became known as the Paris Club. Guyana benefited, but needed more help in reducing debt service payments, in order to achieve sustainable growth and poverty reduction.
However, by the mid-1990s, it was clear that the traditional debt relief packages were not succeeding, as they were still insufficient to reduce debt to sustainable levels. In 1996, the International Monetary Fund (IMF) and the World Bank presented the Initiative for Heavily–Indebted Poor Countries (HIPC). The HIPC Initiative was set up to solve debt problems of the heavily-indebted poor countries which had a total debt of US$200B. Also, the HIPC Initiative tries to make some funds available to social sector programmes, especially basic health and education.
The HIPC Initiative was modified in 1999 to give faster, deeper and broader debt relief and reinforce the connections between debt relief and policy reforms to increase long-term growth and achieve poverty reduction. This modification initiated the Poverty Reduction Strategy Paper (PRSP), approved by the World Bank and the IMF in 1999 as part of the Enhanced-HIPC.
In order to be considered for HIPC assistance, a country must experience an unsustainable debt burden, and have a track record of reform and good policies as determined by the IMF and the World Bank. Then a debt sustainability analysis will be completed to determine the current external debt. If the existing external debt ratio for the applicant country exceeds 150 per cent of the net present value of the debt to exports, it will qualify for HIPC assistance. The next stage is to determine the country’s eligibility to request assistance, and this step is referred to as the Decision Point.
Here, an eligible country will have to adopt, in addition to the IMF and World Bank-supported structural reforms, a Poverty Reduction Strategy Paper (PRSP), using a national participatory process, by the Decision Point. Guyana has recently adopted the PRSP which involved broad-based national consultations, so Guyana really is at the Decision Point. In fact, Guyana already was at the Decision Point when it developed the Interim-PRSP which presented the Government’s plans to develop a PRSP. Reaching the Decision Point of the Enhanced HIPC Initiative means that Guyana will have debt relief of US$590 million for the next 20 years. Guyana had previously received US$440 million under the original HIPC Initiative.
At this Decision Point, the Executive Boards of the IMF and the World Bank will make a determination on the country’s eligibility. Here, the country will continue to receive financial aid until the process reaches the Completion Point. At this point, the PRSP will have to be implemented.
Mr Mervin said that “Whatever the President does must directly impact the people and the people must know it and be talking about it without being prodded by political spinners.”
And so from the table, it is clear that $60 million, a saving from the reduced debt payment, became available for the social sector, one of the conditionalities of the Enhanced-HIPC; and this is one way to show how debt relief trickles down to the Guyanese masses. For instance, peruse the following: The Guyana Government has scored masterfully through its debt relief and securing investments within a global economy slowed down by recession. The social services sector, especially health and education, continues to receive a sustained boost. Evidence of this enhancement in education can be gleaned through its public expenditure as a percentage of the National Budget, thus, 7.3(1996), 6.8 (1997), 11.9 (1998), 11.6 (1999), 11.7 (2000), 16.5 (2001), 17.2 (2002), 14.4 (2003), 15.5 (2004), 13.7 (2005), 13.0 (2006), 17.1 (2007) and 15.1 (2008). The growth percentages for health follow: 6.3 (1996), 7.3 (1997), 5.9 (1998), 6.7 (1999), 5.7 (2000), 7 (2001), 8 (2002), 8.9 (2003), 9.5 (2004), 7.5 (2005), 9.0 (2006), 10.6 (2007) and 9.3 (2008).
Keep in mind that in 1992, the entire social services sector received 8% of the National Budget. Guyana, indeed, has come a long way since 1992, gradually sanitizing and eliminating the legacy of the 1968-1992 years.
Mr Mervin states that “debt relief actually seems to have done little to impact the realities of the 21st-century economic security needs of ordinary Guyanese, as evidenced by Guyanese who are continually outward bound as opposed to inward bound, and the continued reliance by Guyanese at home on remittances from overseas (over US$400M from the United States alone last year). That US$400M-plus alone almost tripled the FDIs (US$152M) for 2007 and most of it likely went towards paying for consumer goods and services. Take away remittances, therefore, and carefully observe Guyanese reactions to the government’s brag about the benefits of debt relief.”
Fact: Presently, India is the leading recipient of remittances in the world, and received $24.6 billion in the fiscal year 2005-2006 from overseas Indians. The World Bank estimates for 2005 put India in the lead at $23.5 billion, with China and Mexico close behind at $22.4 billion and $21.7 billion, respectively. In 2007, remittances represent 3.08 percent of the country’s Gross Domestic Product (GDP). Given that these countries see remittances as a positive for development, then why not Guyana? Migration is a global phenomenon, so much so that the 20th century was seen as the century of refugees. And the Guyana migration started well before 1992. While migration does initially create a brain drain problem, over time, countries with large contingents of overseas residents, have begun to transform brain drain into brain gain; thus, remittances are only one consequence of this transformation.
Notwithstanding four election victories since the restoration of democracy, Guyana continues to face the slings and arrows of outrageous and naive political commentaries, where their lyrics express fury that the PPP/C party remains in government.
Yours faithfully,
Prem Misir