Feb 02, 2017
Thirty years ago, the Guyana dollar was officially devalued from US$1= G$ 4.40 to US$1 = to G$ 10. The dollar was trading on the parallel market at US$ 1 = G$ 20.
The Guyanese people screamed that “10 to one was murder.” The PNC government described the Budget in which the devaluation featured as “bold and purposeful”.
In response to the concerns that the devaluation of the Guyana dollar would lead to hardships, the government announced that the Budget contained a number of tax measures which would cushion that effect.
The 10 to one devaluation of 1987 did not bring relief to the working class. It added more pressure to the already suffering working poor. Things got real “rough” for the working class.
The 10 to one devaluation of 1987, thirty years ago, commenced the neo-liberal economic experiment in Guyana. Some people have tried to rebrand it as an economic recovery programme. But for the working poor, this was no recovery.
The so called ERP battered the working class, widened the gap between the rich and the poor and caused a collapse of the artisan economy which had sprung up as a result of the restrictions on foreign exchange and imports.
The tax measures did not bring any appreciable relief. It cut deeper into the working man’s pockets because imports skyrocketed and since very little was being produced locally, it meant that inflation soared in the first five years of the launch of neo-liberalism in Guyana.
The formal exchange rate continued to chase the rate on the underground market. By 1992, a US dollar was trading for 126 Guyana dollars.
The Guyana economy is now much stronger than it was in 1987. The economy has been growing for eleven straight years. There are problems though. Last year, growth was almost exclusively due to one commodity, gold. If golf prices drop tomorrow Guyana’s economy can go into a tailspin.
But the economy is strong enough to not collapse. Guyana now has a much stronger economy to withstand the decline of its traditional sectors as we saw last year. Rice declined, construction declined, sugar continued its free fall, timber declined and other agriculture trundled along.
The economy will not collapse but the poor can be hurt just as they were thirty years ago. History is repeating itself.
The government is hoping that taxes will make a difference. It has instituted a series of tax reforms. These measures are adding to the burdens of the small man. Their effects will inevitably be passed on to the small man.
There has been a slight devaluation of the Guyana dollar caused mainly by widening spreads between the buying rates and selling rates for foreign currency at banks and cambios.
The focus of Budget 2017 was cockeyed. Tax reforms should have been secondary to an economic stimulus. It will not stimulate the sectors which have been failing. It will not increase production in rice, sugar, timber, livestock and other agriculture. Increased taxes will only exacerbate the problems in the economy. It will hurt the poor man because the rich man will pass on the burden of the tax to the consumers.
The neoliberal model of economic development failed Guyana thirty years ago. It will fail Guyana again. It is not suited to help redress inequality in Guyana. Instead the rich will get richer and the poor will get poorer.
The present government is sticking with neoliberal economics. It has good reason to do so. Its critics are not offering an alternative to neo-liberal economics. And the government no doubt believes that the best way to transfer wealth from the rich to the poor is to tax the hell out of both the rich and the poor and then have the government dole out apartments, condominiums and social security benefits to those whom its wishes to help. The government is mixing neo-liberal policies with an enlarged welfare state.
This is a recipe for disaster. You cannot have an enlarged social programme on a shoestring Budget. The expanding bureaucracy, the high capital spending, the wasteful expenditure on projects such as Durban Park and the Sussex Street Bond can only be funded through revenues which are derived from an expanded economic base. You cannot overtax the present base without invoking sooner the law of diminishing returns.
Reducing VAT by 2% cannot stimulate economic activity. Reducing VAT will not stimulate production. VAT is a tax on consumption. Reducing VAT, all other things being equal, will increase consumption which if not matched by increased production will lead to higher prices and increased inflation.
Those were the lessons Guyana learnt thirty years ago. Yet we are making the same mistakes all over again.