Dear Editor,
Today, critics see loans and general financial aid as an end in themselves, but instead, they should be seen as means to build on resource capacity. And then the critics tend to present macroeconomic variables as if the world is static; the world is dynamic, and so when there are crisis situations, as characterized by external shocks, these critics tend to apply the macroeconomic variables in the same way as they would apply them to non-crisis situations.
In crisis situations, it may be more useful to compute some effective innovations to the macroeconomic fundamentals by measuring the market’s evaluation of these fundamentals (Aguiar and Broner in Journal of Monetary Economics), and directly-observed macroeconomic variables may be more suitable for non-crisis situations.
In today’s world, we have to innovatively interpret macroeconomic variables quite differently within the parameters of the global economic crisis and other external economic shocks as they occur, and we cannot apply the directly-observed macroeconomic variables in crisis situations in the same way as we do in a tranquil period. Aguiar and Broner believe that emerging market predicaments may be associated with huge movements in macroeconomic fundamentals and asset prices, and so there is all the more reason for making a distinction between directly-observed macroeconomic variables and a computed series of innovations to the macroeconomic fundamentals.
Truman noted that many developing countries have been able to withstand the external shock of the international financial meltdown, as a result of prudent financial management of their economies. All developing nations are being affected, directly or indirectly, by this international financial tsunami. And Guyana continues to fare well in this respect due to its sound macroeconomic fundamentals. But these fundamentals would not be enough to weather the ravages of the global financial crisis.
And then, we have critics who say that the Jagan years enjoyed substantial positive economic development because of the Hoyte reforms; that Guyana’s Gross Domestic Products (GDP) grew by 7.17% between 1993 and 1997; and that since 1998, the GDP grew at an annual average of 0.86%. Under the nuances of such remarks, the people of Guyana must know that what the PNC bequeathed to the PPP/C in 1992 was horrifying.
The country was bankrupt in 1991. Reporting on the PNC ruling years, the World Bank in its 1994 Report noted: “Economic performance worsened significantly… Demand management policies were expansionary, the real exchange rate appreciated, the country lost competitiveness, the balance of payments came under pressure, and the government relied increasingly on price controls and quantitative restrictions on trade. This further reduced overall economic activity, while spawning a parallel market for foreign exchange that fed inflation. The country’s infrastructure became dilapidated, real incomes dropped sharply, and the government became increasingly unable to provide basic social services.”
In the context of these PNC economic failures, the PPP/C early in its administration had inherited practically zero funds to service the huge external debt burden of US$2.1B and develop the social services sector, and so debt relief became a desired option. Eventually, HIPC and Enhanced-HIPC superseded the traditional debt relief packages.
The IMF Executive Board in 2008 noted: “Despite external shocks and social pressures, macroeconomic stability was preserved in 2008. Growth decelerated to about 3 percent owing to a sharp shortfall in sugar production, but end-2008 inflation declined to 6.4 percent (6.8 percent target)… So far, the financial system has been relatively unaffected by the global turmoil. Higher growth is projected for 2009… Lower oil import prices would compensate a decline in commodity export prices in 2009…” Guyana has sound macroeconomic fundamentals.
But make no mistake about the fact that macroeconomic fundamentals require different interpretations in a crisis as distinct from a non-crisis situation.
Yours faithfully,
Prem Misir
