This week I continue my discussion of Phase 2 (project selection and sequencing) in managing Guyana’s public investment programme. Before I proceed further, however, I draw readers’ attention to two matters, both of which have a direct bearing on today’s column.
One of these is that I had originally intended to substitute the present column with one providing comments on the Anti-Money Laundering Amendment Bill No. 12 of 2013 and related matters. However, my concern was that this would require several columns in order to address the topic adequately. I had hoped in that substitute column to reveal, among other things, the strong linkage between money laundering and public projects. Such a decision would have threatened the continuity of the ongoing discussion. As things have turned out thus far, media coverage of the Bill together with the formation of the select committee of the National Assembly has combined to enable key concerns to be publicly addressed. I shall therefore continue with the present series and when finished address the Anti-Money Laundering Bill and related matters. For the time being, in the section below I highlight rather briefly some pressing concerns I have about the bill.
‘Wolf, wolf’
The key concerns are: 1) Having to rush the Bill through the National Assembly is a product of government’s own procrastination and delay ( both intentional and otherwise). 2) I believe the government crying “wolf, wolf,” and shouting “fire” at this stage are designed to rattle the opposition into believing it is somehow ‘responsible’ for governmental ineptness. 3) Repercussions and penalties arising from the Bill’s delay are exaggerated, since other Caribbean countries have gone through these and have emerged with cleaner and far more robust anti-money laundering regimes. 4) Guyana’s track-record on anti-money laundering and combatting the financing of terrorism is very well known among countries dealing with these matters and they will not be easily conned. That track-record reveals a) intractable problems of legislative and implementation gaps; b) weak organisational structures and limited capacity; c) the absence of enough dedicated resources for the task; d) weak political will; e) poor governance; and f) the pervasive presence of a phantom/underground economy and the consequential political and economic leverage this exercises in the society. Recall that Guyana’s phantom economy has been variously estimated at about 40 per cent of the country’s official GDP.
To date, media comments have not treated adequately with some important considerations, such as 1) the political economy of money laundering and combatting the financing of terrorism; and 2) changes that have taken place in the organisational structure of both the global and regional oversight bodies; and, 3) the linkage between government spending and money laundering. I propose to address these matters after the present series is concluded.
China and project selection
The second matter I wish to address follows on a communication sent by a reader of this column in China who notes China has been, in recent years, Guyana’s largest foreign direct investment source. That communication indicated the horrendous investment errors (involving billions of Yuan) which have been uncovered in China. Those errors centre on China’s translation of its investment strategy into projects. Here whims, egos, and the influence of insiders on leading political party officials, state administrators, and the government have overpowered the application of systematic decision-making in the process of project selection. Indeed the problem had become so acute that, in 2010, the government published binding regulations covering all project selection. The expressed goal of those regulations was to improve on public investment efficiency immediately. As in the case of my recommendation for Guyana, sound analytical project appraisals were declared as the compulsory legal cornerstone for all significant public investments.
Resuming the discussion
Returning to the discussion of the connection between project selection and sequencing (Phase 2) and the public investment strategy (Phase 1) the following five measures are crucial for Guyana. First, public information is an essential component of a well-designed project selection process. This information must disclose “by whom, how, and when every appraised project is accepted.” Second, personnel involved in project evaluation are legally prohibited from promoting their personal gain and/or indulging in situations where there is conflict of interest.
Third, due to the absence of a centralized planning authority in Guyana, the government must publish the central operational manuals and standards to be utilized for appraising all public projects. Similar documentation already exists for other national economic calculations, like the construction of the National Accounts and Balance of Payments statements. The importance of this recommendation follows logically from the enormous impact variations in such factors as the discount rate, shadow prices, and governmental goals would normally have on project appraisal outcomes.
Fourth, based on worldwide experiences one basic adage trumps all others: if economic efficiency is a desired goal of public investment, then government must invest in investment management!
A very telling observation in this regard can be found in a Survey Report published by the United States Center for Benefit-Cost Analysis. When asked why there is relatively limited use of benefit-cost analyses at the state level, most respondents have replied: “cost-benefit analyses interfered with politics.” The reasoning seems to be that systematic thinking, when applied to project selection, always trumps politics.
Finally, as I have observed repeatedly in this series, unless public project appraisals are undertaken and made available for independent scrutiny, they are not worth the paper on which they are written. Public project appraisals, unlike private ones that rely on private market prices, are subject to distortion and bias (both intended and unintended), as they measure costs and revenues in terms of their economic values and not prices available in private markets.
Conclusion
These comments lead directly into the third phase of Guyana’s public investment management (that is, the management and implementation of public projects). This will be the next major topic I shall address in this series, after wrapping up my comments on Phase 2 and considering the Amaila Falls Hydro Project, in the coming weeks.
