There has been a slew of articles in the local press about the downside of countries accepting massive loans from China to build local infrastructure, which also fit into the latter’s strategic “Belt and Road Initiative” (BRI) , which is designed to facilitate their strategic economic and political goals.
The downside is that, when the borrowing countries cannot repay the loans and default, they may be forced to take the extreme step of transferring ownership or control of the developed asset. The instance of Sri Lanka giving up control of their Chinese-funded billion-dollar port of Hambantota via a 99-year lease to that country is always cited.
Fears of Guyana becoming snared in this “debt trap” and losing sovereignty over its assets were raised with President David Granger at his press conference, in light of his Government signing a Memorandum of Understanding with China on their BRI. He explained that Guyana is in dire need of infrastructural development, which has to be funded; but that he is proceeding with “his eyes open”.
Guyanese, he insisted, should have nothing to fear. This sounds reasonable, since one would assume that countries such as Guyana, which were former colonies of imperial states for centuries – into the 1960s even! – and then getting ensnared into neo-colonial relationships during the Cold War between the US and USSR, would have their antennae up for new exploitative relationships in the international arena.
But yet it has happened, and will happen; and not only with China. President Granger cited the present travails of Argentina with debt, and noted that Chinese funding is not a factor there. But he did not have to go so far for his example. Not only as a historian, but as an individual who was quite involved at a high level in the state, he would know that the PNC Government under Burnham accumulated debt from Western countries and multilateral lending institutions to such an extent during the 1970s that when he could not repay, Guyana became officially bankrupt.
At the time, other countries in the same situation were forced into “debt for equity” swaps that were even worse that the cited Sri Lanka example with China, since the entities taking over the assets actually assumed complete ownership.
Evidently, there was no Guyanese asset that the lenders found attractive to make swaps, and eventually President Bharrat Jagdeo had to lead a Herculean effort after 1992 to have the inherited US$2.1 billion debt written off.
President Granger should conduct a historical of what caused such a massive debt pile-up.
Presently there are frequent references to the “Chinese loan” that was used to build the Skeldon Sugar Factory as illustrating what could “go wrong” with accepting BRI loans. Firstly, this was not a BRI loan, but one that was intended to bring down the price of sugar so that the savings generated could easily repay the concessional US$32 million loan (not US$200 million touted) from the Exim Bank of China with a repayment period of 20 years, a grace period of five years, and a two per cent annual interest rate.
This is fundamentally the approach that must be taken when taking any loan, but as the Skeldon Modernisation showed, President Granger cannot just assume that because he “has his eyes open”, Guyana is out of the woods with future debt problems. The reason for Skeldon’s failure was the selection of the Chinese contractor — Chinese National Technical and Industrial Corporation (CNTIC) — to build the factory. That Booker Tate, the contracted foreign managers of GuySuCo; the World Bank, which also loaned US$56 million; and the CDB, with US$24 million, went along with the decision demonstrate that “the best laid plans of mice and men oft go awry”, even when their eyes are open.
The added challenge of infrastructural investments, such as the bridge across the Essequibo River that President Granger feels in absolutely needed, is that, generally, the revenues generated directly are insufficient to service the large loans necessary.
He cannot be complacent
