Introduction
As promised, today I continue discussing the topic: financing for development and its linkage to efforts directed at recovering stolen public assets belonging to Guyana. In Guyana, media reporting has been exposing a virtual deluge of corrupt behaviours practised by the previous administration. These cover theft of state property (motor vehicles and petrol), payment to shadow public employees, and phantom bank accounts held outside the Consolidated Fund. However, alongside such disclosures a paradigm shift is occurring in the international community. This shift advances collective global action directed at stemming everywhere the corrosive effects of corruption, particularly among poor states that are disproportionately affected.
Hypothesis
In coming weeks I shall elaborate on this hypothesis, which is re-cast here in the following four sequential statements: First,
international best-practice in financing for development is, presently, in a state of flux and transition. This is most evident in intense and systematic systemic efforts by the international community, to incorporate the “recovery of stolen public assets” (StPAR) as a central feature of its best-practice. These efforts are driven by the growing empirical data revealing an explosive growth in estimated stolen public assets (StPA), coming from a wide range of sources and authorities
Secondly, I have provided supporting estimates of stolen public assets for Guyana in this series of columns (May 3, 2015 to date). Both the method and sources I have utilized can be found in the columns cited. Re-capping briefly, the grand total estimated is about $310 billion or US$1.5 billion for 2014. This comprises procurement fraud about $30 billion (Source calculated from former Auditor General’s estimated ratio); illicit financial flows about $90 billion (Source, Global Financial Integrity, December 2014); and the underground economy about $188 billion (Sourced from Pasha and Jourdain, 2012). The grand total is equivalent to about one-half of Guyana’s GDP in 2014.
Parenthetically, for readers (critics and otherwise) unfamiliar with economics it should be repeated that, as a practical matter, stolen public assets are estimated from secret and deliberately hidden financial and other transactions that defraud the state; for example under-invoicing of exports. Of course there is no totalling of all transactions in any economy. Indeed such a number would be astronomical. Computing capacity to record and total every single transaction in a state is beyond us. We therefore use GDP and other variables, for example revenue, to express a representative relative ratio of the size of stolen public assets. This is common practice for innumerable ratios where numerator and denominator do not measure the same variable. Furthermore, readers who follow this column should already know that GDP measures some and not all transactions; for example only those that result in net value-added in the economy or signify final expenditures.
Thirdly, by targeting the recovery of stolen public assets, the international community envisages a reduction in the demands placed on rich countries’ resources for financing poor countries development (redistribution).It also anticipates this will force greater reliance by poor countries for generate self-financing for their development.
Fourthly, there are indications that efforts to improve best practice are concentrated on the upcoming Third International Conference on Financing for Development, to be held in Addis Ababa, Ethiopia. This Third Conference is being deliberately convened, similar to the First (Monterrey, Mexico) and Second (Doha), prior to the United Nations adoption of its global development agenda going forward. The Addis Ababa Conference is a Prelude to the forthcoming United Nations Summit on Sustainable Development Goals (SDGs) to be held in September. This will supersede the previous Millennium Development Goals (MDGs) 2000 – 2015.
Guyana and Caricom
financing needs
As well-established practice dictates, Guyana would have been coordinating through Caricom common regional positions towards the proposed Outcome Document for the Addis Ababa Conference (see Website). Readers of this column should be well aware that Caricom member states are facing severely adverse circumstances in regard to development financing. This is ironically epitomized in the designation of almost all member states as middle income. This designation makes them ineligible for accessing concessional financing from multilateral financial institutions and “development partners”. It defines ineligibility as occurring when a country’s per capita Gross National Income exceeds US$1035 at 2013 prices. This cuts off access to development assistance, forcing those member states with sovereign credit ratings to resort to risky high cost private borrowing to finance their development and those without sovereign credit ratings to depend on private capital inflows.
As regional economists, including me, have long argued this ineligibility criterion is fundamentally flawed. “Middle Income”, which is defined by per capita GNP is one-dimensional and takes a one size fits all approach towards establishing development levels/standards. Perhaps, more importantly, it ignores the unique structural constraints facing Guyana and other Caricom states. Chief among these are 1) their vulnerabilities confounded by intrinsically weak resilience factors when hit with significant external shocks; 2) small populations, which constrain market and labour force sizes; 3) small land mass (even Guyana with 83,000 square miles is small by global standards); 4) item 3 means that, by global standards, the states are less well-endowed in their ranges of natural resources, even if Guyana is relatively better off.
5) Their location on a strung-out Caribbean archipelago and non-contiguity create severe diseconomies of scale; raise transport costs; as well as unit costs of providing governmental services for member states, and 6) finally, their openness is reflected in very high product and productive factors ratios. Thus, for example, trade in goods and services to GDP ratios, migration of persons to population ratios, and overseas financed to domestic financed capital expenditure ratios.
Some economists would single out and add to the list given above a distinctly “un-dynamic private sector”.
Based on the above description, the region, given its democratic traditions, should be forward-looking and seek to play a leading role in pushing this paradigm shift. It certainly should not be fighting to hold on to backward-looking agendas from the age of unsafe safe-havens.
Next week I develop the presentation from this point.
