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Guyana – Avoiding the Resource Curse

(By Wesley Gibbings) Guyana’s relatively robust economic growth within recent years contrasts sharply with the rising tide of economic uncertainty that greets its more influential neighbours on the eve of 2016.

Despite continued volatile conditions in world minerals markets and early stutters during the first two quarters of 2015, Guyana’s economic growth has been projected by the David Granger administration to reach the vicinity of 3.4% when the year’s figures are eventually tabulated.

Positive revenue projections over the medium term linked to Exxon Mobil’s oil and natural gas finds can be expected to be accompanied by associated foreign direct investment in this new, emerging sector that has the potential to change the country’s economic prospects over the long term – provided due care and attention are observed.

The country would do well to follow neighbourhood developments beyond all its borders. In Venezuela, for example, what some scribes have labelled “the resource curse” is properly enshrined with projections for continued, precipitous decline.

This is despite the good fortunes that accompanied the country’s extractive industries at the turn of the century to the extent that the helping hand extended via the ill-fated PetroCaribe arrangement involving many Caribbean Community (CARICOM) states was interpreted as a leveraging mechanism to engender geo-political solidarity with a renegade, pariah state. It is now unlikely that PetroCaribe will survive the current period of change.

The World Bank is predicting that Venezuela’s economy will contract by as much as 10% in 2015 amidst rapidly declining foreign reserves and rising inflation in the order of 159%. On December 6, the people of the Republic delivered a decisive electoral verdict on the Maduro administration’s inability to contain the steady decline.

One paper by Santiago Baruh and Miguel Salazar, Research Associates at the Council on Hemispheric Affairs (COHA), however suggests that the success of Venezuela’s Democratic Unity Roundtable (MUD) opposition alliance can bring even more “murky” relations between Caracas and Georgetown including more aggressive territorial claims and declining support for already-threatened PetroCaribe arrangements.

The situation at the other border with Brazil does not also offer the most encouraging scenario. Sluggish growth during President Dilma Rousseff’s first term from 2011 to 2014 was met by even more tepid conditions during 2015, despite increased public spending and continued social sector support. Plunging oil prices remained the single leading cause of the decline – the “resource curse” all over again.

The prognosis for more challenging times led to opposition-inspired impeachment proceedings fueled by the claim that the embattled president had broken fiscal laws by using funds from state-run banks to fill budget gaps. The move was overturned by the country’s Supreme Court in December, but the administration remains hard-pressed to convince citizens that everything is under control.

The recent replacement of Rousseff’s finance minister has also done little to assuage fears that there will be any loosening of the government’s austerity programme to combat declining national revenues. In fact, her chief of staff, Jaques Wagner, has been quoted as saying that the change of minister “does not mean an end to fiscal adjustment.”

There is every indication that the country will continue to confront recessionary conditions that have brought the Real under pressure and created conditions that portend economic decline in 2015 in the order of 3%, according to the International Monetary Fund.

Across the sea, but in the region, the Trinidad and Tobago economy registered four consecutive quarters of decline with the Central Bank governor announcing recessionary conditions – a declaration that led to considerable public debate including a call for his resignation or dismissal.

There is little doubt, though, that declining oil prices and unfavourable market conditions for natural gas have dramatically changed the environment for continued stability in the twin-island state and that the economy is indeed in confirmed decline. Much like Rousseff in Brazil, the recently-dismissed Kamla Persad-Bissessar administration presided over anomalous expenditure increases against the backdrop of declining national revenues.

Installed following a September 7 election, the Keith Rowley administration promptly signaled the advent of a period of economic austerity.

It would be difficult not to contextualise Guyana’s social and economic fortunes without reference to the challenges of those neighbours and friends to whom its navel string is inextricably attached.

Though Suriname has apparently escaped the worst effects of heavy reliance on its extractive industries, the “resource curse” always looms large, addressed only by aggressive efforts to diversify its economic base.

Like its smaller neighbour to the east, Guyana would do well to focus on alternative platforms for economic growth even as it keeps a keen and optimistic eye on the oil and gas platforms to be erected in the Atlantic.

Unlike its other influential neighbours, it would do well to more studiously estimate the challenges as well as the opportunities resource-led wealth can bring.

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