In a Project Syndicate column in the July 19 edition of Stabroek News, the Inter-American Development Bank’s (IDB’s) Chief Economist Eric Parrado addressed what he called political short-termism in Latin America and the Caribbean (LAC) where policymaking and planning are not consistent between different administrations.
He stated that LAC countries know that their policymaking and planning must become more consistent and predictable.
“They recognize that their failure to implement lasting, credible reforms in areas ranging from taxation to pensions to education discourages investment and contributes to some of the world’s most anemic GDP and productivity growth”, he asserted.
He added that short election cycles tempt politicians everywhere to sacrifice long-term goals in favour of constituents’ immediate demands and that political parties in the region are often too weak to uphold programmatic agreements or impose political discipline.
This, he said, helps to explain why, over the last decade, LAC countries have invested an average of just 2.8% of their GDP in infrastructure – half the level in Asia.
Even when governments address these problems, their successors often erase their efforts, he pointed out.
“For example, Colombia has implemented tax reforms more than 20 times since 1990 – one reform every 18 months, on average. This has deterred potential investors, who cannot predict their likely liabilities, and tax revenues have not risen significantly.
“Similarly, 11 LAC countries passed pension reforms in 1980-2005, with some moving to private individual accounts, only to partly reverse course in 2008-10, then implement yet more reforms – all without ever delivering the strong pension systems that are needed. Other countries have failed to enact significant pension reforms at all. Across the region, a huge number of informal-sector workers – accounting for more than half the work force – still lack pension coverage, while others depend on grossly inadequate ‘non-contributory’ pension schemes”, he noted.
He then offered a solution.
“To escape the yoke of political short-termism, LAC countries should embrace a bold solution: national autonomous institutions tasked with designing and implementing long-term, evidence-based policies in key development areas, such as infrastructure, pensions, and education. These institutions should be staffed with independent experts who are appointed to terms that are longer than election cycles and insulated from political pressures”, Mr Parrado proposed.
Noting that several countries, within and outside the region, have already established independent bodies to offer evidence-based advice on long-term policy challenges he said that these are merely advisory, they recommend policies but have no clout to implement them.
“By contrast, the institutions that are needed in LAC would have the power to design and directly implement policies. Their decisions would be binding – the government could not override them – to ensure that long-term strategic objectives are consistently pursued, regardless of political shifts or short-term pressures, including from powerful special-interest groups”, Mr Parrado posited.
Such institutions, he said, would have to be designed with great care, to guarantee their independence, accountability, and legitimacy.
“But the potential benefits far outweigh the risks and challenges. By creating credible institutions that are empowered to make decisions that serve the long-term interest of society, countries can restore public trust in government and create the conditions for a more prosperous, equitable, and sustainable future”, the IDB’s Chief Economist contended.
Fiscal rules, Mr Parrado said, are another institutional mechanism that promote long-term economic stability.
“Clear limits on government spending and borrowing strengthen budgetary discipline, keep public finances on a sound footing, prevent the accumulation of unsustainable debt, and increase overall resilience.
“Independent development-oriented institutions offer a democratic means of insulating core economic and development decisions from immediate political pressures. They could thus make all the difference in areas where Latin America and the Caribbean have lagged in recent decades – a period characterized by ideological swings and deepening political polarization”, he asserted.
These are all forward-thinking and sensible strategies. Each week, one can see the results of political short-termism here under the PPP/C Government; trying to force projects through with the sole intent of strengthening their hand for the 2025 elections and without consideration of the consequences.
This is why the new bridge over the Demerara River is being constructed without an Environmental Impact and Social Assessment study. It is one of the most foolish decisions by this government and achieved by the commandeering of the Environmental Protection Agency. It is left to be seen if there will be downstream problems from this project. The gas to energy project is being hustled along to fit the election time frame without due consideration of a purpose-built feasibility study. In what must have been the grossest example of hypocrisy and opportunism, the PPP/C Government has proceeded with the project on the strength of various studies commissioned under the APNU+AFC Government.
Over the last week several infrastructure projects have seen contractors fired for going far past their deadline and others should certainly also meet this same fate. Other projects exhibit various defects including troublingly the airstrip at Paruima.
National autonomous institutions tasked with designing and implementing long-term policies and staffed with independent experts could test President Ali’s ‘One Guyana’ commitment. While he makes it sound inclusive and truly national, critics apprehend, with good reason, that it is really ‘One Guyana’ according to President Ali and the Freedom House, not all encompassing and to the contrary, divisive and accentuating the cleavages in the country. Nearly four years into his term in office, President Ali does not have a productive relationship with the opposition. This is certainly not his fault alone but as the President the onus is on him to change the calculus particularly if he is dedicated to the concept of ‘One Guyana’ as its certainly couldn’t exclude the representatives of nearly half of the country.
It must also be clear to the PPP/C government that it doesn’t have all the answers or the brain power to engineer the country’s future. It needs all the help it can get and reaching across the political divide is one of the places that it can try. Had it done so major endeavours like the Amaila Falls project may not have ended in acrimony. It may have been that the project was not feasible anyway but at least both sides of the divide could have agreed on it far earlier.
There are major policy decisions ahead that should not be rushed and could definitely be given intensive consideration at the level of parliamentary committees with the full involvement of independent experts, for example, crafting a regulatory environment for the petroleum sector, erecting robust defences against oil spills, an oil and gas depletion policy for the country and defining the education needs of Guyana so that it could attain the goal of becoming a fully developed country completely diversified away from primary commodities including oil and gas.
All signs point, however, to complete disinterest by the PPP/C government in devising a modus vivendi with the opposition to address the two truly pressing challenges facing the country: the threat by Venezuela and managing the relationship with ExxonMobil.
In a visit here in March 2018, Mr Parrado, then International Finance Coordinator at Chile’s Ministry of Finance and who had helped build that country’s Sovereign Wealth Fund (SWF) had argued the need for consensual decisions on what is now Guyana’s Natural Resource Fund. Neither the APNU+AFC government nor the PPP/C government abided by that call.
He said that the government will also have to answer critical questions before the SWF is implemented.
“What is the right balance of spending versus saving? What type of saving? What are the spending priorities? What type of institutional arrangement for managing savings? What capabilities Guyana needs to implement a fiscal stabilisation agenda?”
Some of those questions remain and are ripe for institutional decisions that won’t be dismantled at elections.