With the parties contesting the Sept 1 General Elections submitting their lists of candidates with GECOM today, they should soon be issuing their manifestos outlining their plans for developing our country and its citizens. With oil revenues continuing to rise with our production slated to surpass 1 million barrels per day (1Mbpd), the party assuming the government following these elections will, for the first time in our history, possess the wherewithal to finance any serious development plan based on solid economic fundamentals.
The PPP/C government, as is its tradition, has been spending the oil revenues over the past five years in accordance to its manifesto programme. However, we have been particularly disappointed with the opposition insisting only on increasingly impractical populist programs. There are no critiques of the macro-economic fundamentals that undergird the PPP/C’s spending – which have been based on building infrastructure that is a threshold issue in any successful development plan. Does this mean they agree with those policies? Then maybe they ought to say so. By avoiding any systematic analysis and critique of the present model, the opposition unavoidably ends up with intractable contradictions – as VP Jagdeo pointed out recently – where their suggested cash transfers would soon exceed even the expected increase in oil revenues.
For instance, if they want to be original, they might, say, justify their spending more than our expected future based on some premises of Modern Monetary Theory (MMT). MMTers make the claim that the government budget should not be subject to any sort of arbitrary balancing constraint. Instead they advocate that the government budget-balance should be conceived of strictly from the point-of-view of real economic variables. Thus, if there is unemployment, the budget should be unbalanced, while if there is high inflation due to output capacity being outpaced by demand the budget should be moved closer to balance or even, in certain cases, into surplus. One theorist refer to this approach as ‘functional finance’.
The MMTers hold that a government that issues its own currency (fiat currency) not backed by gold or any asset) and allows their exchange rate to float is not subject to any budgetary constraints. They can essentially issue new money – together with government bonds, if they so wish – until they begin to see inflation. Inflation, then, is the only real constraint to a government that issues its own currency and maintains a floating exchange rate. Now while most of us may have serious reservations about this approach, at least it would suggest that the opposition has put some thought into their populist proposals and do not just expect Guyanese to vote for them by promising to deliver utopia.
What to do? The PPP/C government is using its fiscal policies to guide domestic investment decisions and ensure that the some of the goods and services people desire as their incomes rise, are produced at home rather than abroad, to create a virtuous circle of rising employment, incomes and taxes. For instance, governmental (dirigisme) intervention within an industrial policy – as in the gas-to-energy (GtE) project and the intermediate savannah crops already in the pipeline – is a workable method of economic development. The GtE project will not only be generating electricity at 50% of the present cost and catalyse new factories but can use the natural gas to manufacture urea that is needed in our agricultural sector.
Such a policy allows markets to continue to function but at the same time strategically encourages investment into needed channels quickly and effectively. It does all this without the need for complex bureaucracies. All that is needed are good researchers and planners and a government willing to incentivise investment that serves the public purpose. Sadly the opposition criticise this approach and complain that entrepreneurs will be making money; not that there will be a virtuous circle created.
They would rather focus on handouts that will leave us bankrupt even before the oil runs out.
